PLX PHARMA WINDDOWN CORP. Statements in this Form 10-K that are not strictly historical are forward-looking statements and include statements about products in development, results and analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks relating to our ability to conduct and obtain successful results from ongoing clinical trials, commercialize our technology, obtain regulatory approval for our product candidates, contract with third parties to adequately test and manufacture our proposed therapeutic products, protect our intellectual property rights and obtain additional financing to continue our development efforts. Some of these factors are more fully discussed in Part I, Item 1A, "Risk Factors" and in our consolidated financial statements and related notes, included elsewhere herein. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law. For further information regarding forward-looking statements, please refer to the "Information Regarding Forward-Looking Statements" at the beginning of Part I of this Form 10-K.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows.
Overview We are a commercial-stage drug delivery platform technology company focused on improving how and where APIs are absorbed in the GI tract via our clinically validated and patent protected PLxGuard™ technology. We believe this platform has the potential to improve the absorption of many drugs currently on the market or in development and to reduce the risk of stomach injury associated with certain drugs. VAZALORE is an FDA-approved liquid-filled aspirin capsule, available in 81 mg and 325 mg doses. VAZALORE delivers aspirin differently from plain and enteric coated aspirin products. The special complex inside the capsule allows for targeted release of aspirin, limiting its direct contact with the stomach lining. VAZALORE delivers fast, reliable absorption for pain relief plus the lifesaving benefits of aspirin. Our commercialization strategy targets the OTC market, taking advantage of the existing distribution channels for aspirin. We market VAZALORE to the healthcare professional and the consumer through several sales and marketing channels. Our product pipeline also includes other oral NSAIDs using the PLxGuard drug delivery platform that may be developed, including PL1200 Ibuprofen 200 mg and PL1100 Ibuprofen 400 mg, for pain and inflammation in Phase 1 clinical stage. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles inthe United States of America ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 3 of the Notes to Consolidated Financial Statements included elsewhere herein describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance withU.S. GAAP and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements: Use of Estimates The preparation of our consolidated financial statements in conformity withU.S. GAAP requires 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 consolidated financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, the fair value of warrant liability, the fair value of stock-based compensation, trade promotional allowances, and deferred taxes and associated valuation allowance. Actual results could differ from those estimates. 47
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Table of Contents Fair Value Measurements Fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
? Level 1: Quoted prices in active
markets for identical assets or
liabilities that the organization
has the ability to access at the
reporting date.
? Level 2: Inputs other than quoted
prices included in Level 1, which
are either observable or that can
be derived from or corroborated by
observable data as of the
reporting date.
? Level 3: Inputs include those that
are significant to the fair value
of the asset or liability and are
generally less observable from
objective resources and reflect
the reporting entity's assumptions
about the assumptions market
participants would use in pricing
the asset or liability.
The Company's financial instruments (cash and cash equivalents, receivables, and
accounts payable) are carried in the consolidated balance sheet at cost, which
reasonably approximates fair value based on their short-term nature. The
Company's warrant liability is recorded at fair value, with changes in fair
value being reflected in the statements of operations for the period of change.
Revenue Recognition
The Company analyzes contracts to determine the appropriate revenue recognition
using the following steps: (i) identification of contracts with customers; (ii)
identification of distinct performance obligations in the contract; (iii)
determination of contract transaction price; (iv) allocation of contract
transaction price to the performance obligations; and (v) determination of
revenue recognition based on timing of satisfaction of the performance
obligation. The Company recognizes revenues upon the satisfaction of its
performance obligations (upon transfer of control of promised goods or services
to customers) in an amount that reflects the consideration to which it expects
to be entitled to in exchange for those goods or services. Deferred revenue
results from cash receipts from or amounts billed to customers in advance of the
transfer of control of the promised services to the customer and is recognized
as performance obligations are satisfied. When sales commissions or other costs
to obtain contracts with customers are considered incremental and recoverable,
those costs are deferred and then amortized as selling and marketing expenses on
a straight-line basis over an estimated period of benefit.
Through June 30, 2021 , the Company's sole revenue was generated from a
cost-reimbursable federal grant with the National Institutes of Health , which
grant was completed in the second quarter of 2020. The Company recognized
revenue on this grant as grant-related expenses were incurred by the Company or
its subcontractors. The Company recognized $0 and $30 thousand of revenue under
this arrangement during the years ended December 31, 2021 and 2020,
respectively.
The Company began generating revenue in the U.S. from its sales of VAZALORE in
81 mg and 325 mg doses in the third quarter of 2021 and recognizes revenue when
control of a promised good is transferred to a customer in an amount that
reflects consideration that the Company expects to be entitled to in exchange
for that good. This occurs either when the finished goods are delivered to the
customer or when a product is picked up by the customer or the customer's
carrier. The Company recognized total revenue from sales of VAZALORE of $8.2
million for the year ended December 31, 2021 .
Nature of Goods and Services
The Company generates revenue from the sale of its VAZALORE products through a broad distribution platform that includes drugstores, mass merchandisers, grocery stores, and e-commerce channels, all of which sell its products to consumers. Finished goods products are typically shipped FOB destination and accordingly, the Company recognizes revenue upon delivery to the customer or pick-up by the customer's carrier.
Satisfaction of Performance Obligations
The Company recognizes revenue upon the satisfaction of its performance
obligations (upon transfer of control of promised goods or services to
customers) in an amount that reflects the consideration to which it expects to
be entitled to in exchange for those goods or services. The Company had no
unsatisfied performance obligations or deferred revenue as of
Variable Consideration Provisions for certain customer promotional programs, product returns and discounts to customers are accounted for as variable consideration and recorded as a reduction in sales, based on an estimate of future returns, and customer prompt payment discounts, redemption of coupons by consumers and trade promotional allowances paid to customers. These allowances cover extensive promotional activities, primarily comprised of cooperative advertising, slotting, coupons, periodic price reduction arrangements, and other in-store displays. The reserves for sales returns and consumer and trade promotion obligations are established based on the Company's best estimate of the amounts necessary to settle future and existing obligations for products sold as of the balance sheet date. The Company uses trend experience and coupon redemption inputs in arriving at coupon reserve requirements and uses forecasted customer and sales organization inputs, and historical trend analysis for consumer brands in determining the reserves for other promotional activities and sales returns. The balance of reserves for sales returns and consumer and trade promotion obligations, reflected in the accompanying consolidated balance sheets in accounts payable and accrued liabilities, was$1.3 million as ofDecember 31, 2021 (none as ofDecember 31, 2020 ). Cost of Sales Cost of sales includes costs related to the manufacture and packaging of the Company's products charged by our contract manufacturer and packagers. Cost of sales also includes inbound and outbound shipping and warehousing costs, quality assurance and royalties.
Selling, Marketing and Administrative
Selling, marketing and administrative ("SM&A") expenses include costs related to
functions such as sales, marketing, corporate management, insurance, and legal
costs. Broker commissions are incurred and expensed as SM&A costs in the
underlying consolidated statements of income when the underlying sales take
place. SM&A expenses also include costs for advertising (excluding the costs of
cooperative advertising programs, which are reflected in net sales), contract
field force, and consumer promotion costs (such as on-shelf advertisements and
displays). SM&A costs are expensed as incurred.
The Company has not incurred incremental costs to obtain contracts with
customers or material costs to fulfill contracts with customers and did not have
any contract assets or liabilities as of
Advertising
Advertising costs are expensed as they are incurred. The Company incurred
advertising costs of
Research and Development Expenses
Costs incurred in connection with research and development activities are
expensed as incurred. Research and development expenses consist of direct and
indirect costs associated with specific projects, manufacturing activities, and
include fees paid to various entities that perform research related services for
the Company.
Stock-Based Compensation
The Company recognizes expense in the consolidated statements of operations for
the fair value of all stock-based compensation to key employees, nonemployee
directors and advisors, generally in the form of stock options and stock awards.
The Company uses the Black-Scholes option valuation model to estimate the fair
value of stock options on the grant date. Compensation cost is amortized on a
straight-line basis over the vesting period for each respective award. The
Company accounts for forfeitures as they occur.
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Adopted Accounting Guidance
For a discussion of significant accounting guidance recently adopted or
unadopted accounting guidance that has the potential of being significant, see
Note 3 of the Notes to the Consolidated Financial Statements included elsewhere
herein.
Non-GAAP Financial Measures
We prepare and publicly release annual audited and quarterly unaudited financial
statements prepared in accordance with generally accepted accounting principles
("GAAP"). We also disclose and discuss certain non-GAAP financial measures in
our public releases, investor conference calls and filings with the SEC . The
non-GAAP financial measures that we disclose include adjusted non-GAAP loss
attributable to common stockholders and adjusted non-GAAP net loss per common
share. Non-GAAP net loss per common share is defined as net loss per common
share excluding the change in the fair value of warrant liability and dividends
and beneficial conversion feature related to our preferred stock.
We consider adjusted non-GAAP net loss and adjusted non-GAAP net loss per
diluted common share to be an important financial indicator of our operating
performance, providing investors and analysts with a useful measure of operating
results unaffected by the impact on the financial statements of the volatility
of the change in the fair value of the warrant liability and non-cash and
non-recurring dividends and beneficial conversion features on our preferred
stock. Management uses adjusted non-GAAP net loss and adjusted non-GAAP net
loss per common share when analyzing our performance. Adjusted non-GAAP net
loss and adjusted non-GAAP net loss per common share should be considered in
addition to, but not in lieu of, net loss or net loss per common share reported
under GAAP.
A reconciliation of adjusted non-GAAP net loss per common share to the most directly comparable GAAP finance measure is provided below.
December 31 , (in thousands, except share and per share data) 2021
2020
Net loss attributable to common stockholders - GAAP$ (48,650 ) $ (16,948 ) Adjustments: Change in fair value of warrant liability 5,336
1,444
Preferred dividends and beneficial conversion feature 2,525
1,737
Adjusted non-GAAP net loss attributable to common stockholders$ (40,789 ) $
(13,767 )
Adjusted non-GAAP net loss per common share - diluted$ (1.72 ) $
(1.42 )
Weighted average shares of common shares - diluted 23,650,457 9,714,951 Results of Operations Revenue Total revenues were$8.2 million and$0.03 million for the years endedDecember 31, 2021 and 2020, respectively. Revenue for 2021 reflected the launch of VAZALORE with$5.6 million or 68% of net sales for the 81 mg dose and$2.6 million or 32% of net sales for the 325 mg dose. The revenue recognized in 2020 is attributable to work performed under a federal grant from theNational Institutes of Health which came to an end in the second quarter of 2020. Gross Profit Gross profit for the year endedDecember 31, 2021 of$3.4 million reflected VAZALORE's initial distribution. Gross margin of 41% includes outsourced manufacturing and packaging costs combined with costs related to shipping, quality assurance and royalty payments. Gross profit from our 325 mg dose is lower than our 81 mg dose due to the proportionally higher use of raw materials and the manufacturing of smaller batch sizes, notwithstanding a list price that is equal to the 81 mg 30 count bottle. We are working on expanding our manufacturing capacity by the end of 2022 which we expect will improve gross margin. 49
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Table of Contents Operating Expenses Total operating expenses were$44.2 million during the year endedDecember 31, 2021 , a 228% increase from operating expenses of$13.5 million during the year endedDecember 31, 2020 . Operating expenses for the years endedDecember 31, 2021 and 2020 were as follows: Years Ended December 31, Increase (Decrease) 2021 2020 $ % (in thousands, except percentages) Operating Expenses Research and development expenses$ 4,182 $ 4,339 $ (157 ) (3.6 )% Selling, marketing and administrative expenses 40,011 9,150 30,861 337.3 % Total operating expenses$ 44,193 $ 13,489 $ 30,704 227.6 %
Research and Development Expenses
Research and development expense consists of expenses incurred while performing research and development activities to discover, develop, or improve potential product candidates we seek to develop. This includes conducting preclinical studies and clinical trials, manufacturing and other development efforts, and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expenses primarily consist of (i) direct and indirect costs associated with specific projects and manufacturing activities, and (ii) fees paid to various entities that perform research related services for us. Research and development expenses totaled$4.2 million for the year endedDecember 31, 2021 , compared to$4.3 million for the year endedDecember 31, 2020 , reflecting the 81 mg clinical trial and scale-up manufacturing activities for VAZALORE during the year endedDecember 31, 2021 . Expenses during the year endedDecember 31, 2020 were driven by the 325 mg bioequivalence study and validation work to support the sNDA filings. We expect research and development costs to be lower in 2022 as manufacturing activities will move to VAZALORE-related process improvement work.
Selling, Marketing and Administrative Expenses
SM&A expenses include costs related to functions such as sales, marketing, corporate management, insurance, and legal costs. Broker commissions are incurred and expensed as SM&A costs in the underlying consolidated statements of operations when the underlying sales take place. SM&A expenses also include costs for advertising (excluding the costs of cooperative advertising programs, which are reflected in net sales), contract field force, and consumer promotion costs (such as on-shelf advertisements and displays). SM&A costs are expensed as incurred. SM&A expenses totaled$40.0 million for the year endedDecember 31, 2021 , compared to$9.2 million for the year endedDecember 31, 2020 . The increase primarily reflects higher sales and marketing expenses related to the VAZALORE launch and increased non-cash stock-based compensation. In the third quarter of 2021, a cardiovascular specialty field force and a national media television campaign were launched to raise awareness amongst healthcare professionals and consumers. For further information, see Note 3 of the Notes to the Consolidated Financial Statements. We anticipate that SM&A expenses will increase in 2022 reflecting a full year of promotional activities for VAZALORE. Other expense Other expense totaled$5.3 million for the year endedDecember 31, 2021 , compared to$1.8 million for the year endedDecember 31, 2020 . The variance is largely attributable to the non-cash change in fair value of warrant liability primarily due to the fluctuation of the price of the Company's common stock offset by lower net interest due to the payoff of the Term Loan (as defined in Note 5 of the Notes to the Consolidated Financial Statements).
Liquidity and Capital Resources
As ofDecember 31, 2021 , we had working capital of$61.6 million , including cash and cash equivalents of$69.4 million . The primary sources of our liquidity have thus far included: (i) the Series A Purchase Agreement, pursuant to which we issued 15,000 shares of our Series A Preferred Stock to certain investors for gross proceeds of$15.0 million , (ii) the Series B Private Placement, pursuant to which we issued 8,000 shares of our Series B Preferred Stock to certain investors for gross proceeds of$8.0 million , (iii) the Securities Purchase Agreement, pursuant to which we issued an aggregate of 4,755,373 Units for gross proceeds of approximately$18 million , (iv) the Offering, pursuant to which we issued and sold 9,056,250 shares of our common stock for net proceeds of$66.9 million after deducting underwriting discounts and commissions and other offering expenses payable by us, and taking into account the exercise of the underwriter's overallotment option, and (v) the ATM Offering, pursuant to which we may sell from time to time, at our option, shares of our common stock having an aggregate offering price of up to$75.0 million . Under the ATM Offering, we have sold 450,368 shares and raised gross proceeds of$8 million during the year endedDecember 31, 2021 . As ofDecember 31, 2021 ,$67.0 million remained available under the ATM Offering. For further information, see Note 6 of the Notes to the Consolidated Financial Statements. 50
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We did not generate any revenue from the sale of products prior to the quarter endedSeptember 30, 2021 and have incurred operating losses in each year since we commenced operations. We began generating revenue in theU.S. from sales of VAZALORE, but we expect to continue to incur significant operating expenses and operating losses for the foreseeable future as we continue the commercialization of VAZALORE. For further information, see Note 2 of the Notes to the Consolidated Financial Statements. The following table summarizes the primary uses and sources of cash for the periods indicated: Years Ended December 31, 2021 2020 (in thousands) Net cash used in operating activities$ (32,118 ) $ (12,243 ) Net cash provided by (used in) investing activities $ 95$ (102 ) Net cash provided by financing activities$ 78,966 $ 20,793
Net cash used in operating activities was$32.1 million and$12.2 million for the years endedDecember 31, 2021 and 2020, respectively. The increase was due to higher sales, marketing and inventory costs due to the launch of VAZALORE.
Net Cash Provided By (Used In) Investing Activities
Net cash provided by (used in) investing activities totaled$0.1 million and($0.1) million for the years endedDecember 31, 2021 and 2020, respectively, and reflects the sale or purchase of manufacturing equipment for VAZALORE.
Net Cash Provided By Financing Activities
Net cash provided by financing activities totaled$79.0 million and$20.8 million for the years endedDecember 31, 2021 and 2020, respectively. The current period reflects net proceeds of$74.5 million from a public offering and the ATM Offering (as defined in Note 6. of the Notes to the Consolidated Financial Statements) along with exercises of various stock purchase warrants of$5.1 million , offset by two months of payments of the Term Loan of$0.6 million as this was paid off inFebruary 2021 . The 2020 period includes$16.8 million of net proceeds from the issuance of common stock and$7.7 million net proceeds from the issuance of Series B Preferred Stock offset by principal payments of$3.8 million on the Term Loan.
Future Liquidity and Capital Needs
Even though we are generating revenue, we may never achieve profitability, and even if we do achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline. Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to predict the extent of any future losses or when, if ever, we will become profitable. Although the achievement of future profitable operations and the ability to generate sufficient cash from operations is uncertain at this time, based on the Company's plans, the Company has adequate cash on hand atDecember 31, 2021 to fund its obligations for at least one year from the date these financial statements were issued, which mitigates the substantial doubt consideration. Our future capital requirements will remain dependent upon a variety of factors, including cash flow from operations, the ability to increase sales, increasing our gross profits from current levels, reducing sales and administrative expenses as a percentage of net sales, continued development of customer relationships, and our ability to market our new products successfully. However, based on our results from operations, we may determine that we need to obtain additional financing in the future to further our commercialization plan. We may obtain additional financing through public or private equity offerings, debt financings (including related-party financings), a credit facility or strategic collaborations. Additional financing may not be available to us when we need it or it may not be available to us on favorable terms, if at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We currently have no understandings, commitments or agreements relating to any of these types of transactions. If we are unable to raise additional funds when needed, we may be required to sell or license our technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves. 51
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Contractual Obligations and Commitments
? Purchase Obligations: We enter into purchase obligations with various vendors
for goods and services that we need for our operations. The purchase
obligations for goods and services include inventory, advertising, research
and development. This includes our supply agreements with our contract
manufacturer and packager for VAZALORE, which contains minimum annual purchase
commitments to ensure that manufactured product is available when required to
enable us to meet the expected market demand for VAZALORE.
? Media and Advertising: We enter into certain media and advertising commitments
to support the further commercialization of VAZALORE and may enter into
additional such commitments for additional products as needed.
? Operating Leases: We presently lease office space under operating lease
agreements expiring in
us to pay for the costs of maintenance and insurance. In the second quarter of
2021, we renewed our headquarters office lease through September 2023 .
Impact of COVID-19 Pandemic on Financial Statements
OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a "pandemic", or a worldwide spread of a new disease. Many countries imposed and continue to enforce quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses. In response to COVID-19, the Company has not experienced a significant disruption or delay in the development, manufacturing or sale of VAZALORE, and has not otherwise experienced any significant negative impact on its financial condition, results of operations or cash flows. However, the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing inthe United States and other countries, business closures or business disruptions and the effectiveness of actions taken inthe United States and other countries to contain and treat the pandemic. The consolidated financial statements do not include any adjustments that might result from the outcome of uncertainty. The Company has not experienced any significant negative impact on theDecember 31, 2021 audited consolidated financial statements related to COVID-19. For more discussion on our risks related to COVID-19, please see risk factors included under "Item 1A. Risk Factors" herein. Inflation
The Company believes that the rates of inflation in recent years have not had a significant impact on its operations.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of
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