The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the accompanying notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the audited financial
information and the notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2020. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Quarterly Report on
Form 10-Q, including information with respect to our plans and strategy for our
business and related financing, includes forward-looking statements that involve
risks and uncertainties. As a result of many factors, including those factors
set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q
and our prior filings with the SEC, our actual results could differ materially
from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a commercial-stage biopharmaceutical company focused on improving the
lives of patients who face challenges associated with their existing treatments
for rare and serious chronic disease. Employing our proprietary Transient
Permeability Enhancer, or TPE®, technology platform, we seek to develop oral
medications that are currently available only as injections. On June 26, 2020,
the U.S. Food and Drug Administration, or the FDA, approved MYCAPSSA®
(octreotide) capsules for long-term maintenance treatment in acromegaly patients
who have responded to and tolerated treatment with octreotide or lanreotide. We
commenced our U.S. commercial launch of MYCAPSSA in September 2020. MYCAPSSA is
the first and only oral somatostatin analog, or SSA, approved by the FDA and the
first product approved by the FDA utilizing our TPE technology. The FDA approval
of MYCAPSSA was based on the positive results of the randomized, double-blind,
placebo-controlled, nine-month Phase 3 CHIASMA OPTIMAL clinical trial of
octreotide capsules, which met the primary endpoint and all four secondary
endpoints, as well as safety data from all of our Phase 3 clinical trials of
MYCAPSSA. We are focused on the commercialization of MYCAPSSA for the treatment
of patients with acromegaly in the United States and developing and seeking
regulatory approval of MYCAPSSA in the European Union.
Acromegaly is a rare and debilitating condition that results from the body's
production of excess growth hormone, which in turn elevates insulin-like growth
factor 1, or IGF-1. These elevated hormone levels result in a number of painful
and disfiguring symptoms, including some acute, such as headaches, joint pain
and fatigue, and some long-term, such as enlarged hands, feet and internal
organs, as well as altered facial features. If not treated promptly, acromegaly
can lead to serious illness and is associated with premature death, primarily
due to cardiovascular disease. Octreotide is an analog of somatostatin, a
natural inhibitor of growth hormone secretion. The current standard of care for
patients diagnosed with acromegaly and not otherwise cured by surgical removal
of the pituitary tumor consists of lifelong, once-monthly injections of an
extended release somatostatin analog. Octreotide capsules have been granted
orphan designation in the United States and the European Union for the treatment
of acromegaly. The worldwide market for injectable somatostatin analogs is
approximately $2.8 billion annually. We estimate the global market for SSAs in
the treatment of acromegaly at approximately $800 million of which we estimate
the U.S. market at approximately $400 million. We retain worldwide rights to
develop and commercialize octreotide capsules.
We conducted an international Phase 3 clinical trial, referred to as MPOWERED,
of oral octreotide capsules for the maintenance treatment of adult patients with
acromegaly to support regulatory approval in the European Union. The MPOWERED
trial was a randomized, open-label and active-controlled 15-month trial
initially designed to enroll up to 150 patients. The European Medicines Agency,
or EMA, requested that a minimum of at least 80 patients who are responders to
octreotide capsules following the six-month run-in phase be randomized to either
remain on octreotide capsules or return to injectable somatostatin receptor
ligands (octreotide or lanreotide), and then followed for an additional nine
months. The primary endpoint of the MPOWERED trial was the proportion of
patients who are biochemically controlled throughout the randomized, controlled
phase of the study, defined as a time weighted average of IGF-I < 1.3 ULN. In
November 2020, we announced positive topline results from the MPOWERED trial,
including that the study met its primary non-inferiority endpoint. Based on the
positive data from the MPOWERED trial, we expect to submit a marketing
authorization application, or MAA, to the European Medicines Agency, or EMA, in
mid-2021 seeking marketing approval of MYCAPSSA capsules as a maintenance
therapy for adult patients with acromegaly in the European Union.
In 2020, we commenced enrolling patients in the first industry-sponsored disease
state registry for acromegaly in the United States known as the Management of
Acromegaly Registry, or MACRO Registry. The MACRO Registry is designed to enroll
patients from over 40 planned clinical sites in the United States and collect
real-world data on treatment burden and effectiveness of various acromegaly
treatments.
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Beginning in 2020, we commenced commercial operations to support the U.S.
commercial launch of MYCAPSSA. We have completed public offerings of common
stock and pre-funded warrants in which we have raised an aggregate $266.5
million, including our initial public offering in July 2015. In April 2020, we
entered into a Revenue Interest Financing Agreement, or the Revenue Interest
Financing Agreement, with Healthcare Royalty Partners IV, L.P., or HCR, for up
to $75.0 million. As of March 31, 2021, our consolidated cash, cash equivalents
and marketable securities were $115.0 million, of which $1.1 million was held by
Chiasma (Israel) Ltd., our wholly owned Israeli subsidiary. In April 2020, we
entered into an Open Market Sales Agreement, or ATM Agreement, for "at the
market offerings" under which we may offer and sell from time to time shares of
our common stock having an aggregate offering price of up to $60.0 million
through Jefferies, acting as our sales agent or principal. To date, we have not
sold any common stock under the ATM Agreement.
We have incurred significant operating losses since our inception in 2001. Our
net loss was $30.5 million for the three months ended March 31, 2021 and $74.8
million for the year ended December 31, 2020. As of March 31, 2021, we had an
accumulated deficit of $378.3 million. We expect to incur significant operating
losses over the next several years. These losses, combined with prior losses
will continue to have an adverse effect on our cash resources, stockholders'
equity and working capital. We plan to invest in our ongoing U.S. commercial
launch and the manufacturing of MYCAPSSA for market consumption including
manufacturing scale-up activities, and transitioning the open label extension
portions of both our international Phase 3 CHIASMA OPTIMAL clinical trial of
octreotide capsules in acromegaly and our international Phase 3 MPOWERED
clinical trial of octreotide capsules in acromegaly for patients outside of the
United States to an Expanded Access Program, where applicable, and in continuing
the MACRO Registry. In addition, we plan to prepare and submit an MAA to the
EMA, seeking potential regulatory approval or oral octreotide as a treatment for
acromegaly in the European Union in mid-2021. Finally, we submitted an
Investigational New Drug, or IND, application to the FDA for a Phase 1 relative
bioavailability study followed by a single Phase 3 randomized, double-blind,
placebo-controlled study of MYCAPSSA in patients with carcinoid syndrome
associated with neuroendocrine tumors, or NET. These studies are designed to
support a potential modified 505(b)(2) regulatory pathway.
Due of the numerous risks and uncertainties facing our company and associated
with developing and commercializing pharmaceutical products generally, we are
unable to predict the extent of any future losses or when we will become
profitable, if at all. We plan to continue to fund our losses from operations
and capital funding needs from existing balances of cash, cash equivalents and
marketable securities and potentially through equity financings. We may also
opportunistically consider license. collaboration agreements and other strategic
transactions with potential partners or financing opportunities to the extent
such sources are identified and available. If our anticipated U.S. revenues are
insufficient to fund our operations to attaining and sustaining profitability,
additional financing may be required. Such financing, if required, may not be
available on a timely basis on terms acceptable to us, or at all. If we are not
able to secure adequate additional funding when required, we may be forced to
make reductions in spending, extend payment terms with suppliers, suspend or
curtail our commercialization and development activities, or it may negatively
impact our ability to adequately fund or delay our potential commercial
preparations or launch readiness outside the United States if MYCAPSSA is
approved by the EMA. Any of these actions could materially harm our business,
results of operations and future prospects. Failure to successfully
commercialize MYCAPSSA in acromegaly will prevent us from achieving
profitability and positive cash flows, which could raise significant concerns
about our continued viability as a business.
Corporate Update
On May 4, 2021, we entered into an agreement with Amryt Pharma plc, or Amryt,
pursuant to which, if all of the conditions to closing are satisfied or waived,
we will become a wholly-owned subsidiary of Amryt, or the Merger Agreement and
such transaction, the Merger. The Merger Agreement was approved by our board of
directors, or the Board, and the Board resolved to recommend approval of the
Merger Agreement to our shareholders. The closing of the Merger is subject to
approval of our shareholders and the satisfaction of customary closing
conditions. Our largest stockholder who collectively owns approximately 10% of
the outstanding shares of our common stock has entered into a voting and
transaction support agreement, pursuant to which they have agreed, among other
things, and subject to the terms and conditions of the agreements, to vote in
favor of the Merger.
Subject to the terms of the Merger Agreement, at the effective time of the
Merger, or the Effective Time, each share of our common stock issued and
outstanding immediately prior to the Effective Time shall automatically be
canceled and converted (without interest but subject to any withholding required
under applicable law) into the right to receive 0.396 of an American Depositary
Share of Amryt, or Parent ADS, with each Parent ADS representing five ordinary
shares of Amryt.
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Subject to approval from our shareholders and shareholders of Amryt, the
transaction is expected to close in the third quarter of 2021.
COVID-19 Update
In March 2020, the World Health Organization declared the novel strain of
coronavirus, or COVID-19, a global pandemic and recommended containment and
mitigation measures worldwide. The COVID-19 pandemic has and will continue to
affect economies and businesses around the world. We continue to closely monitor
the impact of COVID-19 on our business and have implemented steps to ensure the
well-being of our employees as well as the patients and health care
professionals involved in the disease state registry for acromegaly that we have
sponsored. We have not observed any significant disruptions to our manufacturing
supply chain to date due to the pandemic. However, the pandemic has caused us to
modify our business practices, including taking steps to protect our employees
and the broader community, such as curtailing or modifying employee travel,
reducing access to our offices, moving employees to remote work where
appropriate, and cancelling in-person participation in meetings. In addition,
the intensification of the pandemic throughout the United States beginning in
the fourth quarter of 2020 has impacted physician outreach efforts across the
biopharmaceutical industry. As with other commercial companies, we are
experiencing the effects in our business, as many offices remain closed and
reduced levels of in-person physician and patient interactions and in-person
sales call opportunities continue due to the pandemic. Additionally,
prescriptions received for MYCAPSSA take longer than anticipated to convert to
commercial patients on therapy due to continuing physician office shutdowns and
their staffs' remote working conditions. We are monitoring developments
carefully and leveraging available technologies at our disposal to adjust to the
pandemic challenges that we currently face, including increasing our digital
promotion and engagement efforts and equipping and training our salesforce to
conduct remote interactions.
Commercial Manufacturing Supply
We began implementing launch readiness plans in 2019 in preparation for a
commercial launch of MYCAPSSA capsules in the United States, pending the FDA's
approval of our NDA. Following FDA approval of our NDA and to secure commercial
supply of MYCAPSSA, we submitted our "changes being effected in 30 days"
supplement, CBE-30 supplement, to our NDA in June 2020 to provide for the
approval of our primary commercial manufacturer of generic active pharmaceutical
ingredient, or API, octreotide acetate and one of its large-scale manufacturing
sites. Following the FDA's acceptance of our CBE-30 supplement for review, in
September 2020, we began to distribute commercial product as part of our U.S.
commercial launch while the FDA's review of the supplement was pending. The FDA
approved the CBE-30 supplement in December 2020. At this time, we expect to
continue to have sufficient commercial supply of MYCAPSSA containing API from
our primary commercial manufacturer of API to support our commercial launch.
In order to secure an additional commercial source of API, we also submitted a
prior approval supplement to include in our NDA another commercial manufacturer
of API and one of its large-scale manufacturing sites. This manufacturing
supplement was accepted for review by the FDA in January 2021, and, in March
2021, we received a complete response letter from the FDA indicating that the
FDA cannot approve the supplement due to deficiencies relating to the
manufacturer's drug master file that we referenced in the supplement. We are
working closely with the manufacturer to fully address the deficiencies and
amend their drug master file. Once the process of amending the drug master file
is complete, we plan to seek the FDA's review and approval of the prior approval
supplement in order to secure an additional commercial source of API.
Financial Overview
Product Revenue, Net
We began to recognize product revenues net of discounts, fees and other
incentives from the sale of MYCAPSSA in the United States in September 2020.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the
manufacturing and distribution of MYCAPSSA, including API and other raw
materials, third party manufacturing costs and other overhead costs, associated
with MYCAPSSA.
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Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries and
related benefits, including stock-based compensation, related to our executive,
finance, information technology, legal, marketing, medical affairs, patient
services, sales and support functions. Other selling, general and administrative
expenses include facility-related costs not otherwise allocated to research and
development expenses, travel expenses for our selling, general and
administrative personnel and professional fees for auditing, tax, and corporate,
litigation and intellectual property-related legal services.
In 2020, we incurred pre-commercial marketing related expenses prior to FDA
approval. Following the FDA approval in June 2020, we incurred increased
commercial expenses as we began to commercialize MYCAPSSA in the United States.
We anticipate future increases in selling expenses, as we continue with our
commercialization of octreotide capsules and grow our operations.
Research and Development
Research and development expenses consist of expenses incurred in performing
research and development activities, including compensation and benefits for
full-time research and development employees, an allocation of facilities
expenses, overhead expenses, nonclinical pharmacology studies, manufacturing
process-development and scale-up activities, clinical trial and related clinical
and pre-approval manufacturing expenses, fees paid to contract research
organizations, or CROs, investigative sites, and other external expenses. In the
early phases of development, our research and development costs included
expanding our technology platform as well as early development of specific
product candidates. The majority of our research and development expenses has
been spent on the development of octreotide capsules, including pre-approval
manufacturing expenses, manufacturing of clinical trial material, manufacturing
process development and validation, regulatory and clinical activities, and our
TPE platform. Following MYCAPSSA's approval by the FDA in June 2020,
manufacturing costs related to the production of commercial supplies of MYCAPSSA
are no longer captured in research and development expense but are capitalized
to inventory. We expense research and development costs as incurred.
We have limited research and discovery functions and are currently not
materially investing in those areas. We have focused our resources on the
clinical development of octreotide capsules. Product candidates in late stages
of development generally have higher development costs than those in earlier
stages of development, primarily due to the increased size and duration of
late-stage clinical trials. We plan to transition the open label extension
portions of both our international Phase 3 CHIASMA OPTIMAL clinical trial of
octreotide capsules in acromegaly and our international Phase 3 MPOWERED
clinical trial of octreotide capsules in acromegaly for patients outside of the
United States to an Expanded Access Program, where applicable, as well as
continue the MACRO Registry. In addition, we have may incur initial costs
associated with a Phase 1 relative bioavailability study followed by a single
Phase 3 randomized, double-blind, placebo-controlled study of MYCAPSSA in
patients with carcinoid syndrome associated with NET.
Interest and Other Income, Net
Interest and other income, net, consists of changes in fair value of the
embedded derivative liabilities related to our Revenue Interest Financing
Agreement, in addition to interest income earned on our investments.
Interest Expense
Interest expense consists primarily of interest expense associated with our
Revenue Interest Financing Agreement.
Provision for Income Taxes
We are subject to federal and state income taxes for earnings generated in the
United States, and foreign taxes on earnings of our wholly-owned Israeli
subsidiary. Our consolidated tax expense is primarily affected by the mix of our
foreign subsidiary permanent items, discrete items, and unrecognized tax
benefits and to a lesser extent our taxable income (loss) in the United States.
Results of Operations for the Three Months ended March 31, 2021 and 2020
Product Revenue, Net
The following is a comparison of product revenue, net for the three months ended
March 31, 2021 and 2020:
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Three Months Ended March 31,
2021 2020 $ Change % Change
($ in thousands)
Product revenue, net $ 1,924 $ - $ 1,924 *
* Not meaningful percentage relationship
Product revenues, net represent U.S. sales from MYCAPSSA, which was approved by
the FDA in June 2020 and which we began selling in September 2020.
Cost of Goods Sold
The following is a comparison of cost of goods sold for the three months ended
March 31, 2021 and 2020:
Three Months Ended March 31,
2021 2020 $ Change % Change
($ in thousands)
Cost of goods sold $ 67 $ - $ 67 *
* Not meaningful percentage relationship
All product costs incurred prior to FDA approval of MYCAPSSA in June 2020 were
expensed as research and development expenses. As a result, our cost of goods
sold primarily consist of our costs associated with final packaging and
manufacturing overhead. We expect our cost of goods sold will be significantly
reduced during 2021, as we sell through certain inventory, including the API
related costs, that was expensed prior to FDA approval in June 2020.
Selling, General and Administrative
The following is a comparison of selling, general and administrative expenses
for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
2021 2020 $ Change % Change
($ in thousands)
Selling, general and administrative $ 15,698 $ 7,582 $ 8,116 107 %
For the three months ended March 31, 2021, our selling, general and
administrative expenses increased by $8.1 million compared to the prior year
period. The increase for the three months ended March 31, 2021, as compared to
the prior year period was primarily due to our commercialization activities of
$7.6 million, which represents an increase of $4.7 million, increased
compensation-related expenses, increased other administrative costs to support
the commercialization of MYCAPSSA in the United States, and costs incurred to
support the diligence efforts of the Merger.
Research and Development
The following is a comparison of research and development expenses for the three
months ended March 31, 2021 and 2020:
Three Months Ended March 31,
2021 2020 $ Change % Change
($ in thousands)
Research and development $ 4,199 $ 8,125 $ (3,926 ) (48 %)
For the three months ended March 31, 2021, our total research and development
expenses decreased by $3.9 million to $4.2 million compared to the prior year
period. The decrease for the three months ended March 31, 2021 as compared to
the prior year period was mainly due to costs associated with the manufacturing
of octreotide capsules in the prior year related to the commercialization of
MYCAPSSA as well as a decrease in clinical trial costs.
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Interest and Other Income (Loss), net
Interest and other loss, net totaled $9.6 million for the three months ended
March 31, 2021 compared to interest and other income of $0.4 million for the
same period in 2020. The change was primarily driven by changes in fair value of
the embedded derivative liabilities related to our Revenue Interest Financing
Agreement which change in fair value was primarily driven by our consideration
of the status of the Merger which resulted in an increase in the probability and
timing of a change in control occurring during the term of the instrument.
Interest income was relatively flat for the three months ended March 31, 2021
and 2020.
Interest Expense
Interest expense totaled $2.9 million for the three months ended March 31, 2021,
which was primarily driven by interest expense related to our Revenue Interest
Financing Arrangement which was entered into in April 2020.
Provision for Income Taxes
Our total tax provision was approximately $0.1 million for the three months
ended March 31, 2021, representing an effective tax rate of (0.2%), as compared
to a tax provision of approximately $0.1 million for the three months ended
March 31, 2020, representing an effective tax rate of (0.5%).
Our effective tax rate differs from the statutory rate each year mainly due to a
full valuation allowance maintained against U.S. deferred tax assets and due to
lower tax rates applied to income of our Israeli subsidiary.
Liquidity and Capital Resources
In July 2015, we completed our IPO in which we raised $106.5 million by selling
shares of common stock. In April 2019, to fund our operations, we completed
a follow-on public offering of common stock in which we raised $34.5 million in
gross proceeds, or $32.2 million in net proceeds after underwriting fees and
offering expenses. In August 2019, to fund our operations, we completed
a follow-on public offering of common stock in which we raised $55.9 million in
gross proceeds, or $52.3 million in net proceeds after underwriting fees and
offering expenses. In July 2020, we completed a follow-on public offering, which
consisted of common stock and pre-funded warrants in which we raised an
additional $75.5 million in net proceeds to finance our operations. In April
2020, we entered into the Revenue Interest Financing Agreement with HCR for up
to $75.0 million. We received $65.0 million, less certain transaction expenses,
in 2020. The remaining $10.0 million of funding is not available until early
2022 and is contingent upon the achievement of a revenue milestone and customary
closing conditions. Further, the Revenue Interest Financing Agreement requires
us to maintain a minimum of $20.0 million in securitized cash and investment
accounts during any quarter that the trailing four quarters of net revenue of
MYCAPSSA is below a certain threshold. In April 2020, we also entered into the
ATM Agreement with Jefferies, which allows us to offer and sell up to
$60.0 million in gross proceeds of common stock from time to time, through
Jefferies, acting as our sales agent or principal. To date, we have not sold any
common stock under the ATM Agreement. As of March 31, 2021, our cash and cash
equivalents were $24.6 million, of which $1.1 million was held by our Israeli
subsidiary. In addition, as of March 31, 2021, we had $90.5 million invested in
short-term marketable securities and $20.3 million of restricted cash.
Plan of Operations and Future Funding Requirements
We expect that our primary uses of capital will be associated with the
commercialization of MYCAPSSA in the United States and the manufacturing of
octreotide capsules for market consumption, seeking regulatory approval of
octreotide capsules in the European Union, including clinical trial costs
(including our transition of the open label extension portions of both our
international Phase 3 CHIASMA OPTIMAL clinical trial of octreotide capsules in
acromegaly and our international Phase 3 MPOWERED clinical trial of octreotide
capsules in acromegaly for patients outside of the United States to an Expanded
Access Program, where applicable, and the continuation of our MACRO Registry),
medical affairs activities, legal and regulatory expenses related to seeking
regulatory approval of octreotide capsules in the European Union, compensation
and related expenses, third-party clinical development services, and other
general operating costs.
We expect our existing cash, cash equivalents and marketable securities will be
sufficient to fund our operations, as currently planned, through at least one
year from the filing of this Quarterly Report. We cannot estimate the actual
amounts necessary to successfully commercialize MYCAPSSA in the United States
and complete the development and
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successfully commercialize octreotide capsules in the European Union, if at all,
or whether, or when, we may achieve profitability. Our future capital
requirements will depend on many factors, including, but not limited to:
• the costs and timing of future commercialization activities, including
product manufacturing, marketing, access and reimbursement, sales and
distribution, for octreotide capsules and any other future product
candidates for which we receive marketing approval;
• proceeds, if any, received from commercial sales of octreotide capsules
and any future product candidates for which we receive marketing approval;
• the costs, timing and outcome of the development and regulatory review of
octreotide capsules and our second manufacturing supplement;
• the progress and results of our clinical trials of octreotide capsules or
any future clinical trials or studies we may conduct;
• the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims; and
• the extent to which we develop, acquire or in-license other product
candidates and technologies or explore or consummate other strategic
transactions.
We filed a $200.0 million shelf registration statement on Form S-3 with the SEC
in September 2019, which the SEC declared effective in September 2019. In April
2020, we entered into the ATM Agreement with Jefferies, under which we may offer
and sell from time to time shares of our common stock having an aggregate
offering price of up to $60.0 million through Jefferies, acting as our sales
agent or principal. To date, we have not sold any shares of common stock under
the ATM Agreement. In July 2020, we completed a follow-on public offering which
consisted of common stock and pre-funded warrants, in which we raised
$80.5 million in gross proceeds, or $75.5 million net proceeds after deducting
underwriting fees and offering expenses. Consequently, we have approximately
$59.5 million available under such shelf registration statement on Form S-3.
To the extent that we raise additional capital through future issuance of equity
or convertible debt, the ownership interest of our stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our existing common stockholders. If we
raise additional funds through collaboration or other financing arrangements, we
may have to relinquish valuable rights to our current or future product
candidates, exploratory programs, technologies or future revenue streams on
terms that may not be favorable to us. If we are unable to raise additional
funds through equity or other financings when needed, we may be required to
delay, limit, reduce or terminate our product development or future
commercialization efforts of octreotide capsules or grant rights to develop and
market future potential product candidates that we would otherwise prefer to
develop and market ourselves.
Revenue Interest Financing Agreement
In April 2020, we entered into a Revenue Interest Financing Agreement with HCR
whereby HCR will receive payments from us at a tiered percentage, or the
Applicable Tiered Percentage, of future net revenues of MYCAPSSA and any of our
other future products, including worldwide net product sales and upfront
payments, and milestones, collectively, the Revenue Interests. Under the terms
of the agreement, we received $25.0 million, less certain transaction expenses,
from HCR in April 2020, received an additional $25.0 million following the FDA
approval of MYCAPSSA in July 2020, and received $15.0 million following delivery
of commercial supplies of MYCAPSSA to our third party logistics provider and the
first commercial sale of MYCAPSSA in September 2020. We are also entitled to
receive an additional $10.0 million in early 2022 subject to the achievement of
a revenue milestone and customary closing conditions. In exchange for the total
investment amount, or Investment Amount, received, HCR will receive a tiered
royalty in the low double digits on worldwide annual net revenues of MYCAPSSA
and any other future products, subject to step-downs upon the achievement of
certain annual revenues.
HCR's rights to receive the Revenue Interests shall terminate on the date on
which HCR has received payments equal to 195% of the funded portion of the
Investment Amount including the aggregate of all payments made to HCR as of such
date, unless the Revenue Interest Financing Agreement is earlier terminated. If
HCR has not received payments equal to the 195% of the funded portion of the
Investment Amount by the ten-year anniversary of the initial closing date and no
event of default has occurred or is ongoing, among other things, we shall pay
HCR an amount equal to the funded portion of the Investment Amount plus a
specific annual rate of return in the low to mid-teens less payments previously
received. If a change of control of the Company occurs, we must immediately
repay HCR the total amount actually funded, including any amount conditionally
eligible to be funded, plus a change of control premium, the amount of which is
variable up to 95% based on timing and circumstances of such change of control
and the amount funded and
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conditionally eligible to be funded by HCR as of the date of the change of
control. Accordingly, if the Merger closes (see Note 1), payments up to
approximately $126.4 million, inclusive of the change in control premium, will
be due and payable at such time. Upon the occurrence of an event of default,
including the withdrawal, suspension or other termination of the FDA approval of
MYCAPSSA as a treatment for acromegaly that continues for sixty days that
prevents us from marketing MYCAPSSA, HCR may accelerate payments due under the
agreement to the 195% of the funded portion of the Investment Amount.
If HCR has not received 60% of the Investment Amount by September 30, 2023
or 100% of the Investment Amount by September 30, 2024, we must make cash
payments sufficient to gross HCR up to such minimum amounts. Further, the
Revenue Interest Financing Agreement requires us to maintain a minimum of
$20.0 million in securitized cash and investment accounts during any quarter
that the trailing four quarters of net revenue of MYCAPSSA is below a certain
threshold. Our obligations under the Revenue Interest Financing Agreement are
secured by a first priority perfected security interest in all of our cash and
cash equivalents (as defined in the Revenue Interest Financing Agreement), all
present and future net revenues of MYCAPSSA and all MYCAPSSA-related assets.
Cash Flows
The following is a summary of cash flows for the three months ended March 31,
2021 and 2020:
Three Months Ended March 31,
2021 2020
($ in thousands)
Cash flows provided by (used in):
Operating activities $ (20,644 ) $ (12,590 )
Investing activities 29,416 27,562
Financing activities 51 (272 )
Operating Activities
Net cash used in operating activities was $20.6 million for the three months
ended March 31, 2021, and primarily consisted of $30.5 million in net loss,
adjusted for non-cash items of $11.5 million (comprised primarily of a $9.7
million change in the fair value of our embedded derivative liabilities and $1.4
million of stock-based compensation) and working capital decrease of $1.6
million (primarily due to the increase in inventory and prepaid expenses and
other assets which were offset by an increase in accounts payable and accrued
expenses). Net cash used in operating activities was $12.6 million for the three
months ended March 31, 2020, and primarily consisted of $15.4 million in net
loss, adjusted for non-cash items of $1.2 million (primarily stock-based
compensation) and working capital decrease of $1.6 million (primarily due to the
decrease in accounts payable and accrued expenses as well as an increase in
prepaid expenses and other assets). The primary driver for the increase in our
cash used in our operating activities during the three months ended March 31,
2021 compared to the three months ended March 31, 2020 were commercial costs as
well as the manufacturing of MYCAPSSA to support our commercial launch.
Investing Activities
Net cash provided by investing activities was $29.4 million for the three months
ended March 31, 2021, primarily related to the net maturities of marketable
securities, compared to $27.6 million cash provided by investing activities for
the three months ended March 31, 2020, primarily related to the net maturities
of marketable securities.
Financing Activities
Net cash provided by financing activities was $0.1 million during the three
months ended March 31, 2021, primarily related to proceeds from stock option
exercises. For the three months ended March 31, 2020, net cash used in financing
activities was $0.3 million, primarily related to payments of a short-term
borrowing which was partially offset by proceeds from stock option exercises.
Contractual Obligations
As of March 31, 2021, we had outstanding manufacturing commitments, including
the acquisition of API, in the aggregate amount of $23.9 million of which $17.8
million is expected to be incurred in 2021 with the remainder to be incurred
throughout 2022. The payments on these commitments will occur following the
deliveries of the API or
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completion of the manufacturing services. As of March 31, 2021, we had future
minimum lease payments under non-cancelable operating leases in the aggregate
amount of $1.0 million.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
SEC.
Critical Accounting Policies and Use of Estimates
We have adopted various accounting policies to prepare our condensed
consolidated financial statements in accordance with accounting principles
generally accepted in the United States, or U.S. GAAP. The preparation of our
condensed consolidated financial statements in conformity with U.S. GAAP
requires us to make estimates and assumptions that affect the amounts reported
in our consolidated financial statements and accompanying notes. Our estimates
and assumptions include those related to the accounting for net product revenue,
stock-based compensation, income taxes, deferred royalty obligations, including
embedded derivative liabilities, and accounting for certain accruals and
reserves. We assess the above estimates on an ongoing basis; however, actual
results could materially differ from those estimates. Our most significant
accounting policies are described in Note 1 to our condensed consolidated
financial statements included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2020. For information on accounting policies as well as
new pronouncements adopted in the current period and recently issued standards,
see Note 1 to our condensed consolidated financial statements. There have been
no material changes with respect to our critical accounting policies disclosed
in our Annual Report on Form 10-K for our fiscal year ended December 31, 2020.
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