Information Relating to Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Report") includes forward-looking
statements. Such statements are not historical facts, but are based on our
current expectations, estimates and beliefs about our business and industry.
Such forward-looking statements may include, without limitation, statements
about our strategies, objectives and our future achievements; our expectations
for growth; estimates of future revenue; our sources and uses of cash; our
liquidity needs; our current or planned clinical trials or research and
development activities; anticipated completion dates for clinical trials;
product development timelines; anticipated dates for commercial introduction of
products; our future products; regulatory matters; our expectations concerning
the timing of regulatory approvals; anticipated dates for meetings with
regulatory authorities and submissions to obtain required regulatory marketing
approvals; expense, profit, cash flow, or balance sheet items or any other
guidance regarding future periods; and other statements concerning our future
operations and activities. Such forward-looking statements include those
that express plans, anticipation, intent, contingencies, goals, targets or
future development and/or otherwise are not statements of historical fact.
These forward-looking statements are based on our current expectations and
projections about future events, and they are subject to risks and
uncertainties, known and unknown, that could cause actual results and
developments to differ materially from those expressed or implied in such
statements. In some cases, you can identify forward-looking statements by
terminology, such as "believe," "will," "expect," "may," "anticipate,"
"estimate," "intend," "plan," "should," and "would," or the negative of such
terms or other similar expressions. Any forward-looking statements are qualified
in their entirety by reference to the factors discussed throughout this
Report. These forward-looking statements are not guarantees of future
performance and concern matters that could subsequently differ materially from
those described in the forward-looking statements. Actual events or results may
differ materially from those discussed in this Report. In addition, many
forward-looking statements concerning our anticipated future business activities
assume that we are able to obtain sufficient funding in the near term and
thereafter to support such activities and continue our operations and planned
activities. As discussed elsewhere in this Report, we will require additional
funding during 2021 to continue operations, and there are no assurances that
such funding will be available. Failure to timely obtain required funding would
adversely affect and could delay or prevent our ability to realize the results
contemplated by such forward-looking statements. New factors emerge from time to
time, and it is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Because factors referred to elsewhere in this Report and in our Annual Report on
Form 10-K for the year ended December 31, 2019 (sometimes referred to as the
"2019 Form 10-K") that we previously filed with the Securities and Exchange
Commission, including without limitation the "Risk Factors" section in this
Report and in the 2019 Form 10-K, could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, you should not place undue reliance on any forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is
made, and except as may be required by applicable law, we undertake no
obligation to release publicly the results of any revisions to these
forward-looking statements or to reflect events or circumstances arising after
the date of this Report. Important risks and factors that could cause actual
results to differ materially from those in these forward-looking statements are
disclosed in this Report including, without limitation, under the headings "Part
II, Item 1A. Risk Factors," and "Part I, Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in our 2019 Form
10-K, including, without limitation, under the headings "Part I, Item 1A. Risk
Factors," "Part I, Item 1. Business," and "Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as in our subsequent filings with the Securities and Exchange Commission,
press releases and other communications.
Unless the context otherwise requires, the terms "we," "our," and "the Company"
refer to Adamis Pharmaceuticals Corporation, a Delaware corporation, and its
subsidiaries.
General
Company Overview
We are a specialty biopharmaceutical company focused on developing and
commercializing products in various therapeutic areas, including allergy, opioid
overdose, respiratory and inflammatory disease. Our products and product
candidates in the allergy, respiratory, and opioid overdose markets include:
SYMJEPI (epinephrine) Injection 0.3mg, which was approved by the U.S. Food and
Drug Administration, or FDA, in 2017 for use in the emergency treatment of acute
allergic reactions, including anaphylaxis, for patients weighing 66 pounds or
more; SYMJEPI (epinephrine) Injection 0.15mg which was approved by the FDA in
September 2018, for use in the treatment of anaphylaxis for patients weighing
33-65 pounds; a naloxone injection product candidate ("ZIMHI") based on the
approved Symject™ injection device and intended for the treatment of opioid
overdose for which the company submitted a New Drug Application, or NDA, in
December 2018 and with respect to which the company received a Complete Response
Letter, or CRL, from the FDA in November 2019 and responded to the CRL and
resubmitted its NDA to the FDA in May 2020; a Beclomethasone metered dose
inhaler product candidate (APC-1000) intended for the treatment of asthma for
which the company submitted an Investigational New Drug application, or IND, in
January 2018 and initiated the start-up phase of Phase 3 studies which were
suspended; and a fluticasone (APC-4000) dry powder inhaler, or DPI, product
candidate for the treatment of asthma. In June 2020, we entered into a license
agreement with a third party to license rights under patents, patent
applications and related know-how relating to Tempol, an investigational drug.
The exclusive license includes the worldwide use under the licensed patent
rights and related rights for the fields of COVID-19 infection, asthma,
respiratory syncytial virus infection, and influenza infection, as well as the
use of Tempol as a therapeutic for reducing radiation-induced dermatitis in
patients undergoing treatment for cancer. Our goal is to create low cost
therapeutic alternatives to existing treatments. Consistent across all specialty
pharmaceuticals product lines, we intend to submit NDAs under Section 505(b)(2),
of the U.S. Food, Drug & Cosmetic Act, as amended, or FDCA, or Section 505(j)
Abbreviated New Drug Applications, or ANDAs, to the FDA, whenever possible, in
order to potentially reduce the time to market and to save on costs, compared to
those associated with Section 505(b)(1) NDAs for new drug products.
Our U.S. Compounding, Inc., subsidiary, or USC, which we acquired in April 2016
and which is registered as a drug compounding outsourcing facility under Section
503B of the FDCA and the U.S. Drug Quality and Security Act, or DQSA, provides
compounded sterile prescription medications and certain nonsterile preparations
and compounds, for human and veterinary use by patients, physician clinics,
hospitals, surgery centers, vet clinics and other clients throughout most of the
United States. USC's product offerings broadly include, among others,
corticosteroids, hormone replacement therapies, hospital outsourcing products,
and injectables. USC's compounded formulations in many circumstances are offered
as alternatives to drugs approved by the FDA.
Commencing April 1, 2020, we transitioned from one reporting segment to two
segments. From April 2020, we will manage our operations through two business
segments: Drug Development and Commercialization, which includes without
limitation the out-licensing the Company's FDA approved products; and Compounded
Pharmaceuticals, which includes the Company's registered outsourcing facility.
Information regarding revenue and operating income attributable to each of our
businesses is included within Note 13 - Segment Information of the Notes to
Condensed Consolidated Financial Statements included elsewhere in this Quarterly
Report on Form 10-Q.
25
SYMJEPI (epinephrine) Injection
On June 15, 2017, the FDA approved the company's SYMJEPI (epinephrine) Injection
0.3mg product for the emergency treatment of allergic reactions (Type I)
including anaphylaxis. SYMJEPI (epinephrine) Injection 0.3mg is intended to
deliver a dose of epinephrine, which is used for emergency, immediate
administration in acute anaphylactic reactions to insect stings or bites,
allergic reaction to certain foods, drugs and other allergens, as well as
idiopathic or exercise-induced anaphylaxis for patients weighing 66 pounds or
more.
On September 27, 2018, FDA approved our lower dose SYMJEPI (epinephrine)
Injection 0.15mg, for the emergency treatment of allergic reactions (Type I)
including anaphylaxis in patients weighing 33 to 65 pounds.
Our SYMJEPI (epinephrine) Injection 0.15mg and 0.3mg products allow users to
administer a pre-measured epinephrine dose quickly with a device that we
believe, based on human factors studies, to be intuitive to use. If the person
using the auto-injector is not familiar with the function of the device and if
not administered properly, there is a risk that it could misfire or be misused.
In July 2018, we entered into a Distribution and Commercialization Agreement
with Sandoz Inc. (the "Sandoz Agreement") to commercialize both of our SYMJEPI
products. Under the terms of the agreement, we appointed Sandoz as the exclusive
distributor of SYMJEPI in the United States and related territories, or the
Sandoz Territory, in all fields including both the retail market and other
markets, and granted Sandoz an exclusive license under our patent and other
intellectual property rights and know-how to market, sell, and otherwise
commercialize and distribute the product in the Sandoz Territory, subject to the
provisions of the agreement, in partial consideration of an upfront fee by
Sandoz and potential performance-based milestone payments. In January 2019, we
announced that Sandoz had launched SYMJEPI (epinephrine) 0.3 mg Injection in the
U.S. market, initially available in the institutional setting. On July 9, 2019,
we announced the full launch (institutional and retail) by Sandoz of both dose
forms of the SYMJEPI injection products.
On May 11, 2020, we announced that we entered into an agreement (the
"Termination Agreement") with Sandoz Inc. to terminate the Sandoz Agreement
following an initial transition period that ended as a result of the execution
of a transition services agreement. The Termination Agreement provided for the
mutually agreed return to Adamis of the marketing, promotion, and distribution
rights, and certain marketing and promotional materials, relating to the SYMJEPI
products, and the termination of the Sandoz Agreement, supported by a transition
services agreement that we entered into with Sandoz and USWM, LLC ("USWM" or "US
WorldMeds") concerning certain transition services, activities and arrangements
relating to the SYMJEPI products. As part of the Termination Agreement, Sandoz
continued to support the products in the U.S. under the Sandoz Agreement through
the end of the transition period to help reduce or minimize potential impacts to
patients and customers. The Termination Agreement also provided for a future
resolution of any amounts that may be payable or owed with respect to the net
sales and profit sharing provisions of the Sandoz Agreement, and for survival of
certain provisions of the Sandoz Agreement. Following the end of the transition
term and termination of the transition services agreement on October 31, 2020,
on November 1, 2020, USWM began distributing the SYMJEPI products with USWM's
labeling.
Also on May 11, 2020, we announced that we entered into an exclusive
distribution and commercialization agreement (the "USWM Agreement") with USWM
for the United States commercial rights for the SYMJEPI products, as well as for
the Company's ZIMHI™ (naloxone HCI Injection, USP) 5mg/0.5mL product candidate
intended for the emergency treatment of opioid overdose.
Under the terms of the USWM Agreement, we appointed USWM as the exclusive
distributor of Symjepi in the United States and related territories, or the
Territory, effective upon the termination of the Sandoz Agreement, and of the
ZIMHI product if approved by the FDA for marketing, and granted USWM an
exclusive license under our patent and other intellectual property rights and
know-how to market, sell, and otherwise commercialize and distribute the
products in the Territory, subject to the provisions of the USWM Agreement, in
partial consideration of an initial payment by USWM and potential regulatory and
commercial based milestone payments totaling up to $26 million, if the
milestones are achieved. There can be no assurances that any of these milestones
will be met or that any milestone payments will be paid to us. We retain rights
to the intellectual property subject to the USWM Agreement and to commercialize
both products outside of the Territory. In addition, we may continue to use the
licensed intellectual property (excluding certain of the licensed trademarks) to
develop and commercialize other products (with certain exceptions), including
products that utilize our Symject™ syringe product platform.
The USWM Agreement provides that, subject to certain adjustments, USWM will pay
to us 50% of the net profit from net sales, as each such term is defined in the
USWM Agreement, of the product in the Territory to third parties, determined on
a quarterly basis. We will be the supplier of the products to USWM, and USWM
will order and pay us a supply price for quantities of products ordered.
ZIMHI (naloxone) Injection
Naloxone is an opioid antagonist used to treat narcotic overdoses. Naloxone,
which is generally considered the drug of choice for immediate administration
for opioid overdose, blocks or reverses the effects of the opioid, including
extreme drowsiness, slowed breathing, or loss of consciousness. Common opioids
include morphine, heroin, tramadol, oxycodone, hydrocodone and fentanyl.
On December 31, 2018, we filed an NDA with the FDA relating to our higher dose
naloxone injection product, ZIMHI, for the treatment of opioid overdose. On
November 22, 2019, we received a Complete Response Letter, or CRL, from the FDA
regarding our NDA for ZIMHI. The CRL stated that the FDA determined that it
could not approve the NDA in its present form and provided recommendations
needed for resubmission. A CRL is issued by the FDA's Center for Drug Evaluation
and Research when it has completed its review of a file and questions remain
that preclude the approval of the NDA in its current form. The questions raised
by the FDA related generally to Chemistry, Manufacturing and Controls (CMC). No
other clinical safety or efficacy issues were raised. In December 2019, we
provided responses to the FDA to the comments included in the CRL. In February
2020, we had a Type A meeting with the FDA to discuss the company's response to
the CRL and the process and timeline for resubmission of the NDA to the FDA. At
the meeting, the company obtained concurrence from the agency on the Chemistry,
Manufacturing and Controls, or CMC, information required for resubmission of the
NDA, including additional information involving extractables and leachables
testing from the syringe and glassware. On May 15, 2020, the company resubmitted
to the FDA the NDA for ZIMHI. The resubmitted NDA was intended to address the
issues raised by the FDA in the CRL. The FDA has indicated that it considers the
company's resubmitted NDA as a complete, class 2 response to the CRL and has
provided a user fee goal date under the Prescription Drug User Fee Act, or
PDUFA, for a response by the FDA by November 15, 2020. However, the FDA's review
processes can extend beyond, and in some cases significantly beyond, anticipated
completion dates due to the timing of the FDA's review process, FDA requests for
additional data, information, materials or clarification, difficulties
scheduling an advisory committee meeting, FDA workload issues, extensions
resulting from the submission of additional information or clarification
regarding information already in the submission within the last three months of
the target PDUFA date, or other reasons. As a result, the dates FDA review and
action regarding our resubmitted NDA for ZIMHI or any other NDA that we may
resubmit, or of regulatory approval, if obtained, and commercial introduction of
our products could be delayed beyond our expectations. The development of an
intramuscular injection of naloxone for the treatment of opioid overdose will
require commercial scale manufacturing subject to review and approval by the
FDA.
On May 11, 2020, we entered into the USWM Agreement with USWM for the United
States commercial rights for the ZIMHI product candidate, as well as for the
SYMJEPI products.
26
Tempol (APC400)
On June 12, 2020, we entered into a license agreement with Matrix Biomed, Inc.,
or the Licensor, to license rights under patents, patent applications and
related know-how of Licensor relating to Tempol, an investigational drug. The
exclusive license includes the worldwide use under the licensed patent rights
and related rights of Tempol for the fields of COVID-19 infection, asthma,
respiratory syncytial virus infection, and influenza infection. In addition, the
exclusive license includes the use of Tempol as a therapeutic for reducing
radiation-induced dermatitis in patients undergoing treatment for cancer. In
consideration for the Licensor providing the rights under its patent rights and
related know-how relating to Tempol within the licensed fields, we paid Licensor
$250,000 and also issued to the Licensor 1,000,000 shares of our Series B
Convertible Preferred Stock, which has converted into an equal number of shares
of our common stock.
Tempol is a redox cycling nitroxide that promotes the metabolism of many
reactive oxygen species, or ROS, and improves nitric oxide bioavailability. It
has been studied extensively in animal models of oxidative stress and
inflammation. Overall, Tempol acts as both a super-oxide dismutase mimetic and
also has anti-inflammatory activity. Inflammation and oxidative stress occur in
various disease states including COVID-19. In July 2020, we submitted to the FDA
a pre-IND package which provided a detailed protocol for a Phase II/III study
examining Tempol in COVID-19 patients, and the FDA has provided comments
regarding the prospective use of Tempol in a randomized placebo controlled
trial. Preliminary results from a study in collaboration with Stanford
University showed that Tempol inhibited the release of multiple cytokines from
activated immune cells of COVID-19 patients. We continue to explore options for
government and other forms of funding to support additional testing of the
efficacy of Tempol as a therapeutic treatment for COVID-19, including applying
for funding pursuant to certain government and non-government programs, and
intend to proceed to the next step of preparing and submitting an IND to the FDA
for Tempol. We also continue to explore options regarding the funding and design
of a clinical study to examine the effects of Tempol for the treatment of
radiation induced dermatitis.
Asthma; APC-1000 Metered Dose Inhaler
Our APC-1000 product candidate is a steroid hydrofluoroalkane, or HFA, metered
dose inhaler product, intended for the treatment of asthma. In January 2018, we
submitted an IND application to the FDA to begin late-stage clinical studies to
evaluate the efficacy of APC-1000 as a treatment for asthma. We received
approval from the agency to proceed with the Phase 3 studies, and in December
2018, we initiated the start-up phase of the trial. However, we suspended the
studies prior to enrolling patients in light of, among other factors, the
availability of adequate funding to continue and complete the studies and
changes in market conditions and competitive developments in the relevant
markets. As of the date of this Report, we do not intend to resume the studies
and are not engaged in active product development efforts relating to this
product candidate.
27
Asthma; Fluticasone
In December 2013, we acquired assets relating to 3M's patented Taper dry powder
inhaler (DPI) technology under development by 3M for the treatment of asthma and
bronchospasm. The DPI technology was designed to efficiently deliver dry powder
by utilizing a 3M proprietary microstructured carrier tape. We are utilizing the
acquired assets to develop the DPI device. We believe that, if successfully
developed, the device can be utilized to deliver a variety of different drug
compounds and be used as a platform delivery device to develop products that
will compete in the respiratory markets, which may include combination products.
Our agreement with 3M contemplates that the microstructured carrier tape will be
supplied by 3M under a separate commercial supply agreement to be negotiated
with 3M.
Our first product candidate utilizing the DPI technology platform, APC-4000,
would deliver Fluticasone Propionate (fluticasone) as a dry powder formulation
for the treatment of asthma. Fluticasone belongs to the family of medicines
known as corticosteroids or steroids and is the same active ingredient as
GlaxoSmithKline's Flovent® Diskus® indicated for the treatment of asthma. . We
estimate that Flovent® Diskus® generated more than $469 million in U.S. sales
and $802 million in global sales in 2019, based on GSK's publicly announced
results. We conducted proof of concept studies with the DPI for APC-4000 in 2018
and 2019 which demonstrated that the device functioned as designed. We believe
that next steps in development would include the creation of a commercial-ready
manufacturing line and, from devices manufactured on the new line, the conduct
of one or more Phase 3 trials, which might include additional trials such as
pharmacokinetic or other studies before or in connection with any Phase 3
trials, designed to generate sufficient data to support a New Drug Application.
In considering future development and commercialization alternatives for
APC-4000, we may consider a number of factors including without limitation the
availability of adequate funding, the expense of subsequent product development,
studies and trials, the development, clinical trial and regulatory pathway for
the product candidate, and commercial and competitive developments in the
relevant markets. In light of these considerations, as of the date of this
Report we are not engaged in active product development of APC-4000 at this
time. However, we may seek to enter into development or commercialization
agreements, license agreements, or other strategic agreements with third parties
relating to development, commercialization and marketing of this product
candidate.
Our development plans concerning our allergy and respiratory products, including
APC-1000 and APC-4000, and our other product candidates, are affected by
developments in the marketplace, including the introduction of potentially
competing new products by our competitors. Product development activities and
the timing of enrollment for, and the pace of conduct, progress, and completion
of, studies relating to our product candidates, and our decisions concerning
such matters, including whether to continue, resume or terminate product
development efforts, are affected by a number of factors, including without
limitation the availability of adequate funding, the absence of unexpected
regulatory issues or delays, the time period required to enroll a sufficient
number of patients in the study, the time required to complete and analyze the
results of the studies, the anticipated expenses involved in product development
and clinical trials, and commercial and competitive developments in the relevant
markets. As a result, our product development plans could be affected by such
considerations. The anticipated dates for development and introduction of
products in our product pipeline will depend on a number of factors, including
the availability of adequate funding to support product development efforts, the
regulatory pathway for the product and, should we choose to seek
commercialization partners for one or more of our products or product
candidates, our success in negotiating and entering into development or
commercialization agreements relating to our products. We believe that should we
decide to pursue such applications, we would be required to submit data for an
application for approval to market APC-1000 and APC-4000 pursuant to Section
505(b)(2) of the FDCA, although there are no assurances that this will be the
case. In considering development and commercialization alternatives for our
products and product candidates and technologies, we may seek to enter into
development or commercialization agreements, license agreements, or other
strategic agreements with third parties relating to development,
commercialization and marketing of one or more of our products or product
candidates. We currently have no in-house manufacturing capabilities, and as a
result we intend to rely on third-party contract manufacturers to manufacture
the materials needed for our clinical trials, products and product candidates.
Factors that could affect the development and launch dates for our products and
product candidates include general market conditions, the outcome of discussions
with the FDA concerning the regulatory approval pathway of the applicable
product candidate including the number and kind of clinical trials that the FDA
will require before the FDA will consider regulatory approval of the applicable
product, any unexpected difficulties in licensing or sublicensing intellectual
property rights that may be required for other components of the product, patent
infringement lawsuits relating to Paragraph IV certifications as part of any
Section 505(b)(2) or ANDA filings, any unexpected difficulties in the ability of
our suppliers to timely supply quantities for commercial launch of the product,
any unexpected delays or difficulties in assembling and deploying an adequate
sales force to market the product, and receipt of adequate funding to support
product development and sales and marketing efforts. As discussed elsewhere in
this Report, we will require additional funding in 2021 to continue all of our
anticipated product development activities, and product development times are
subject to a number of risks and uncertainties, which can delay the actual
development time beyond our estimates.
Going Concern and Management's Plan
The financial statements included elsewhere herein for the three and nine months
ended September 30, 2020, and our financial statements for the year ended
December 31, 2019 and 2018, were prepared under the assumption that we would
continue our operations as a going concern, which contemplates the realization
of assets and the satisfaction of liabilities during the normal course of
business. However, as of September 30, 2020, we had cash and cash equivalents of
approximately $12.4 million, an accumulated deficit of approximately $211.3
million, and liabilities of approximately $16.5 million. We have incurred
substantial recurring losses from operations, have used, rather than provided,
cash in our continuing operations, and are dependent on additional financing to
fund operations. These conditions raise substantial doubt about our ability to
continue as a going concern. The financial statements included elsewhere herein
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty. In February
2020, we completed a registered direct offering of common stock, and a
concurrent private placement of warrants, resulting in estimated net proceeds of
approximately $6.2 million. In April 2020, we secured an approximately $3.2
million Paycheck Protection Program, or PPP, loan provided for by the
Coronavirus Aid, Relief and Economic Security Act and administered by the U.S.
Small Business Administration, or SBA. I n September 2020, we completed the
closing of an underwritten public offering of common stock, resulting in
estimated net proceeds of approximately $10.7 million. However, we anticipate
that we will need additional funding in 2021 to continue operations, satisfy our
obligations, fund the future expenditures that we believe will be required
to support commercialization of our products and conduct the clinical and
regulatory work to develop our product candidates.
The above conditions raise substantial doubt about our ability to continue as a
going concern. The condensed consolidated financial statements included
elsewhere herein for the nine months ended September 30, 2020, were prepared
under the assumption that we would continue our operations as a going concern,
which contemplates the realization of assets and the satisfaction of liabilities
during the normal course of business. In preparing these condensed consolidated
financial statements, consideration was given to our future business as
described elsewhere herein, which may preclude us from realizing the value of
certain assets. Our unaudited condensed consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty.
This basis of accounting contemplates the recovery of our assets and the
satisfaction of liabilities in the normal course of business. Without additional
funds in 2021 from debt or equity financing, sales of assets, sales or
out-licenses of intellectual property, products, product candidates or
technologies, or from a business combination or a similar transaction, after
expenditure of our existing cash resources and revenues from existing agreements
and sales of prescription compounded formulations, we would exhaust our
resources and be unable to continue operations.
Our management intends to attempt to secure additional required funding through
equity or debt financing, sales or out-licensing of product candidates,
intellectual property or other assets, revenues from sales of compounded sterile
formulations, share of profits received relating to sales in the U.S. of our
SYMJEPI products and, if approved, our ZIMHI product, seeking partnerships or
commercialization agreements with other pharmaceutical companies or third
parties to co-develop and fund research and development or commercialization
efforts of our products, from a business combination, or similar transactions.
However, there can be no assurance that we will be able to obtain any sources of
funding. Such additional funding may not be available, may not be available on
reasonable terms, and, in the case of equity financing transactions, could
result in significant additional dilution to our stockholders. If we do not
obtain required additional equity or debt funding, our cash resources will be
depleted and we could be required to materially reduce or suspend operations,
which would likely have a material adverse effect on our business, stock price
and our relationships with third parties with whom we have business
relationships, at least until additional funding is obtained. If we do not have
sufficient funds to continue operations, we could be required to seek bankruptcy
protection or other alternatives that could result in our stockholders losing
some or all of their investment in us.
28
Results of Operations
Three Months Ended September 30, 2020 and 2019
Revenues. Consolidated revenues were approximately $4,301,000 and $5,903,000 for
the three months ended September 30, 2020 and 2019, respectively. Consolidated
revenues decreased approximately $1,602,000 in the third quarter of 2020
compared to the comparable period of 2019.
Revenues of our Drug Development and Commercialization business conducted by
Adamis were approximately $868,000 and $1,347,000 for the three months ended
September 30, 2020 and 2019, respectively. Revenue relating to the sales of
SYMJEPI (epinephrine) Injection 0.3mg and 0.15mg decreased approximately
$479,000 primarily due to matters relating to the transition of
commercialization and marketing rights to the SYMJEPI products from Sandoz to
USWM.
Revenues of our Compounded Pharmaceuticals business conducted through USC were
approximately $3,433,000 and $4,556,000 for the three months ended September 30,
2020 and 2019, respectively. Restrictions on outpatient surgery and other
medical procedures due to the COVID-19 pandemic resulted in a decline in sales
of USC's products of approximately $1,302,000. This amount was partially offset
by an increase of approximately $179,000 in sales of USC's veterinary products.
The COVID-19 outbreak has adversely affected revenues from sales of USC
products, in part due to reductions or cancellations of elective surgeries and
reduction in office visits to physicians' offices, healthcare facilities or
clinics by patients, and the resulting decreased demand by USC's customers for
certain of USC's products, and will likely continue to adversely affect revenues
from sales of USC products for a period of time which cannot be predicted.
Moreover, COVID-19 has restricted USC from utilizing traditional sales and
marketing efforts, such as regular sales visits to customers, in generating
revenues. USC has added to its product catalog certain drugs that may from time
to time appear on the FDA's Drug Shortage List, some of which may be used in
connection with the treatment of acutely ill COVID-19 patients, although the
COVID-19 outbreak could result in shortages or delays in our ability to obtain
supplies relating to certain of these products.
Cost of Goods Sold. Consolidated cost of goods sold was approximately $3,646,000
and $3,989,000 for the three months ended September 30, 2020 and 2019,
respectively. Our cost of goods sold includes direct and indirect costs to
manufacture formulations and sell products, including active pharmaceutical
ingredients, personnel costs, packaging, storage, shipping and handling costs,
the write-off of obsolete inventory and other related expenses. The gross margin
percentage for the three months ended September 30, 2020 was approximately 15%
compared to approximately 32% for the three months ended September 30, 2019.
Cost of goods sold of our Drug Development and Commercialization business
conducted by Adamis was approximately $1,414,000 and $1,572,000 for the three
months ended September 30, 2020 and 2019, respectively. The gross loss
percentage for the three months ended September 30, 2020 was approximately 63%
compared to approximately 17% for the three months ended September 30, 2019.
Cost of goods sold for the third quarter of the 2020 period compared to the
comparable period of 2019 decreased primarily due to the decrease of
approximately $158,000 in direct materials, depreciation, maintenance fees and
other related expenses associated with the production of SYMJEPI (epinephrine)
Injection 0.3mg and 0.15mg.
Cost of goods sold of our Compounded Pharmaceuticals business conducted through
USC was approximately $2,232,000 and $2,417,000 for the three months ended
September 30, 2020 and 2019, respectively. The gross margin percentage for the
three months ended September 30, 2020 was approximately 35% compared to
approximately 47% for the three months ended September 30, 2019. Materials
costs, compensation and other employee benefits, product devices, testing,
freight, and other related expenses decreased approximately $554,000 due to the
reduction in consumer demand for certain USC products as a result of the
COVID-19 pandemic. This amount was partially offset by increases of obsolete
inventory at the USC outsourcing facility of approximately $369,000 as a result
of reduced sales associated with products impacted by the COVID-19 pandemic.
Selling, General and Administrative Expenses. Selling, general and
administrative, or SG&A, expenses consist primarily of depreciation and
amortization, professional fees which include legal, accounting and audit fees,
consulting and employee compensation. Consolidated SG&A expenses for the three
months ended September 30, 2020 and 2019 were approximately $5,794,000 and
$5,300,000, respectively.
SG&A expenses of our Drug Development and Commercialization business conducted
by Adamis for the three months ended September 30, 2020 and 2019 were
approximately $3,309,000 and $2,228,000, respectively. The increase was
primarily attributable to increases in wages, benefits and other compensation
expenses, professional fees, depreciation and insurance expenses of
approximately $1,388,000. These amounts were partially offset by decreases in
patent expenses, selling, business development spending and other related
expenses of approximately $307,000.
SG&A expenses of our Compounded Pharmaceuticals business conducted through USC
for the three months ended September 30, 2020 and 2019 were approximately
$2,485,000 and $3,072,000, respectively. The decrease was primarily attributable
to decreases in wages, benefits and other compensation expenses, selling,
professional fees, and consulting expenses of approximately $645,000. This
amount is partially offset by an increase of approximately $58,000 in bad debt
expense.
Research and Development Expenses. Research and development, or R&D, costs are
expensed as incurred. Non-refundable advance payments for goods and services to
be used in future research and development activities are recorded as an asset
and are expensed when the research and development activities are performed.
Consolidated research and development expenses were approximately $1,699,000 and
$3,319,000 for the three months ended September 30, 2020 and 2019, respectively.
Research and development expenses of our Drug Development and Commercialization
business conducted by Adamis were approximately $1,648,000 and $3,303,000 for
the three months ended September 30, 2020 and 2019, respectively. Approximately
$619,000 of the decrease in R&D expenses for the three months ended September
30, 2020, compared to the comparable 2019 period was due to the suspension of
clinical development activities of our APC-1000 candidate, approximately
$428,000 of the decrease was primarily due to a reduction in clinical studies
costs associated with ZIMHI, approximately $257,000 of the decrease was
attributable to a reduction in product development spending relating to SYMJEPI
and approximately $174,000 of the decrease was due to a reduction in product
development spending relating to APC-5000 and other product candidates. In
addition, wages, benefits, and other compensation expenses for research and
development employees decreased approximately $177,000 during the three months
ended September 30, 2020, compared to the comparable 2019 period.
Research and development expenses of our Compounded Pharmaceuticals business
conducted through USC were approximately $51,000 and $16,000 for the three
months ended September 30, 2020 and 2019, respectively. USC's R&D expenses for
the three months ended September 30, 2020, compared to the comparable 2019
period, increased approximately $35,000 due to the testing of new products.
Impairment Expense Inventories. Impairment expenses for the three months ended
September 30, 2020 and 2019 were approximately $0 and $304,000,
respectively. The 2019 impairment expense was attributable to assets damaged
during a flood at the USC facility.
Other Income (Expense). Other Income (Expenses) consists primarily of interest
income and interest expense. Other income (expense) for the three months ended
September 30, 2020 and 2019 was approximately ($646,000) and $9,000,
respectively. The decrease in other income and increase in other expense during
the three-month period in 2020, compared to the same period in 2019, was
primarily due to the increase of approximately $624,000 for the change in fair
value of warrants, an increase of debt related expense of approximately $24,000
and $7,000 in interest/other income.
29
Nine Months Ended September 30, 2020 and 2019
Revenues. Consolidated revenues were approximately $12,890,000 and $16,574,000
for the nine months ended September 30, 2020 and 2019, respectively.
Consolidated revenues decreased approximately $3,684,000 in the first nine
months of 2020 compared to the comparable period of 2019.
Revenues of our Drug Development and Commercialization business conducted by
Adamis were approximately $2,097,000 and $2,932,000 for the nine months ended
September 30, 2020 and 2019, respectively. Revenue relating to the sales of
SYMJEPI (epinephrine) Injection 0.3mg and 0.15mg decreased approximately
$835,000 primarily due to matters relating to the transition of
commercialization and marketing rights to the SYMJEPI products from Sandoz to
USWM.
Revenues of our Compounded Pharmaceuticals business conducted through USC were
approximately $10,793,000 and $13,642,000 for the nine months ended September
30, 2020 and 2019, respectively. Restrictions on outpatient surgery and other
medical procedures due to the COVID-19 pandemic resulted in a decline in sales
of USC's products of approximately $3,103,000. This amount was partially offset
by an increase of approximately $254,000 in sales of USC's veterinary products.
The COVID-19 outbreak has adversely affected revenues from sales of USC
products, in part due to reductions or cancellations of elective surgeries and
reduction in office visits to physicians' offices, healthcare facilities or
clinics by patients, and the resulting decreased demand by USC's customers for
certain of USC's products, and will likely continue to adversely affect revenues
from sales of USC products for a period of time which cannot be predicted.
Moreover, COVID-19 has restricted USC from utilizing traditional sales and
marketing efforts, such as regular sales visits to customers, in generating
revenues. USC has added to its product catalog certain drugs that may from time
to time appear on the FDA's Drug Shortage List, some of which may be used in
connection with the treatment of acutely ill COVID-19 patients, although the
COVID-19 outbreak could result in shortages or delays in our ability to obtain
supplies relating to certain of these products.
Cost of Goods Sold. Consolidated cost of goods sold was approximately
$12,017,000 and $11,280,000 for the nine months ended September 30, 2020 and
2019, respectively. Our cost of goods sold includes direct and indirect costs to
manufacture formulations and sell products, including active pharmaceutical
ingredients, personnel costs, packaging, storage, shipping and handling costs,
the write-off of obsolete inventory and other related expenses. The gross margin
percentage for the nine months ended September 30, 2020 was approximately 7%
compared to approximately 32% for the nine months ended September 30, 2019.
Cost of goods sold of our Drug Development and Commercialization business
conducted by Adamis was approximately $4,987,000 and $3,101,000 for the nine
months ended September 30, 2020 and 2019, respectively. The gross loss
percentage for the nine months ended September 30, 2020 was approximately 138%
compared to approximately 6% for the nine months ended September 30, 2019. Cost
of goods sold for the nine-month 2020 period compared to the nine-month period
of 2019 increased primarily due to an increase of approximately $1,886,000 in
direct materials, depreciation, maintenance fees and other related expenses
associated with the production of SYMJEPI (epinephrine) Injection 0.3mg and
0.15mg.
Cost of goods sold of our Compounded Pharmaceuticals business conducted through
USC was approximately $7,030,000 and $8,179,000 for the nine months ended
September 30, 2020 and 2019, respectively. The gross margin percentage for the
nine months ended September 30, 2020 was approximately 35% compared to
approximately 40% for the nine months ended September 30, 2019. Expenses
relating to wages, benefits and other compensation expenses, consulting
services, product devices, testing, freight, repairs and maintenance and other
related expenses as a result of the elimination of a second shift at the USC
outsourcing facility and the ceasing of sales of certain formulations at the USC
outsourcing facility decreased approximately $2,314,000, which partially offset
by an increase of approximately $1,165,000 of obsolete inventory.
30
Selling, General and Administrative Expenses. SG&A expenses consist primarily of
depreciation and amortization, professional fees which include legal, accounting
and audit fees, consulting and employee compensation. Consolidated SG&A expenses
for the nine months ended September 30, 2020 and 2019 were approximately
$17,501,000 and $20,322,000, respectively.
SG&A expenses of our Drug Development and Commercialization business conducted
by Adamis for the nine months ended September 30, 2020 and 2019 were
approximately $9,620,000 and $9,484,000, respectively. The increase was
primarily attributable to increases in professional fees and insurance expenses
of approximately $1,181,000. These amounts were partially offset by decreases
in approximately $478,000 in patent expenses, approximately $420,000 in selling
and approximately $147,000 consulting, outside services and other related
expenses.
SG&A expenses of our Compounded Pharmaceuticals conducted through USC for
the nine months ended September 30, 2020 and 2019 were approximately $7,881,000
and $10,838,000, respectively. Approximately $1,236,000 of the decrease in SG&A
expenses for the nine months ended September 30, 2020, compared to the
comparable 2019 period was attributable to decreases in selling expenses,
approximately $841,000 of the decrease was attributable to decreases in wages,
benefits and other compensation expenses, approximately $519,000 of the decrease
was attributable to operational expenses relating to the ceasing of sales of
certain USC products, approximately $396,000 of the decrease was attributable to
decreases in professional fees and consulting expenses, and approximately
$331,000 of the decrease was attributable to depreciation, repairs and
maintenance, and other related expenses. These amounts were partially offset by
increases of approximately $366,000 in licenses, permits, bad debt expense and
other related administrative expenses.
Research and Development Expenses. Our research and development costs are
expensed as incurred. Non-refundable advance payments for goods and services to
be used in future research and development activities are recorded as an asset
and are expensed when the research and development activities are performed.
Research and development expenses were approximately $6,822,000 and $8,361,000
for the nine months ended September 30, 2020 and 2019, respectively.
Research and development expenses of our Drug Development and Commercialization
business conducted by Adamis were approximately $6,611,000 and $8,293,000 for
the nine months ended September 30, 2020 and 2019, respectively. R&D expenses of
Adamis increased for the nine months ended September 30, 2020, compared to the
comparable 2019 period was primarily due to a decrease of approximately
$3,430,000 in development costs of our product candidates, APC-1000, ZIMHI,
SYMJEPI, APC-5000 and other product candidates. Wages, benefits and other
compensations expenses decreased approximately $208,000. These amounts were
partially offset by an increase of approximately $1,956,000 in development costs
attributed to other product development expenses, including the $590,000 fair
value of the preferred stock issued to Matrix Biomed Inc. upon execution of the
licensing agreement related to Tempol.
Research and development expenses of our Compounded Pharmaceuticals business
conducted through USC were approximately $211,000 and $68,000 for the nine
months ended September 30, 2020 and 2019, respectively. R&D expenses of USC for
the nine months ended September 30, 2020, compared to the comparable 2019
period, increased approximately $143,000 due to the testing of new products.
Impairment Expense Goodwill. Impairment expenses of goodwill for the nine
months ended September 30, 2020 and 2019 were approximately $3,143,000 and $0,
respectively. As described in Note 5 to the condensed consolidated financial
statements included elsewhere herein, in light of recent events associated with
the global spread of COVID-19 and other factors, the Company performed a
goodwill impairment review as of March 31, 2020, and recorded a charge of
approximately $3,143,000 for impairment of goodwill during the first three
months of 2020.
Impairment Expense Contract Costs. Impairment expenses of contract costs for
the nine months ended September 30, 2020 and 2019 were approximately $1,750,000
and $0, respectively. As a result of entering into the Termination Agreement
described above providing for the termination of the Sandoz Agreement, our
financial results for the nine months ending September 30, 2020, included an
impairment of the Adamis capitalized cost to obtain a contract of $1,750,000.
For further information, see Note 2 to the condensed consolidated financial
statements included elsewhere in this Report.
Impairment Expense Inventories. Impairment expenses of inventories for the nine
months ended September 30, 2020 and 2019 were approximately $0 and $304,000,
respectively. The 2019 impairment expense was attributable to the inventories
damaged during a flood at the USC facility.
Other Income (Expense). Other Income (Expenses) consists primarily of interest
income and interest expense. Other income (expense) for the nine months ended
September 30, 2020 and 2019 was approximately ($678,000) and $70,000,
respectively. The decrease in other income and increase in other expense during
the nine-month period in 2020, compared to the same period in 2019, was
primarily due to the increase of approximately $624,000 for the change in fair
value of warrants, a decrease of approximately $75,000 in interest/other income
and an increase of debt related expense of approximately $49,000.
Liquidity and Capital Resources
We have incurred net losses of approximately $29.0 million and $23.6 million for
the nine months ended September 30, 2020 and 2019, respectively. Since
inception, and through September 30, 2020, we have an accumulated deficit of
approximately $211.3 million. Since inception and through September 30, 2020, we
have financed operations principally through debt financing and through public
and private issuances of common stock and preferred stock. In February 2020, we
completed a registered direct offering of 11,600,000 shares of common stock, and
a concurrent private placement of warrants to purchase 8,700,000 shares of
common stock, to a small number of accredited institutional investors, resulting
in estimated net proceeds of approximately $6.2 million. In September 2020, we
completed an underwritten public offering of 18,548,386 shares of common stock,
resulting in estimated net proceeds of approximately $10.7 million.
In April 2020, we secured an approximately $3.2 million Paycheck Protection
Program (PPP) loan provided for by the Coronavirus Aid, Relief and Economic
Security Act (the "CARES Act") and administered by the SBA. The unsecured loan
(the "PPP Loan") is evidenced by a promissory note of the company (the "PPP
Note"), to Arvest Bank, the Lender. Under the terms of the PPP Note and the PPP
Loan, interest accrues on the outstanding principal at the rate of 1.0% per
annum. The term of the PPP Note is two years, unless sooner provided in
connection with an event of default under the PPP Note. To the extent the loan
amount is not forgiven under the PPP, we are obligated to make equal monthly
payments of principal and interest, beginning seven months from the date of the
PPP Note (or later if a timely loan forgiveness application has been submitted),
until the maturity date. The CARES Act and the PPP provide a mechanism for a
borrower to apply for forgiveness of up to the full amount borrowed. The amount
of loan proceeds eligible for forgiveness is based on a formula that takes into
account a number of factors, including the amount of loan proceeds used by the
Company during the eight-week or 24-week period after the loan origination for
certain purposes including payroll costs, interest on certain mortgage
obligations, rent payments on certain leases, and certain qualified utility
payments, provided that at least 60% of the loan amount is used for eligible
payroll costs; the employer maintaining or rehiring employees and maintaining
salaries at certain levels; and other factors. Subject to the other requirements
and limitations on loan forgiveness, only loan proceeds spent on payroll and
other eligible costs during the covered eight-week or 24-week period will
qualify for forgiveness. On October 19, 2020, we submitted an application for
the forgiveness of the full amount of the PPP Loan, and as such will not be
required to make any payments of principal or interest on the PPP Loan before
the date on which the SBA remits the loan forgiveness amount on our loan to our
Lender (or notifies our Lender that no forgiveness amount is allowed). There is
no assurance that we will be granted forgiveness of some or all of the amount of
the PPP Loan. After the CARES Act was passed and we applied for and obtained the
PPP Loan, the SBA issued new guidance that, among other things, questioned
whether a public company with substantial market value and access to capital
markets would qualify to participate in the PPP and be able to make the required
certification that current economic uncertainty makes the loan request necessary
to support the ongoing operations of the applicant. Subsequently, the Secretary
of the Treasury and SBA has issued guidance that the government will review all
PPP loans of more than $2 million for which the borrower applies for
forgiveness, and that all PPP loans in excess of $2 million, and other PPP loans
as appropriate, will be subject to review by SBA for compliance with program
requirements set forth in the PPP Interim Final Rules and in the Borrower
Application Form. Should we be audited or reviewed by federal or state
regulatory authorities as a result of filing an application for forgiveness of
the PPP Loan or otherwise, such audit or review could result in the diversion of
management's time and attention and legal and reputational costs. If we were to
be audited or reviewed and receive an adverse determination or finding in such
audit or review, we could be required to return or repay the full amount of the
PPP Loan and could be subjected to fines or penalties, which could reduce our
liquidity and adversely affect our business, financial condition and results of
operations.
31
We will need significant additional funding in 2021 to satisfy our obligations
and fund the future expenditures that we believe will be required to support
commercialization of our products and conduct the clinical and regulatory work
to develop our product candidates. We may finance future cash needs primarily
through proceeds from equity or debt financings, loans, share of profits
anticipated to be received relating to sales in the U.S. of our SYMJEPI
products, sales of assets, out-licensing transactions, and/or collaborative
agreements with corporate partners, and from revenues from our sale of
compounded pharmacy formulations.
Total assets were approximately $43.9 million and $47.8 million as of September
30, 2020 and December 31, 2019, respectively. As of September 30, 2020 and
December 31, 2019, current assets exceed current liabilities by approximately
$4.2 million and $4.5 million, respectively.
Net cash used in operating activities for the nine months ended September 30,
2020 and 2019, was approximately $15.5 million and $16.9 million, respectively.
Net cash used in operating activities decreased, as compared to 2019, primarily
due to the increases in deferred revenue and accrued expenses; and although
there was an increase in operating losses for the first nine months of 2020, it
was offset by the non-cash impairment charges.
Net cash used in investing activities was approximately $1.0 million and $2.6
million for the nine months ended September 30, 2020 and 2019, respectively. The
net cash used in investing activities decreased primarily due to the reduction
in purchases of additional equipment during the nine months ended September 30,
2020 compared to the nine months ended September 30, 2019.
Net cash provided in financing activities was approximately $20.0 million and
$12.4 million for the nine months ended September 30, 2020 and 2019,
respectively. Net cash flows provided by financing activities increased for the
period ended September 30, 2020 primarily due to higher proceeds from issuance
of common stock and the proceeds of the PPP loan.
As noted above under the heading "Going Concern and Management Plan," through
September 30, 2020, Adamis has incurred substantial losses. The availability of
any required additional funding cannot be assured. If we do not obtain required
additional equity or debt funding, our cash resources could be depleted and we
could be required to materially reduce or suspend operations. Even if we are
successful in obtaining required additional funding to permit us to continue
operations at the levels that we desire, substantial time may pass before we
obtain regulatory marketing approval for any additional specialty pharmaceutical
products and begin to realize revenues from sales of such additional products,
and during this period Adamis could require additional funds. No assurance can
be given as to the timing or ultimate success of obtaining any required future
funding. We will be required to devote additional cash resources, which could be
significant, in order to continue development and commercialization of our
product candidates and to support our other operations and activities. As a
result of the COVID-19 pandemic and actions taken to slow its spread, credit and
financial markets have experienced material volatility, unemployment rates have
materially increased, credit and financial markets have deteriorated, and
economic growth has declined. There can be no assurance that further
deterioration in credit and financial markets will not occur, which would make
it more difficult, or more costly or dilutive, to obtain any necessary debt or
equity financing.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based on our unaudited condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these unaudited condensed consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, expenses, and related
disclosure of contingent assets and liabilities. We evaluate our estimates on an
ongoing basis. We base our estimates on historical experience and on other
assumptions that we believe 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 these estimates under different assumptions or
conditions.
The company's critical accounting policies and estimates previously disclosed in
our Annual Report on Form 10-K for the year ended December 31, 2019 have not
significantly changed.
32
Recent Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 1 to the accompanying
financial statements of this Quarterly Report on Form 10-Q.
Off Balance Sheet Arrangements
At September 30, 2020, Adamis did not have any off balance sheet arrangements.
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