EAGLE PHARMACEUTICALS, INC. The following information should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, or the Quarterly Report, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with theSecurities and Exchange Commission , or theSEC , onMarch 7, 2022 , or our Annual Report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under "Risk Factors" included elsewhere in this Quarterly Report. Such factors may be amplified by the COVID-19 pandemic and its current or its potential impact on our business and the global economy. Unless otherwise indicated or required by context, references throughout to "Eagle," the "Company," "we," "our," or "us" refer to financial information and transactions ofEagle Pharmaceuticals, Inc. 33 --------------------------------------------------------------------------------
Overview
We are an integrated pharmaceutical company focused on finding ways to help medicines do more for patients. Along with our collaborators, we have the capabilities to take a molecule from preclinical research through regulatory approval and into the marketplace, including development, manufacturing and commercialization of our products and product candidates. Our business model applies our scientific expertise, proprietary research-based insights and marketplace proficiency to identify challenging-to-treat diseases of the central nervous system or metabolic critical care therapeutic areas as well as in oncology. By focusing on patients' unmet needs, we strive to provide healthcare professionals with urgently needed treatment solutions that are designed to improve patient care and outcomes and create near- and long-term value for our stakeholders, including patients and healthcare providers and our employees, marketing partners, collaborators and stockholders. Our science-based business model has a proven track record with theU.S. Food and Drug Administration ("FDA") approval and commercial launches of six products: PEMFEXY® (pemetrexed for injection), vasopressin, an A-rated generic alternative to Vasostrict®, Ryanodex® (dantrolene sodium) ("Ryanodex"), bendamustine ready-to-dilute ("RTD") 500ml solution ("Belrapzo"), and rapidly infused bendamustine RTD ("Bendeka") and RTD ("Treakisym"). We market our products through marketing partners and/or our internal direct sales force. We market PEMFEXY, vasopressin, Ryanodex and Belrapzo, and Teva Pharmaceutical Industries Ltd. ("Teva") markets Bendeka through its subsidiaryCephalon, Inc. SymBio Pharmaceuticals Limited ("SymBio"), markets Treakisym, a RTD product, inJapan . We acquired Acacia Pharma Group plc ("Acacia") as ofJune 9, 2022 , which added twoU.S. Food and Drug Administration ("FDA") approved new chemical entities with patent protection, BARHEMSYS® (amisulpride for injection) and BYFAVO® (remimazolam for injection). The addition of these two products expands our presence in the acute care space, and we believe that our hospital-based salesforce will have success commercializing these assets. Refer to Note 14 for further details. With several pipeline projects underway and the potential for product launches over the next several years, we believe we have many growth opportunities ahead. We believe that each of our pipeline projects currently has the potential to enter the market as a first-in-class, first-to-file, first-to-market or best-in-class product. In particular, we are applying our expertise to conduct novel research regarding the potential for Ryanodex to address conditions including acute radiation syndrome, traumatic brain injury/concussion and Alzheimer's disease as well as investigations of compounds such as EA-114 (our fulvestrant product candidate) for patients with HR-positive advanced breast cancer. Our clinical development program also includes a license agreement withCombioxin, SA under which the Company was granted exclusive, worldwide development and commercialization rights to CAL02, a novel first-in-class antitoxin agent for Phase 2b/3 development for the treatment of severe pneumonia in combination with traditional antibacterial drugs and a license agreement withAOP Orphan Pharmaceuticals GmbH , a member of theAOP Health Group ("AOP Orphan"), for the commercial rights to its product, landiolol inthe United States . Landiolol is a leading hospital emergency use product, which is currently approved inEurope for the treatment of non-compensatory sinus tachycardia and tachycardic supraventricular arrhythmias.
Recent Developments
OnAugust 8, 2022 , we andEnalare Therapeutics Inc. ("Enalare") entered into a Securities Purchase Agreement, pursuant to which we have committed to provide equity investments of up to$55 million in Enalare, subject to the completion of certain development milestones (the "Purchase Agreement"). Concurrently with the execution of the Purchase Agreement, we, Enalare and Enalare's stockholders entered into a Security Purchase Option Agreement, pursuant to which we were granted an option (the "Purchase Option") to acquire all of the remaining outstanding shares of Enalare other than those that we already own. The Purchase Option is subject to Enalare's receipt of communication from the FDA after the completion of the Phase 2 Clinical Trial (as defined in the Purchase Agreement) that can be reasonably interpreted as not precluding Enalare from proceeding to a Phase 3 clinical trial involving a product containing the active ingredient ENA-001. Acacia Acquisition OnJune 9, 2022 , we completed the acquisition of Acacia Pharma Group plc ("Acacia"), formerly a public company organized under the laws ofEngland andWales . The acquisition added two FDA approved currently marketed, acute care, hospital products, both of which are new chemical entities with strong patent protection:
•BARHEMSYS (amisulpride for injection), the first and only antiemetic approved by the FDA for rescue treatment of postoperative nausea and vomiting, and
•BYFAVO (remimazolam for injection), indicated for the induction and maintenance
of procedural sedation in adults undergoing procedures lasting 30 minutes or
less.
34
--------------------------------------------------------------------------------Landiolol
OnJune 1, 2022 , we announced thatAOP Orphan , with whom we entered into a licensing agreement inAugust 2021 , submitted an NDA to the FDA for landiolol, a short-acting, intravenous ("IV"), cardio-selective beta-1 adrenergic blocker. The submission seeks approval for landiolol for the short-term reduction of ventricular rate in patients with supraventricular tachycardia ("SVT"), including atrial fibrillation and atrial flutter. TheFDA's decision with respect to approval is expected in mid-2023, and enrollment of study of pediatric patients with supraventricular tachycardia is underway inEurope .
PEMFEXY
OnFebruary 1, 2022 , we announced the commercial availability of our novel product PEMFEXY™ (pemetrexed for injection). A branded alternative to ALIMTA®, Eagle's PEMFEXY is a ready-to-use liquid with a unique J-code approved to treat nonsquamous non-small cell lung cancer and mesothelioma. InFebruary 2020 , Eagle received final approval from the FDAof its New Drug Application ("NDA") for PEMFEXY, following the settlement agreement of patent litigation with Eli Lilly and Company (NYSE: LLY) inDecember 2019 . The agreement provided for a release of all claims by the parties and allows for an initial entry of PEMFEXY into the market (equivalent to approximately a three-week supply of current ALIMTA utilization) onFebruary 1, 2022 and a subsequent uncapped entry onApril 1, 2022 .
Vasopressin
OnJanuary 18, 2022 , we announced the commercial availability of our recently approved product, vasopressin, an A-rated generic alternative to Vasostrict®, with 180 days of marketing exclusivity. OnDecember 15, 2021 , the FDA approved Eagle's abbreviated new drug application ("ANDA") for vasopressin, a product that is indicated for use to increase blood pressure in adults with vasodilatory shock (e.g., post-cardiotomy or sepsis) who remain hypotensive despite fluids and catecholamines.
TREAKISYM
Eagle's bendamustine franchise continues to grow, including the launch of the
TREAKISYM ready-todilute ("RTD") formulation in Japan in the first quarter of
2021. Together with a potential approval of the rapid infusion ("RI") (50ml)
liquid formulation.
Fulvestrant
Based on discussions with the FDA, we reformulated and plan to commence human
pilot studies of our fulvestrant product candidate for the treatment of HR+/HER-
advanced breast cancer shortly.
CAL02
We are preparing to begin clinical trials for CAL02, a novel approach to the treatment of severe bacterial pneumonia, later in 2022.
We expect to start a phase 2b/3 clinical trial for CAL02 patients in the third quarter of 2022, during pneumonia season. InAugust 2021 , we entered into a license agreement withCombioxin, SA under which we were granted exclusive, worldwide. development and commercialization rights to CAL02, a novel approach to the treatment of severe bacterial pneumonia.
Bendeka Settlement
OnApril 19, 2022 , we entered into a definitive settlement agreement, or the Settlement Agreement, withHospira, Inc. , or Hospira, relating to our product BENDEKA® (rapidly infused bendamustine hydrochloride). This settlement resolves patent litigation brought by us and our marketing partnersTeva Pharmaceuticals International, GmbH andCephalon, Inc. relating to the alleged infringement of Orange Book listed United States Patent Nos. 11,103,483 and 9,572,887, or the Asserted Patents, with respect to Hospira's 505(b)(2) NDA, No. 211530. Pursuant to the terms of the Settlement Agreement, we will grant Hospira a license to market Hospira's product made under NDA No. 211530 inthe United States beginning onJanuary 17, 2028 (subject to FDA approval), or earlier under certain circumstances. Additionally, in accordance with the Agreement, the parties will terminate all ongoing litigation among us,Teva Pharmaceuticals International, GmbH andCephalon, Inc. and Hospira regarding the Asserted Patents pending in theUnited States District Court for the District of Delaware . The Agreement is confidential and subject to review by theU.S. Federal Trade Commission and theU.S. Department of Justice . 35 --------------------------------------------------------------------------------
COVID-19 Business Update
In response to the ongoing COVID-19 pandemic, we have taken and continue to take active measures designed to address and mitigate the impact of the COVID-19 pandemic on its business, such as remote working policies, facilitating management's daily communication to address employee and business concerns and providing frequent updates to the Board. While we have experienced variable financial impacts to date, the ongoing COVID-19 pandemic, including the global economic slowdown, government measures taken in response thereto, the overall disruption of global healthcare systems and other risks and uncertainties associated with the pandemic, could materially adversely affect our business, financial condition, results of operations and growth prospects. We continue to closely monitor the COVID-19 pandemic as we evaluate and evolve our business plans and response strategy. The impact of the COVID-19 pandemic on our business and financial condition is more fully described below in Trends and Uncertainties.
Other Business Update
In addition, theU.S. government and other nations have imposed significant restrictions on most companies' ability to do business inRussia as a result of the ongoing military conflict betweenRussia andUkraine . It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to further expand our business and to otherwise generate revenues and develop our product candidates. In addition, a significant escalation or expansion of economic disruption or the conflict's current scope could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Financial Operations Overview
Revenue
Our revenue consists of product sales, royalty revenue and license and other revenue.
Product Sales. ThroughJune 30, 2022 , we have recognized revenues from product sales including Pemfexy, vasopressin, Ryanodex, Belrapzo, Bendeka, Treakisym, BARHEMSYS and BYFAVO. Sales of Bendeka and Treakisym were made to our commercial partners, Teva and SymBio, respectively. Sales to our commercial partners are typically made at little or no profit for resale. Pemfexy, vasopressin, Ryanodex Belrapzo, BARHEMSYS and BYFAVO were sold directly to wholesalers, hospitals and surgery centers through a third-party logistics partner. We typically enter into agreements with group purchasing organizations acting on behalf of their hospital members, in connection with the hospitals' purchases of our direct commercial products. Based on these agreements, most of our hospital customers have contracted prices for products and volume-based rebates on product purchases. These amounts are estimated and recorded at the time of sale. In the case of discounted pricing, we typically provide a chargeback, representing the difference between the price invoiced to the wholesaler and the customer contract price. Royalty Revenue. We recognize revenue from royalties based on a percentage of Teva's net sales of Bendeka and Symbio's net sales of Treakisym, net of discounts, returns and allowances incurred by our commercial partners. Royalty revenue is recognized as earned in accordance with contract terms when it can be reasonably estimated and collectability is reasonably assured. License and Other Revenue. Our revenues may either be in the form of the recognition of deferred revenues upon milestone achievement for which cash has already been received or recognition of revenue upon milestone achievement for which the payment for which is reasonably assured to be received in the future.
The primary factors that determine our revenues derived from Bendeka are:
•the level of orders submitted by our commercial partner, Teva;
•the rate at which Teva can convert the current market to Bendeka;
•the level of institutional demand for Bendeka;
•unit sales prices charged by Teva, net of any sales reserves; and
•the level of orders submitted by wholesalers, hospitals and surgery centers.
The primary factors that determine our revenues derived from Treakisym are:
•the level of orders submitted by our commercial partner, SymBio;
•the level of institutional demand for Treakisym; and
•unit sales prices charged by SymBio, net of any sales reserves.
36
--------------------------------------------------------------------------------The primary factors that may determine our revenues derived from Pemfexy, vasopressin, Ryanodex, Belrapzo, BARHEMSYS, BYFAVO and our future products are:
•the effectiveness of our sales force;
•the level of orders submitted by wholesalers, hospitals and surgery centers;
•the level of institutional demand for our products; and
•unit sales prices, net of any sales reserves.
Cost of Revenues
Cost of revenue consists of the costs associated with producing our products for our commercial partners. In particular, our cost of revenue includes production costs of our products paid to a contract manufacturing organization coupled with shipping and customs charges, cost of royalty and the amortization of intangible assets. Cost of revenue may also include the effects of product recalls, if applicable. Research and Development Costs for research and development are charged to expenses as incurred and include: employee-related expenses including salaries, benefits, travel and stock-based compensation expense for research and development personnel; expenses incurred under agreements with contract research organizations, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies; costs associated with preclinical activities and development activities; costs associated with regulatory operations; and depreciation expense for assets used in research and development activities. Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid expenses or accrued expenses as deemed appropriate. Recoveries of previously recognized research and development expenses from third parties are recorded as a reduction to research and development expense in the period it becomes realizable.
Selling, General and Administrative
Selling, general and administrative costs consist of employee-related costs including salaries, benefits and other related costs, stock-based compensation for executive, finance, sales and operations personnel. Selling, general and administrative expenses also include facility and related costs, professional fees for legal, consulting, tax and accounting services, insurance, selling, marketing, market research, advisory board and key opinion leaders, depreciation and general corporate expenses.
Income Taxes
We account for income taxes using the liability method in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 740 - Income Taxes, or ASC 740. Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that the rate changes. A valuation allowance is required when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. ASC 740 also prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction. We recognize any interest and penalties accrued related to unrecognized tax benefits as income tax expense. The provision for income taxes was based on the applicable federal and state tax rates for those periods. The effective tax rate for the three months endedJune 30, 2022 reflects certain non-deductible executive compensation, partially offset by credits for research and development activity. The effective tax rate for the three months endedJune 30, 2021 reflects the impact of a valuation allowance established and adjusted for the fair value adjustments on our investment in Tyme, certain non-deductible executive compensation and changes in state filing positions, partially offset by credits for research and development activity. 37 --------------------------------------------------------------------------------
Results of Operations
Comparison of Three Months Ended
Revenues
Three Months Ended
June 30,
2022 2021 Increase / (Decrease)
(in thousands)
Product sales, net $ 49,201 $ 19,621 $ 29,580
Royalty revenue 24,935 28,503 (3,568)
Total revenue $ 74,136 $ 48,124 $ 26,012
Our product sales increased $29.6 million during the three months ended June 30,
2022 as compared to the three months ended June 30 , 2021.The increase was
primarily attributable to product sales of $16.5 million for Pemfexy and $11.3
million for vasopressin during the during the three months ended June 30, 2022 ,
which launched in the first quarter of 2022. We also had higher product sales
for Ryanodex, Bendeka, and Belrapzo of $0.9 million , $0.6 million and $0.5
million , respectively, primarily due to volume increases, partially offset by
lower sales of Treakisym of $0.4 million .
Our royalty revenue decreased $3.6 million during the three months ended June
30, 2022 as compared to the three months ended June 30, 2021 , primarily as a
result of a decrease in royalty revenue from our share of Teva's Bendeka sales.
Cost of revenue
Three Months Ended
June 30,
2022 2021 Increase / (Decrease)
(in thousands)
Cost of product sales $ 21,171 $ 7,907 $ 13,264
Cost of royalty revenue 2,493 2,850 (357)
Total cost of revenue $ 23,664 $ 10,757 $ 12,907
Our cost of product sales increased by $13.3 million during the three months
ended June 30, 2022 as compared to the three months ended June 30, 2021 . This
was primarily attributable to the product sales of Pemfexy and vasopressin,
which combined for cost of sales of $11.6 million , due to the product launches
in 2022. There were also increases of $0.6 million in Bendeka and $0.3 million
in Belrapzo cost of product sales resulting from higher unit sales. These
increases were partially offset by a decrease of $0.3 million in Treakisym cost
of revenue resulting from lower unit sales.
Our cost of royalty revenue decreased by $0.4 million during the three months
ended June 30, 2022 as compared to the three months ended June 30, 2021 . This
was primarily attributable to costs related to the royalty revenue for Bendeka.
38
--------------------------------------------------------------------------------Research and development The table below details the Company's research and development expenses by significant project for the periods presented.
Three Months Ended June 30, Increase /
2022 2021 (Decrease)
(in thousands)
Fulvestrant "EGL-5385-C-1701" $ 6,298 $ 820 $ 5,478
Vasopressin (604) 2,351 (2,955)
Ryanodex related projects 73 1,535 (1,462)
CAL02 / Combioxin 2,416 - 2,416
Landilol / AOP 39 - 39
Pemfexy (59) 579 (638)
All other projects 249 1,073 (824)
Salary and other personnel related costs 3,025 3,553 (528)
Research and development $ 11,437 $ 9,911 $ 1,526
Our research and development expenses increased $1.5 million in the three months
ended June 30, 2022 as compared to the three months ended June 30, 2021 . The
increase was primarily due to higher spend on fulvestrant projects of $5.5
million and CAL02 projects of $2.4 million partially offset by the
non-recurrence of development costs on vasopressin and Pemfexy of $3.6 million
and lower spend on Ryanodex related projects of $1.5 million and other projects
of $0.9 million .
Selling, general and administrative
Three Months Ended
June 30,
2022 2021 Increase
(in thousands)
Selling, general and administrative
Our selling, general and administrative expenses increased$20.2 million for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . This increase is primarily related to$9.8 million of Acacia acquisition related costs,$7.7 million of severance related to the integration of Acacia,$2.6 million of external legal costs, and$0.9 million of sales and marketing costs for PEMFEXY. Other expense, net Three Months Ended June 30, 2022 2021 Increase / (Decrease) (in thousands) Interest income$ 244 $ 163 $ 81 Interest expense (552) (422) (130) Other expense (7,763) (5,013) (2,750) Total other expense, net$ (8,071) $ (5,272) $ (2,799) Our interest income increased by$0.1 million for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . This increase is primarily due to higher interest rates on money market funds. Our interest expense increased by$0.1 million for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . This increase is due slightly higher interest rates in 2022 for our higher level of outstanding debt during the three months endedJune 30, 2022 . 39 -------------------------------------------------------------------------------- Our other expense was a net expense of$7.8 million for the three months endedJune 30, 2022 as compared to a net expense of$5.0 million for the three months endedJune 30, 2021 . The change was primarily due to$5.5 million loss related to forward contracts settled during the period,$0.7 million loss related to fair value adjustments on an outstanding forward contract,$0.8 million loss related to foreign exchange, partially offset by$4.5 million gain related to fair value adjustments on our investment in Tyme during the three months endedJune 30, 2022 . Income tax provision Three Months Ended June 30, 2022 2021 (in thousands) Provision for income taxes$ (3,582) $ (1,936) Effective tax rate (61) % 35 % The effective tax rate for the three months endedJune 30, 2022 , reflects an interim tax provision resulting from the impact of certain non-deductible executive compensation and the impact of certain non-deductible costs from the acquisition of Acacia. The effective tax rate for the three months endedJune 30, 2021 reflects the impact of a valuation allowance established and adjusted for the fair value adjustments on our investment in Tyme, certain non-deductible executive compensation, partially offset by credits for research and development activity. Comparison of Six Months EndedJune 30, 2022 and 2021 Revenues Six Months Ended June 30, 2022 2021 Increase / (Decrease) (in thousands) Product sales, net$ 139,289 $ 36,741 $ 102,548 Royalty revenue 50,721 52,632 (1,911) Total revenue$ 190,010 $ 89,373 $ 100,637 Our product sales increased$102.5 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The increase was primarily attributable to product sales of Pemfexy and vasopressin, which each launched in the first quarter of 2022, which combined for$99.4 million of product sales, net. We also had higher product sales of Bendeka of$1.5 million , Belrapzo of$0.8 million , each due to unit volume, and Ryanodex$0.7 million due to price increases. Our royalty revenue decreased$1.9 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , primarily as a result of lower royalties on Teva's sales of Bendeka of$4.8 million , which were partially offset by royalties on Symbio's sales of Treakisym of$2.9 million . Cost of revenue Six Months Ended June 30, 2022 2021 Increase / (Decrease) (in thousands) Cost of product sales$ 46,347 $ 16,349 $ 29,998 Cost of royalty revenue 5,072 5,263 (191) Total cost of revenue$ 51,419 $ 21,612 $ 29,807 Our cost of product sales increased$30.0 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . This was primarily attributable to the product launches of Pemfexy and vasopressin in 2022, which combined for cost of sales of$27.1 million in the six months endedJune 30, 2022 , as well as increases of$1.6 million for Bendeka and$0.5 million for Belrapzo, each related to higher unit sales. These increases were partially offset by a decrease of$0.7 million in Ryanodex cost of product sales resulting from lower unit sales. 40 -------------------------------------------------------------------------------- Our cost of royalty revenue decreased$0.2 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , primarily as a result of a decrease in royalty revenue on Teva's sales of Bendeka. Partially offset by higher cost of royalty associated with Treakisym. Research and development Six Months Ended June 30, Increase / 2022 2021 (Decrease) (in thousands) Fulvestrant "EGL-5385-C-1701"$ 6,919 $ 4,478 $ 2,441 Vasopressin (604) 5,211 (5,815) Ryanodex related projects 431 3,746 (3,315) CAL02 / Combioxin 3,386 - 3,386 Landilol / AOP 153 - 153 Pemfexy (56) 1,116 (1,172) All other projects 737 1,917 (1,180) Salary and other personnel related costs 6,579 7,731 (1,152) Research and development$ 17,545 $ 24,199 $ (6,654) Our research and development expenses decreased$6.7 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The decrease primarily resulted from non-recurrence of development costs of$5.8 million for vasopressin,$3.3 million for Ryanodex related projects,$1.2 million related to Pemfexy and$0.9 million total decrease in salaries, bonus, severance, included with salary and other personnel related costs. Partially offset by increase of$3.4 million in the CAL02 project and$2.4 million in the fulvestrant project.
Selling, general and administrative
Six Months Ended June 30,
2022 2021 Increase
(in thousands)
Selling, general and administrative $ 59,014 $ 36,515 Our selling, general and administrative expenses increased$22.5 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The increase is primarily related to$11.3 million of Acacia acquisition related costs,$7.1 million of severance related to the integration of Acacia,$4.2 million of external legal costs and$1.6 million of sales and marketing costs for PEMFEXY, partially offset by a decrease in stock compensation expense of$2.0 million . Other expense, net Six Months Ended June 30, 2022 2021 Increase / (Decrease) (in thousands) Interest income $ 398$ 198 $ 200 Interest expense (918) (844) 74 Other (expense) income (9,720) 487 (10,207) Total other expense, net$ (10,240) $ (159) $ (10,081) Our interest income increased$0.2 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . This increase was primarily due to higher interest rates on money market funds as compared to the six months endedJune 30, 2021 . 41 -------------------------------------------------------------------------------- Our interest expense increased$0.1 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . This increase was due to slightly higher interest rates in 2022 for our outstanding debt during the six months endedJune 30, 2022 . Our other (expense) income was a net expense amount of$9.7 million for the six months endedJune 30, 2022 as compared to an income amount of$0.5 million for the six months endedJune 30, 2021 . The change was primarily due to a$4.9 million loss related to forward contracts settled during the period,$0.7 million loss related to fair value adjustments on an outstanding forward contract,$0.8 million loss related to foreign exchange, and$3.6 million loss related to fair value adjustments on our investment in Tyme during the six months endedJune 30, 2022 . Income tax provision Six Months Ended June 30, 2022 2021 (in thousands) Provision for income taxes$ (17,184) $ (3,697) Effective tax rate 33 % 54 % The effective tax rate for the six months endedJune 30, 2022 , reflects an interim tax provision resulting from impact of certain non-deductible executive compensation and the impact of certain non-deductible costs from the acquisition of Acacia, partially offset by credits for research and development activity.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents, cash flows from operations and availability of borrowing
under our revolving credit facility. Our primary uses of cash are to fund working capital requirements, including repayment of debt, product development costs and operating expenses. We may also use cash for business acquisitions or other strategic transactions, such as in our acquisition of Acacia. Cash and cash equivalents were$36.6 million and$108.7 million as ofJune 30, 2022 andJune 30, 2021 , respectively.
For the six months ended
We believe that our cash and cash equivalents and future cash flows from operations will be sufficient to fund our currently anticipated working capital requirements for at least the next 12 months. We believe we will be able to meet our expected future cash and working capital requirements through a combination of cash flows from operations, cash and cash equivalents, availability of borrowings under our revolving credit facility and additional funding in the capital markets, if needed. We have based this estimate on assumptions that may prove to be wrong. We may opportunistically seek access to additional capital to fund potential licenses, acquisitions or investments to expand our operations or for general corporate purposes. Raising additional capital could be accomplished through one or more public or private debt or equity financings, collaborations or partnering arrangements. As a result of the COVID-19 pandemic, as well as the ongoing military conflict betweenRussia andUkraine and the related sanctions imposed againstRussia and countermeasures related thereto in addition to macroeconomic conditions including rising inflation, the global credit and financial markets have experienced significant volatility and disruption. If these market conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments or acquisitions. An inability to borrow or raise additional capital in a timely manner and on attractive terms could prevent us from expanding our business or taking advantage of acquisition opportunities, and could otherwise have a material adverse effect on our business and growth prospects. In addition, if we use a substantial amount of our funds for any such potential acquisition or investment activities, we may not have sufficient additional funds to conduct all of our operations in the manner we would otherwise choose. Furthermore, any equity financing would be dilutive to our shareholders, and any financing could require the consent of the lenders under our credit facility.
The COVID-19 pandemic has disrupted and continues to disrupt the
42
--------------------------------------------------------------------------------
pandemic, geopolitical and macroeconomic conditions on our business and
operations. We have experienced variable financial impacts to date, as a result
of the COVID-19 pandemic and the ongoing pandemic could have a material adverse
impact on our financial condition and results of operations in the future,
including our ability to obtain financing when and if needed. The impact of
COVID-19 on our business and financial condition is more fully described below
in Trends and Uncertainties.
Operating Activities:
Net cash used in operating activities for the six months ended June 30, 2022 was
$26.4 million . Net income for the period was $34.6 million enhanced by the net
of non-cash adjustments of approximately $12.8 million from deferred income
taxes, depreciation expense, amortization expense of right-of-use assets,
amortization expense of intangible assets, fair value adjustments on equity
investment, stock-based compensation expense, amortization of debt issuance
costs, foreign exchange gains and losses, and other items. Net changes in
working capital decreased cash from operating activities by approximately $21.0
million , due to changes in working capital accounts. The total amount of
accounts receivable at June 30, 2022 was approximately $85.9 million , which
included $61.0 million related to product sales and $24.9 million related to
royalty revenue. Receivables from our product sales have payment terms ranging
from 30 to 75 days with select extended terms to wholesalers on initial
purchases of product launch quantities. Our receivables from royalty revenue are
due 45 days from the end of the quarter.
Investing Activities:
Net cash used in investing activities for the six months endedJune 30, 2022 was$75.6 million , primarily as a result of our acquisition of Acacia coupled with$0.2 million for purchases of property and equipment.
Financing Activities:
Net cash used in financing activities for the six months endedJune 30, 2022 was$11.9 million , as a result of$4 million of principal payments for debt required by our Second Amended and Restated Credit Agreement withJPMorgan Chase Bank, N.A ., as administrative agent and the lenders party thereto, or the Credit Agreement,$8.1 million in payments related to the repurchases of our common stock,$1.3 million of payments associated with employee withholding tax upon vesting of stock-based awards, offset by$1.5 million in proceeds received from the exercise of employee stock options.
Trends and Uncertainties
During the three and six months endedJune 30, 2022 , we have experienced a variable impact on our business and financial condition due to the COVID-19 pandemic. We also incurred an insignificant amount of incremental administrative costs related to the COVID-19 pandemic. The COVID-19 pandemic, including containment and mitigation measures, has impacted, and is expected to continue to impact, our business and operations in a number of ways, including: •Day-to-Day Operations: During the second quarter of 2021, we developed and implemented plans to resume in-person work practices while adhering to relevant health authority guidance, for certain of our employees, including customer-facing employees, that had been primarily working remotely. We may incur additional expenses in 2022 related to the impact of the COVID-19 pandemic on our operations, including updates to our facilities to align with safety protocols. •Manufacturing and Supply Chain: We are working closely with our commercial partners and third-party manufacturers to mitigate potential disruptions as a result of the COVID-19 pandemic by continuing to monitor the supply and availability of Bendeka, Ryanodex, and Belrapzo, Treskysim, Pemfexy, vasopressin, Barhemsys, and Byfavo for the patients who rely on these products. We anticipate that the COVID-19 pandemic will continue to delay our supply chain and marketing and sales efforts for certain of our products, including Bendeka, although it is not currently expected that any disruption would be material. If the COVID-19 pandemic continues to persist for an extended period of time and impacts essential distribution systems such as FedEx and postal delivery, we could experience future disruptions to our supply chain and operations, and associated delays in the manufacturing and our clinical supply, which would adversely impact our development activities. •Marketing and Sale of Products: In addition to the impact on our product revenues resulting in a decrease in sales from Belrapzo, driven, in part, by the COVID-19 pandemic, we have also observed a reduction in the number of Bendeka patients visiting infusion centers, hospitals and clinics for intravenous administration of Bendeka due to interruptions in healthcare services, and the patients' inability to visit administration sites as well as desire to avoid contact with infected individuals. In addition, our sales and marketing teams have been working remotely and our virtual initiatives with respect to marketing and supporting the sale and administration of our products have not been as effective as our in-person sales and marketing activities. 43 -------------------------------------------------------------------------------- •Liquidity and Capital Resources: We believe that our future cash and cash equivalents and availability of borrowings under our Credit Agreement flows from operations will be sufficient to fund our currently anticipated working capital requirements for the next 12 months. We have based this estimate on assumptions that may prove to be wrong While the COVID-19 pandemic has not had, and we do not expect it to have, a material adverse effect on our liquidity, the situation continues to evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists or deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate distribution of our commercialized products, product portfolio expansion or some or all of our research and development programs, which would adversely affect our business prospects. We expect to be able to obtain future funding under the terms of the Credit Agreement, for general corporate purposes and any strategic acquisitions. •Regulatory Activities: We may experience further delays in the review and/or our interactions with FDA due to, for example, absenteeism by governmental employees, inability to conduct planned physical inspections related to regulatory approval, or the diversion ofFDA's efforts and attention to approval of other therapeutics or other activities related to the COVID-19 pandemic, which could further delay approval decisions with respect to regulatory submissions or obtain new product approvals. •Clinical Development Timelines: The clinical trial timelines for certain of our product candidates have been delayed given difficulties with limited patient enrollment resulting from the impact of the COVID-19 pandemic, and we expect that our clinical trial timelines will continue to be impacted for the duration of the pandemic. There are significant uncertainties surrounding the extent and duration of the impact of the COVID-19 pandemic on our business and operations. We continue to evaluate the impact of the COVID-19 pandemic on our operating results and financial condition. The COVID-19 pandemic has had a variable impact on our results of operations during the three and six months endedJune 30, 2022 and, it could have a material adverse impact on our financial condition and results of operations in the future. In addition, theU.S. government and other nations have imposed significant restrictions on most companies' ability to do business inRussia as a result of the ongoing military conflict betweenRussia andUkraine . It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to further expand our business and to otherwise generate revenues and develop our product candidates. In addition, a significant escalation or expansion of economic disruption or the conflict's current scope could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Contractual Obligations
Other than as set forth below, there have been no material changes to our
contractual and commercial obligations during the six months ended
Our future material contractual obligations included the following as ofJune 30, 2022 (in thousands): Obligations Total 2022 2023 2024 2025 Beyond Operating leases (1)$ 4,033 $ 827 $ 1,671 $ 1,122 $ 413 $ - Credit facility and Term Loans (2) 48,118 22,000 4,571 13,059 8,488 - Purchase obligations (3) 74,097 74,097 - - - - Total obligations$ 126,248 $ 96,924 $ 6,242 $ 14,181 $ 8,901 $ - (1) We lease our corporate office location. OnAugust 8, 2019 , we amended the lease for our corporate office location in order to rent additional office space and extend the term of our existing lease toJune 30, 2025 . We also lease lab space under a lease agreement that expires onApril 1, 2024 , office space located inIndianapolis, Indiana throughNovember 2023 , and an office space located inPalm Beach Gardens, Florida , throughOctober 31, 2024 .
(2) Refer to Note 9. Debt for details of our Credit Agreement and Term Loans.
(3) As ofJune 30, 2022 , we had purchase obligations in the amount of$74.1 million which represents the contractual commitments under contract manufacturing and supply agreements with suppliers. The obligation under the supply agreement is primarily for finished product, inventory, and research and development. 44 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
Our significant accounting policies and estimates are disclosed in "Note 2. Summary of Significant Accounting Policies" in our audited financial statements for the year endedDecember 31, 2021 included in our Annual Report. Since the date of such financial statements, there have been no changes to our significant accounting policies and estimates other than those described in Note 2 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Recent Accounting Pronouncements
InMarch 2020 , the FASB issued Update 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR, formerly known as the London Interbank Offered Rate, or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides optional expedients, including; (1) Simplify accounting analyses under current GAAP for contract modifications, such as modifications of contracts within the scope of Topic 470, Debt, that will be accounted for by prospectively adjusting the effective interest rate, as if any modification was not substantial. That is, the original contract and the new contract shall be accounted for as if they were not substantially different from one another; (2) Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue; (3) Allow a one-time election to sell or transfer debt securities classified as held to maturity beforeJanuary 1, 2020 that reference a rate affected by reference rate reform. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively throughDecember 31, 2022 . The adoption of ASU 2020-4 is not expected to have a material impact on our financial position or results of operations. InOctober 2021 , the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value at the acquisition date. This accounting standard update will be effective for public business entities in fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years; therefore for us beginning in the first quarter of 2023. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our condensed consolidated financial statements. InMarch 2022 , the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 801): Fair Value Hedging - Portfolio Layer Method, which expands the current single-layer hedging model to allow multiple-layer hedges of a single closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments under the method. This accounting standards update will be effective for public business entities in fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years; therefore for us beginning in the first quarter of 2023. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our condensed consolidated financial statements. There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures.
Impact of Inflation
While it is difficult to accurately measure the impact of inflation due to the
imprecise nature of the estimates required, we believe the effects of inflation,
if any, on our results of operations and financial condition have been
immaterial.
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