| Basis of Presentation and Significant Accounting Policies | 2. Basis of Presentation and Significant Accounting Policies.
a. INTERIM FINANCIAL STATEMENTS. 10-Q In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of the dates and for the periods presented. Accordingly, these consolidated statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021 included in the 2021 Annual Report on Form 10-K
b. PRINCIPLES OF CONSOLIDATION.
c. USE OF ESTIMATES.
d. CASH AND CASH EQUIVALENTS.
e. INVESTMENTS. The U.S. Treasuries held at September 30, 2022 are classified as available-for-sale non-current non-current The Company records available-for-sale in the consolidated statements of operations and comprehensive income, available-for-sale available-for-sale available-for-sale
f. ACCOUNTS RECEIVABLE, NET.
g. INVENTORY Products that have been approved by the FDA or other regulatory authorities, such as FIRDAPSE®, are also used in clinical programs to assess the safety and efficacy of the products for usage in treating diseases that have not been approved by the FDA or other regulatory authorities. The form of FIRDAPSE® utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined in authoritative guidance. Raw materials associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”. The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance, and patient usage.
h. PREPAID EXPENSES AND OTHER CURRENT ASSETS. pre-clinical
i. PROPERTY AND EQUIPMENT, NET. three five five
j. INTANGIBLE ASSETS, NET. The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are deemed not recoverable, the Company would estimate the fair value of the assets and record an impairment loss. There were no impairment charges recognized on finite lived intangibles for the three or nine months ended September 30, 2022. There were no finite lived intangible assets at December 31, 2021.
k. FAIR VALUE OF FINANCIAL INSTRUMENTS.
l. FAIR VALUE MEASUREMENTS. Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Fair Value Measurements at Reporting Date Using (in thousands)
Balances as of Quoted Prices in Significant Other Significant
Cash and cash equivalents:
Money market funds $ 10,336 $ 10,336 $ — $ —
U.S. Treasuries $ 227,349 $ 227,349 $ — $ —
Balances as of Quoted Prices in Significant Other Significant
Cash and cash equivalents:
Money market funds $ 10,990 $ 10,990 $ — $ —
U.S. Treasuries $ 140,995 $ 140,995 $ — $ —
Short-term investments:
Short-term bond funds $ 19,821 $ 19,821 $ — $ —
m. OPERATING LEASES. right-of-use non-lease
n. SHARE REPURCHASES. The Company accounts for share repurchases by charging the excess of the repurchase price over the repurchased common stock’s par value entirely to retained earnings (accumulated deficit). All repurchased shares are retired and become authorized but unissued shares. The Company accrues for the shares purchased under the share repurchase plan based on the trade date. The Company may terminate or modify its share repurchase program at any time.
o. REVENUE RECOGNITION. Product Revenues: The Company recognizes revenue when its customer obtains title of the promised goods, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods. Subsequent to receiving FDA approval, the Company entered into an arrangement with one distributor (the “Customer”), which is the exclusive distributor of FIRDAPSE® in the United States. The Customer subsequently resells FIRDAPSE® to a small group of exclusive specialty pharmacies (“SPs”) whose dispensing activities for patients with specific payors may result in government-mandated or privately negotiated rebate obligations for the Company with respect to the purchase of FIRDAPSE®. To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers (“Topic 606”), the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company assesses the goods or services promised within each contract and determines those that are performance obligations by assessing whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for product revenue, see Product Revenue, Net below. The Company also may generate revenues from payments received under collaborative and license agreements. Collaborative and license agreement payments may include nonrefundable fees at the inception of the agreements, contingent payments for specific achievements designated in the agreements, and/or net profit-sharing payments on sales of products resulting from the collaborative and license arrangements. For a complete discussion of accounting for collaborative and licensing arrangements, see Revenues from Collaboration and Licensing Arrangements below. Product Revenue, Net: The Company recognizes revenue on product sales when the Customer obtains control of the Company’s product, which occurs at a point in time (upon delivery or upon dispense to patient). Product revenue is recorded net of applicable reserves for variable consideration, including discounts and allowances. The Company’s payment terms range between 15 and 30 days. Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods and are recorded in cost of sales. If taxes should be collected from the Customer relating to product sales and remitted to governmental authorities, they will be excluded from revenue. The Company expenses incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less. However, no such costs were incurred during the three and nine months ended September 30, 2022 and 2021. During the three and nine months ended September 30, 2022 and 2021, principally all of the Company’s sales of FIRDAPSE® in the United States were to its Customer. Reserves for Variable Consideration: These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplates application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of September 30, 2022 and, therefore, the transaction price was not reduced further during the three and nine months ended September 30, 2022 and 2021. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Trade Discounts and Allowances: Prompt Payment Discounts: Funded Co-pay Assistance Program: Product Returns: Provider Chargebacks and Discounts: Government Rebates: The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period. Bridge and Patient Assistance Programs: Revenues from Collaboration and Licensing Arrangements: The Company analyzes license and collaboration arrangements pursuant to FASB ASC Topic 808, Collaborative Arrangement Guidance and Consideration, (“Topic 808”) to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, the Company considers whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement guidance or if they are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For elements of collaboration arrangements that are not accounted for pursuant to guidance in Topic 606, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance. The Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. The agreements provide for milestone payments upon achievement of development and regulatory events. The Company accounts for milestone payments as variable consideration in accordance with Topic 606. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential transaction price and the likelihood that the transaction price will be received. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and, if so, these options are considered performance obligations. After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the overall transaction price is allocated to the performance obligations based on the same methodology used at contract inception. The Company recognizes sales-based royalties or net profit-sharing when the later of (a) the subsequent sale occurs, or (b) the performance obligation to which the sales-based royalty or net profit-sharing has been allocated has been satisfied. Payments to and from the collaborator are presented in the statement of operations based on the nature of the Company’s business operations, the nature of the arrangement, including the contractual terms, and the nature of the payments. Refer to Note 11 (Collaborative and Licensing Arrangements), for further discussion on the Company’s collaborative and licensing arrangements.
p. RESEARCH AND DEVELOPMENT.
q. ADVERTISING EXPENSE. In connection with the FDA approval and commercial launch of FIRDAPSE® in 2019, the Company began to incur advertising costs. Advertising costs are expensed as incurred. The C
r. STOCK-BASED COMPENSATION. one
s. CONCENTRATION OF RISK. The Company sells its product in the United States through an exclusive distributor (its Customer) to SPs. Therefore, its distributor and SPs account for principally all of its trade receivables and net product revenues. The creditworthiness of its Customer is continuously monitored, and the Company has internal policies regarding customer credit limits. The Company estimates an allowance for expected credit loss primarily based on the credit worthiness of its Customer, historical payment patterns, aging of receivable balances and general economic conditions. The Company currently has a single product, which makes it difficult to evaluate its current business, predict its future prospects, and forecast financial performance and growth. The Company has invested a significant portion of its efforts and financial resources in the development and commercialization of the lead product, FIRDAPSE®, and expects FIRDAPSE® to constitute virtually all of product revenue for the foreseeable future. The Company’s success depends on its ability to continue to effectively commercialize FIRDAPSE®. The Company relies exclusively on third parties to formulate and manufacture FIRDAPSE® and its drug candidates. The commercialization of FIRDAPSE® and any other drug candidates, if approved, could be stopped, delayed or made less profitable if those third parties fail to provide sufficient quantities of product or fail to do so at acceptable quality levels or prices. The Company does not intend to establish its own manufacturing facilities. The Company is using the same third-party contractors to manufacture, supply, store and distribute drug supplies for clinical trials and for the commercialization of FIRDAPSE®. If the Company is unable to continue its relationships with one or more of these third-party contractors, it could experience delays in the development or commercialization efforts as it locates and qualifies new manufacturers. The Company intends to rely on one or more third-party contractors to manufacture the commercial supply of its drugs.
t. ROYALTIES.
u. INCOME TAXES. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not
v. COMPREHENSIVE INCOME. available-for-sale
w. NET INCOME PER COMMON SHARE. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period. The following table reconciles basic and diluted weighted average common shares:
For the Three Months Ended For the Nine Months Ended
2022 2021 2022 2021
Basic weighted average common shares outstanding 103,318,572 103,196,550 102,967,280 103,470,762
Effect of dilutive securities 8,667,453 4,646,646 7,384,934 4,005,413
Diluted weighted average common shares outstanding 111,986,025 107,843,196 110,352,214 107,476,175
Outstanding common stock equivalents totaling approximately 12 thousand and 1.7 million, respectively, were excluded from the calculation of diluted net income per common share for both the three and nine months ended September 30, 2022, as their effect would be anti-dilutive. For the three and nine months ended September 30, 2021, approximately 2.6 million and 5.3 million shares, respectively, of common stock were excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.
x. RECLASSIFICATIONS.
y. RECENTLY ISSUED ACCOUNTING STANDARDS. |
