OPIANT PHARMACEUTICALS, INC. The interim consolidated financial statements included in this Quarterly Report on Form 10-Q (this "Report") and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto in this Report, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company's Form 10-K for the year endedDecember 31, 2020 (the "Form 10-K"). In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are subject to risks and uncertainties, including those set forth in Part II - Other Information, Item 1A and in the Form 10-K. Risk Factors below and elsewhere in this Report could cause actual results to differ materially from historical results or anticipated results. Overview We are a specialty pharmaceutical company developing medicines for addiction and drug overdose. We developed NARCAN® (naloxone hydrochloride) Nasal Spray ("NARCAN®"), a treatment to reverse opioid overdose. This product was conceived and developed by us, licensed toAdapt Pharma Operations Limited ("Adapt"), anIreland based pharmaceutical company inDecember 2014 and approved by theU.S. Food and Drug Administration ("FDA") inNovember 2015 . InOctober 2018 , Emergent BioSolutions, Inc. ("EBS") completed its acquisition of Adapt. We have not consistently attained profitable operations and have historically depended upon obtaining sufficient financing to fund our operations. We anticipate if revenues are not sufficient, then additional funding will be required in the form of debt financing and/or equity financing from the sale of our Common Stock, and/or financings from the sale of interests in our prospective products and/or royalty transactions. However, we may not be able to generate sufficient revenues or raise sufficient funding to fund our operations. We have not had a bankruptcy, receivership or similar proceeding. We are required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the clinical testing and manufacturing and sale of pharmaceutical products. Plan of Operation During the fiscal year endingDecember 31, 2021 , we plan to continue to focus on developing medicines in our product pipeline for Opioid Overdose Reversal ("OOR"), Alcohol Use Disorder ("AUD"), Opioid Use Disorder ("OUD"), and Acute Cannabinoid Overdose ("ACO"). Our lead development product is OPNT003 - Nasal Nalmefene for OOR, which is further described below. OPNT003 - Nasal Nalmefene for OOR
In 2017, National Institute of Health leadership called for the
development of stronger, longer-acting formulations of antagonists to counteract
the very high potency synthetic opioids that are now claiming thousands of lives
each year. We are pursuing a 505(b)(2) development path for OPNT003, with the
potential to submit a NDA with the FDA for the drug and intranasal delivery
device combination in the first quarter of 2022. Nalmefene for injection was
previously approved by the FDA for treating suspected or confirmed opioid
overdose. The 505(b)(2) pathway allows companies to rely in part on the FDA's
findings of safety and efficacy for a previously approved product and to
supplement these findings with a more limited set of their own studies to
satisfy FDA requirements, as opposed to conducting the full array of preclinical
and clinical studies that would typically be required. We have reached agreement
with the FDA to perform a pharmacodynamic ("PD") study in healthy volunteers to
support our OPNT003 NDA application.
In February 2021 , the first patients were dosed in a confirmatory
pharmacokinetic ("PK") study for OPNT003, nasal nalmefene, for the treatment of
opioid overdose. In July 2021 , we announced positive top-line results from the
study. The study was conducted in 68 healthy subjects and compared OPNT003,
nasal nalmefene, with an intramuscular nalmefene hydrochloride injection, 1 mg,
which was the comparator previously agreed upon with the FDA. According to an
initial analysis, the top-line data demonstrated that nasal nalmefene achieved
significantly higher plasma concentrations compared to an intramuscular
injection (p<0.0001). The time for nasal nalmefene to achieve maximum plasma
concentrations (Tmax) was consistent with data from the previously completed
pilot study (approximately 15 minutes). The maximum plasma
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--------------------------------------------------------------------------------concentration (Cmax) was higher than observed in the pilot study, and the plasma half-life of nasal nalmefene (approximately 11 hours) was consistent with reported values following other routes (oral and parenteral) of administration.
In
InNovember 2021 , we received Fast Track Designation from the FDA for OPNT003, nasal nalmefene. Fast Track is an FDA process designed to facilitate the development and expedite review of potential therapies that seek to treat serious conditions and fill an unmet medical need. This designation enables early and frequent communication with the FDA, in addition to the potential for a rolling submission of an NDA application. Market and Commercial potential for OPNT003 There is a large and growing addressable market for opioid overdose reversal agents driven by sales into community based and first responder institutions, as well as directly to patients via pharmacies. The current addressable market is substantial, to ensure an opioid overdose reversal agent is available for all first responders, including fire departments, emergency medical services, federal law enforcement, local law enforcement, and other community groups. The co-prescribing of opioid overdose reversal agents alongside prescription opioids has also driven growth. It is estimated that only five percent of patients at higher risk of an opioid overdose have a naloxone prescription. Currently there are only thirteen states that have some form of mandatory co-prescription legislation in place, however several states are considering co-prescribing legislation in the near future. We have full commercial rights to OPNT003, and we were awarded a grant of approximately$7.4 million from theNational Institutes of Health ("NIH"). The grant provides us with additional resources for the ongoing development of OPNT003. We have been awarded the entire$7.4 million . We have also received a contract for approximately$4.6 million from theBiological Advance Research and Development Agency ("BARDA") to fund development of this project through NDA submission. In December of 2020, BARDA provided an additional commitment of up to$3.5 million . The contract modification increases the total potential value of the BARDA contract to$8.1 million . BARDA has awarded approximately$6.5 million of the contract throughSeptember 30, 2022 , with the balance expected to be funded, subject to satisfactory project progress, availability of funds and certain other conditions. As we continue to advance OPNT003 towards market approval and should we self-commercialize the product, we anticipate that our sales and marketing expenses will increase in several areas to support the development of a commercial platform that would allow us to commercialize OPNT003, as well as future pipeline products. The development of this commercial infrastructure includes increasing commercial personnel, pre-launch sales and marketing planning activities, establishing the supply chain and distribution. As we build this infrastructure, we are continuing to evaluate the ideal go-to-market strategy that will allow us to maximize the full commercial potential of OPNT003 and shareholder value. InJuly 2021 , we hired a new Chief Commercial Officer to build and lead the commercial organization. Debt Financing OnDecember 10, 2020 (the "Closing Date"), we entered into a Note Purchase and Security Agreement (the "Loan Agreement") with a syndicate of Pontifax Medison Finance, a healthcare-dedicated venture and debt fund, and Kreos Capital VI (Expert Fund ) LP (each a "Lender"). The Loan Agreement provides for term loans in an aggregate principal amount of up to$50.0 million in three tranches as follows: (a) on the Closing Date, a loan in the aggregate principal amount of$20.0 million , (b) upon the submission of a new drug application ("NDA") with the FDA, a loan in the aggregate principal amount of$10.0 million , and (c) upon FDA approval of an opioid overdose product, a loan in the aggregate principal amount of$20.0 million (each a "Loan, and collectively, the "Loans"). The outstanding principal of each term Loan bears an average interest rate of 8.75% per annum based on the date of issuance and a year consisting of 365 days. There is an interest-only period of 30 months, with interest on outstanding Loans payable on a quarterly basis based on the principal amount outstanding during the preceding quarter. After the interest-only period, principal of the outstanding Loans is payable in ten equal quarterly installments. All Loans have a maturity date ofOctober 1, 2025 .
Each Lender may, at its option, elect to convert up to half of the
then-outstanding Loans and all accrued and unpaid interest thereon into shares
our Common Stock. The Conversion Price shall be
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Our obligations are secured by a security interest, senior to any current and
future debts and to any security interest, in all of Company's right, title, and
interest in, to and under all of our property and other assets, other than its
NARCAN® Nasal Spray licensed intellectual property and other limited exceptions
specified in the Loan Agreement.
The Loan Agreement contains customary representations, warranties and covenants,
including covenants by us limiting additional indebtedness, liens, including on
intellectual property, guaranties, mergers and consolidations, substantial asset
sales, investments and loans, certain corporate changes, transactions with
affiliates and fundamental changes. The Loan Agreement provides for events of
default customary for term loans of this type, including but not limited to
non-payment, breaches or defaults in the performance of covenants, insolvency,
bankruptcy and the occurrence of a material adverse effect on the Company.
On
Impact of COVID-19 on our Business
The spread of the SARS-CoV-2 virus ("COVID-19") since the fourth quarter of
2019 has caused an economic downturn on a global scale, as well as significant
volatility in the financial markets.
Due to stay at home orders both in
We have not experienced a significant financial impact directly related
to the COVID-19 pandemic. As of September 30, 2021 , we have cash, cash
equivalents, and marketable securities of $50.4 million . We believe that we have
sufficient capital resources to sustain operations through at least the next 12
months from the date of the filing of this Report. As a result of this financial
position, we have not required any financial assistance under the Coronavirus
Aid, Relief, and Economic Security ("CARES") Act or other similar COVID-19
related federal and state programs or United Kingdom financial assistant
programs. We have no plans to furlough any employees at this time.
We have not experienced a significant operational impact on OPNT003 or
OPNT004 programs as a result of the COVID-19 pandemic, although we cannot rule
out future delays. We executed the cooperative research and development
agreement ("CRADA") with the National Institute of Health's National Center for
Advancing Translational Sciences ("NCATS") and will collaborate to formulate
OPNT004 for human studies.
However, we decided in April 2020 to pause the start of recruitment for
our OPNT002 planned Phase 2 study. Our decision follows the COVID-19 related
state of emergency declarations in the United Kingdom and across Europe where
our study was to take place. We have adequate cash allocated to fund the cost of
our Phase 2 study in OPNT002 and will continue to monitor the situation closely.
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--------------------------------------------------------------------------------Results of Operations
The following table sets forth the results of operations for the periods shown
(in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Increase (Decrease) 2021 2020 Increase (Decrease)
Revenues
Royalty revenue $ 14,041 $ 8,601 $ 5,440 $ 27,689 $ 19,057 $ 8,632
Grant and contract revenue 2,298 505 1,793 6,296 644 5,652
Total revenue 16,339 9,106 7,233 33,985 19,701 14,284
Operating expenses
General and administrative 3,379 2,729 650 8,759 8,138 621
Research and development 4,881 2,784 2,097 12,119 4,763 7,356
Sales and marketing 1,060 914 146 3,080 3,738 (658)
Royalty expense 3,059 1,952 1,107 6,145 4,289 1,856
Total operating expenses 12,379 8,379 4,000 30,103 20,928 9,175
Income (loss) from operations 3,960 727 3,233 3,882 (1,227) 5,109
Other income (expense)
Interest income 3 4 (1) 10 92 (82)
Interest expense (546) - (546) (1,626) - (1,626)
Gain (loss) on foreign
exchange - (6) 6 (10) (2) (8)
Total other income (expense) (543) (2) (541) (1,626) 90 (1,716)
Income (loss) before income taxes 3,417 725 2,692 2,256 (1,137) 3,393 Income tax (expense) - - - - (39) 39 Net income (loss) $ 3,417 $ 725 $ 2,692 $ 2,256$ (1,176) $ 3,432 Comparison of Three Months endedSeptember 30, 2021 to the Three Months endedSeptember 30, 2020 Revenues We recognized$16.3 million of revenue during the three months endedSeptember 30, 2021 , compared to$9.1 million for the three months endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 , we recognized approximately$14.0 million of revenue from our license agreement with EBS, and$2.3 million from grant and contract revenue. For the three months endedSeptember 30, 2020 , we recognized$8.6 million of revenue from our license agreement with EBS and$0.5 million from grant and contract revenue. The$5.4 million increase in revenue from our license agreement with EBS was primarily due to a$44.5 million increase in net NARCAN® sales in the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . The$1.8 million increase in grant and contract revenue was primarily due to the funding received fromNIH and BARDA for the development of OPNT003. General and Administrative Expenses Our general and administrative expenses increased by$0.6 million to$3.4 million from$2.8 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to an increase in legal, professional and other fees of$0.6 million . 24 -------------------------------------------------------------------------------- Research and Development Expenses Our research and development expenses for the three months endedSeptember 30, 2021 increased by$2.1 million to$4.9 million , from$2.8 million for the three months endedSeptember 30, 2020 , primarily due to increased activity on our lead product candidate, OPNT003 - Nasal Nalmefene for OOR.
Sales and Marketing Expenses
During the three months ended
Royalty Expenses
Our royalty expenses were$3.1 million and$2.0 million for the three months endedSeptember 30, 2021 and 2020, respectively. The increase of$1.1 million is attributable to the increase in net revenue recorded from sales of NARCAN® by EBS. Other Income (expense) During the three months endedSeptember 30, 2021 , interest expense was approximately$0.5 million . We had no interest expense for the three months endedSeptember 30, 2020 . Interest expense is all related to our convertible debt. Comparison of Nine Months endedSeptember 30, 2021 to the Nine Months endedSeptember 30, 2020 Revenues We recognized$34.0 million of revenue during the nine months endedSeptember 30, 2021 , compared to$19.7 million for the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 we recognized approximately$27.7 million of revenue from our license agreement with EBS and$6.3 million from grant and contract revenue. For the nine months endedSeptember 30, 2020 , we recognized$19.1 million of revenue from our license agreement with EBS and$0.6 million from grant and contract revenue. The$8.6 million increase in revenue from our license agreement with EBS was primarily due to a$80.0 million increase in net NARCAN® sales in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The$5.7 million increase in grant and contract revenue was all attributable to the funding received fromNIH and BARDA for the development of OPNT003. General and Administrative Expenses Our general and administrative expenses increased by$0.6 million to$8.7 million from$8.1 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to an increase in legal and professional fees of$0.3 million and personnel and related expense of$0.3 million . Research and Development Expenses Our research and development expenses increased by$7.3 million during the nine months endedSeptember 30, 2021 to$12.1 million , compared to$4.8 million for the nine months endedSeptember 30, 2020 , primarily due to an increase in external development expense related to increased activity on our lead product candidate, OPNT003.
Sales and Marketing Expenses
During the nine months ended
Royalty Expenses
25-------------------------------------------------------------------------------- Our royalty expenses were$6.1 million and$4.3 million during the nine months endedSeptember 30, 2021 and 2020, respectively. The increase of$1.8 million is attributable to the increase in net revenue recorded from sales of NARCAN® by EBS. Other Income (expense) During the nine months endedSeptember 30, 2021 , interest income was$10 thousand compared to interest income of$92 thousand for the nine months endedSeptember 30, 2020 , which primarily resulted from a decreased rate of return on our invested cash balances. During the nine months endedSeptember 30, 2021 , interest expense was approximately$1.6 million . We had no interest expense for the nine months endedSeptember 30, 2020 . Interest expense is all related to our convertible debt. Liquidity and Capital Resources
Cash Flows
The following table sets forth the primary sources and uses of cash for each of the periods presented below:
Nine Months Ended (in thousands) 2021 2020 Net cash used in operating activities$ (77) $ (395) Net cash used in investing activities$ (15,045) $ (51) Net cash provided by financing activities$ 2,162 $ 685 Net cash used in operating activities During the nine months endedSeptember 30, 2021 , net cash used in operating activities was$77 thousand , which was primarily due to changes in operating assets and liabilities of$5.1 million , mostly offset by stock based compensation expense of$2.1 million , other non-cash expenses totaling$0.7 million , and net income of$2.3 million . During the nine months endedSeptember 30, 2020 , net cash used in operating activities was$0.4 million , which was primarily due to a net loss of$1.2 million and a$1.4 million change in other assets and liabilities, mostly offset by approximately$1.7 million of stock based compensation expense, approximately$0.4 million of operating lease amortization, and$0.1 million in depreciation and amortization.
Net cash used in investing activities
During the nine months ended
During the nine months endedSeptember 30, 2020 , we purchased approximately$51 thousand in office furniture and equipment and made certain leasehold improvements. Net cash provided by financing activities
During the nine months ended
During the nine months ended
Critical Accounting Policies and Estimates
We believe that the following critical policies affect our significant judgments and estimates used in preparation of our financial statements.
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We prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP"). These principals
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management believes that
these estimates are reasonable and have been discussed with the Board; however,
actual results could differ from those estimates.
We issue options and warrants to consultants, directors, and officers as
compensation for services. These options and warrants are valued using the
Black-Scholes option pricing model, which focuses on the current stock price and
the volatility of moves to predict the likelihood of future stock moves. This
method of valuation is typically used to accurately price stock options and
warrants based on the price of the underlying stock.
Fair value estimates used in preparation of the financial statements are based
upon certain market assumptions and pertinent information available to
management. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
cash, accounts receivable and accounts payable. Fair values were assumed to
approximate carrying values for these financial instruments since they are
short-term in nature and their carrying amounts approximate fair values or they
are receivable or payable on demand.
Revenue Recognition
InMay 2014 , the FASB issued an accounting standard update ("ASU"), 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. OnJanuary 1, 2018 , we adopted the new Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers using the modified retrospective method, and we determined the new guidance does not change our policy of revenue recognition. Our primary source of revenue is through the recognition of royalty and milestone payments from EBS. Milestone revenue is recognized upon successful accomplishment of certain sales targets set forth in the license agreement between us and EBS. Royalty revenue is determined based on the agreed upon royalty rate applied to NARCAN® sales reported by EBS. There are no performance obligations by us and we recognize revenue according to the royalty report provided to us by EBS on a quarterly basis. InJune 2018 , the FASB issued guidance clarifying the revenue recognition and measurement issues for grants, contracts, and similar arrangements, ASU Topic 958. Government grants and contracts are agreements that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. We evaluated our grant withNIH and contract with BARDA and determined they are non-exchange transactions and fall within the scope of ASU 958, and revenue should be recognized in accordance with Topic 958 guidance. Accordingly, we recognize revenue from our grant and contract in the period during which the related costs are incurred, provided that the conditions under which the grant and contract were provided have been met and only perfunctory performance obligations are outstanding. Licensing Agreement Pursuant to the license agreement between us and EBS, we provided a global license to develop and commercialize our intranasal naloxone opioid overdose reversal treatment, now known as NARCAN®. We receive payments upon reaching various sales and regulatory milestones, as well as royalty payments for commercial sales of NARCAN® generated by EBS. Effect of Inflation Inflation did not have a significant impact on our revenues, or income from continuing operations for the three months and nine months endedSeptember 30, 2021 and 2020. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Recent Accounting Pronouncements We reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on our reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our 27 --------------------------------------------------------------------------------
financial management and certain standards are under consideration. Those standards have been addressed in the notes to the condensed consolidated financial statements contained herein, and in the notes to the audited consolidated financial statements in the Annual Form 10-K and in the Form 10-K itself.
Net Profit Interests
NARCAN®
We have entered into agreements with certain investors whereby, in exchange for funding for the research, development, marketing and commercialization of a product relating to our treatment to reverse opioid overdoses (the "Opioid Overdose Reversal Treatment Product or OORTP), we provided such investors with an interest in any pre-tax profits received by us that were derived from the sale of the OORTP less any and all expenses incurred by and payments made by us in connection with the OORTP, including but not limited to an allocation of our overhead devoted by us to product-related activities, which allocation shall be determined in good faith by us (the "OORTP Net Profit"). A summary of the investor agreements is below, and categorized by investor:Potomac Construction Limited ("Potomac") In 2013, 2014 and 2015, we entered into a number of agreements with Potomac for funding from Potomac for the research, development, marketing and commercialization of the Opioid Overdose Reversal Treatment Product in the total amount of$2.25 million , in exchange for a 10.21% interest in the OORTP Net Profit in perpetuity (the "Potomac Agreement"). As ofDecember 31, 2020 , all buyback rights have expired.Ernst Welmers ("Welmers"). OnMay 15, 2014 , we entered into an agreement with Welmers (the "Welmers Agreement") and received funding from Welmers in the amount of$300 thousand for use by us for any purpose, in exchange for a 1.5% interest in the OORTP Net Profit in perpetuity.Valour Fund, LLC ("Valour") OnJuly 22, 2014 , we received a$3.0 million commitment from a foundation (the "Foundation") which later assigned its interest to Valour, from which we had the right to make capital calls from the Foundation for the research, development, marketing, commercialization and any other activities connected to the Opioid Overdose Reversal Treatment Product, certain operating expenses and any other purpose consistent with the goals of the Foundation. In exchange for funds invested by the Foundation, Valour currently owns a 6.0% interest in the OORTP Net Profit in perpetuity. Royalty Payable We entered into various agreements and subsequently received funding from certain investors for use by us for any purpose. In exchange for this funding, we agreed to provide certain investors with interest in the OORTP Net Profit generated from net NARCAN® sales by EBS. 28
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