REVANCE THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes appearing elsewhere in this Report and in conjunction with our otherSEC filings, including our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 28, 2022 . This Report including the documents incorporated by reference herein, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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. All statements other than statements of historical facts contained in this Report and the documents incorporated by reference herein, including statements regarding our future financial condition, regulatory approvals, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. In addition, any statements that refer to our financial outlook or projected performance, anticipated growth, milestone expectations, expected cash runway and cash preservation plans; our ability to mitigate the substantial doubt to continue as a going concern; our future responses to and the effects of the COVID-19 pandemic; the requirements, timing and regulatory approval process for the biologics license application (the "BLA") for DaxibotulinumtoxinA for Injection for the treatment of moderate to severe glabellar (frown) lines, our PDUFA (as defined below) date, theU.S. Food and Drug Administration (the "FDA") inspections of our manufacturing facility, our ability to adequately address theFDA's observations from the inspections, any actions taken in response to the inspections and theFDA's review of the resubmission and the approval of the BLA; our ability to obtain, and the timing relating to, regulatory submissions and approvals with respect to our drug product candidates, including with respect to the RHA® Pipeline Products (as defined below); our expectations regarding the HintMD fintech platform (the "HintMD Platform") and OPULTM Relational Commerce Platform ("OPULTM" and together with the HintMD Platform, the "Fintech Platform"), including their features, functionality, gross processing volume ("GPV") and profitability; the process and timing of, and ability to complete, the current and anticipated future pre-clinical and clinical development of our product candidates including the outcome of such clinical studies and trials; development of a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX® (an "onabotulinumtoxinA biosimilar"), which would compete in the existing short-acting neuromodulator marketplace; the process and our ability to effectively and reliably manufacture supplies of DaxibotulinumtoxinA for Injection; our ability to successfully compete in the dermal filler, neuromodulator and fintech services markets; the design of our clinical studies; the markets for our current and future products and services; our business strategy, plans and prospects, including our commercialization plans and ability to commercialize the RHA® Collection of dermal fillers (as defined below) and DaxibotulinumtoxinA for Injection, if approved; the potential benefits of the RHA® Collection of dermal fillers, our drug product candidates and the Fintech Platform; the extent to which our products and services are considered unique and premium; the rate and degree of economic benefit of the RHA® Collection of dermal fillers, OPUL™ and our drug product candidates, if approved; patent defensive measures; our ability to defend ourselves in ongoing litigation; and strategic collaborations are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in Item 1A. "Risk Factors" and elsewhere in this Report. You should not rely upon forward-looking statements as predictions of future events. These forward-looking statements represent our estimates and assumptions only as of the date of this Report. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations. You should read this Report, together with the information incorporated herein by reference, with the understanding that our actual future results, levels of activity, performance and achievements 30
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may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Summary of Risk Factors
Investing in our common stock involves risks. See Item 1A. " Risk Factors " in
this Report for a discussion of the following principal risks and other risks
that make an investment in Revance speculative or risky.
•Our success as a company, including our ability to finance our business and
generate revenue, and our future growth is substantially dependent on the
clinical and commercial success of DaxibotulinumtoxinA for Injection, and the
commercial success of the RHA® Collection of dermal fillers. Our longer-term
prospects will also depend on the successful development, regulatory approval
and commercialization of an onabotulinumtoxinA biosimilar product candidate and
any future product candidates. If we experience additional delays, as a result
of the Complete Response Letter ("CRL") from the FDA for the BLA for
DaxibotulinumtoxinA for Injection or otherwise, or are unable to successfully
complete the development or regulatory approval process or commercialize our
product candidates, we may not be able to generate sufficient revenue to
continue our business.
•We may be unable to address the outstanding observations of the FDA and
remediate the deficiencies related to the manufacturing inspections or obtain
regulatory approval for DaxibotulinumtoxinA for Injection for the treatment of
glabellar lines, on a timely basis or at all.
•Management has concluded there is substantial doubt about our ability to
continue as a going concern, and we will require substantial additional capital
to continue to operate our business and achieve our goals. We have incurred
significant losses since our inception and we anticipate that these losses will
continue for the foreseeable future. Our prior losses, combined with expected
future losses, may adversely affect the market price of our common stock and our
ability to raise capital and continue operations.
•The terms of the Note Purchase Agreement (as defined below) place restrictions
on our operating and financial flexibility, and if we fail to comply with these
restrictions, our business, business prospects, results of operations and
financial condition may be adversely affected.
•The COVID-19 pandemic has and may continue to adversely affect our product
approval timeline, financial condition and our business as well as those of
third parties on which we rely for significant manufacturing, clinical or other
business operations. Further, the COVID-19 pandemic has adversely affected the
economy and disposable income levels, which could reduce consumer spending and
lower demand for our products.
•If we are not able to effectively and reliably manufacture DaxibotulinumtoxinA
for Injection, an onabotulinumtoxinA biosimilar or any future product
candidates, including through any third-party manufacturers, as well as acquire
supplies of the RHA® Collection of dermal fillers from Teoxane SA ("Teoxane"),
our product development, regulatory approval, commercialization and sales
efforts and our ability to generate revenue may be adversely affected.
•DaxibotulinumtoxinA for Injection, an onabotulinumtoxinA biosimilar, the RHA®
Pipeline Products or any future product candidates, if approved, may not achieve
market acceptance among physicians and patients, and may not be commercially
successful, which would adversely affect our operating results and financial
condition.
•Our product candidates and the RHA® Collection of dermal fillers will face
significant competition, including from companies that enjoy significant
competitive advantages, such as substantially greater financial, research and
development, manufacturing, personnel and marketing resources, greater brand
recognition and more experience and expertise in obtaining marketing approvals
from the FDA and other regulatory authorities. Our failure to effectively
compete may prevent us from achieving significant market penetration and
expansion.
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•Reports of adverse events or safety concerns involving the RHA® Collection of dermal fillers or otherTeoxane approved product candidates could delay or preventTeoxane from maintaining regulatory approval or obtaining additional regulatory approval for the RHA® Pipeline Products. The denial, delay or withdrawal of any such approval would negatively impact commercialization and could have a material adverse effect on our ability to generate revenue, business prospects, and results of operations. •If we do not effectively manage our expanded operations in connection with the acquisition ofHint, Inc. ("HintMD"), or if we are not able to achieve market acceptance of the Fintech Platform, then we may not achieve the anticipated benefits or recoup the substantial expense incurred in connection with the acquisition.
•Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results or actual patient outcomes.
•If our efforts to protect our intellectual property related to
DaxibotulinumtoxinA for Injection, the RHA® Pipeline Products, any future
product candidates, or the Fintech Platform are not adequate, we may not be able
to compete effectively. Additionally, we are currently and in the future may
become involved in lawsuits or administrative proceedings to defend against
claims that we infringe the intellectual property of others and to protect or
enforce our patents or other intellectual property or the patents of our
licensors, which could be expensive and time-consuming and would have a material
adverse effect on our ability to generate revenue if we are unsuccessful.
•We use third-party collaborators, including Viatris Inc. ("Viatris"), Shanghai
Fosun Pharmaceutical Industrial Development Co., Ltd. , a wholly-owned subsidiary
of Shanghai Fosun Pharmaceutical (Group) Co., Ltd ("Fosun"), Ajinomoto Althea,
Inc. dba Ajinomoto Bio-Pharma Services ("ABPS") and Lyophilization Services of
New England, Inc. ("LSNE"), to help us develop, validate, manufacture and/or
commercialize product candidates. Our ability to commercialize our product
candidates could be impaired or delayed if these collaborations are
unsuccessful.
•We are currently, and in the future may be, subject to securities class action
or stockholder derivative actions. If securities, product liability or other
lawsuits are brought against us and we cannot successfully defend ourselves, we
may incur substantial liabilities or be required to limit commercialization of
our products. Even a successful defense would require significant financial and
management resources.
•Significant disruptions of information technology systems or security incidents
could materially adversely affect our business, our reputation, our customer
relationships, results of operations and financial condition.
•Changes in and failures to comply with
•Servicing our debt, including the Note Purchase Agreement (as defined below) and the 2027 Notes (as defined below), requires a significant amount of cash to pay our substantial debt. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.
•If we fail to attract and retain qualified management, clinical, scientific, technical and sales personnel, we may be unable to successfully execute our objectives.
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Overview
Revance is a commercial stage biotechnology company focused on innovative aesthetic and therapeutic offerings, including its next-generation, long-acting, neuromodulator product, DaxibotulinumtoxinA for Injection. DaxibotulinumtoxinA for Injection combines a proprietary stabilizing peptide excipient with a highly purified botulinum toxin that does not contain human or animal-based components. We have successfully completed Phase 3 programs for DaxibotulinumtoxinA for Injection across two different treatment categories, aesthetics and therapeutics. In the aesthetics category, we completed our Phase 3 program for the treatment of moderate to severe glabellar (frown) lines and are pursuingU.S. regulatory approval. In the therapeutics category, we completed our Phase 3 program for the treatment of cervical dystonia inNovember 2021 and plan to pursueU.S. regulatory approval following the FDA approval of DaxibotulinumtoxinA for Injection for glabellar lines. We are also evaluating additional aesthetic and therapeutic indications for DaxibotulinumtoxinA for Injection including the full upper face, which includes glabellar lines, forehead lines and crow's feet, and adult upper limb spasticity. To complement DaxibotulinumtoxinA for Injection, we own a unique portfolio of premium products and services forU.S. aesthetics practices, including the exclusiveU.S. distribution rights to the RHA® Collection of dermal fillers, the first and only range of FDA approved fillers for correction of dynamic facial wrinkles and folds, and OPUL™. We have also partnered with Viatris to develop an onabotulinumtoxinA biosimilar, which would compete in the existing short-acting neuromodulator marketplace.
Impact of the COVID-19 Pandemic on Our Operations
The full extent of the impact of the COVID-19 pandemic on our future operational and financial performance will depend on future developments that are highly uncertain, including variant strains of the virus and the degree of their vaccine resistance and as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects. The ongoing COVID-19 pandemic has and may continue to negatively affect global economic activity, the regulatory approval process for our product candidates, our supply chain, research and development activities, end user demand for our products and services and commercialization activities. The COVID-19 pandemic has caused delays in the regulatory approval process for DaxibotulinumtoxinA for Injection. InNovember 2020 , the FDA deferred a decision on the BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines. The FDA reiterated that an inspection of our manufacturing facility was required as part of the BLA approval process, but the FDA was unable to conduct the required inspection due to theFDA's travel restrictions associated with the COVID-19 pandemic. Although the inspection was completed, inOctober 2021 , we received a CRL due to deficiencies related to theFDA's onsite inspection at our manufacturing facility. We resubmitted the BLA inMarch 2022 , and inApril 2022 , the FDA accepted the resubmission of the BLA and designated the BLA as a Class 2 resubmission with a Prescription Drug User Fee Act ("PDUFA") date ofSeptember 8, 2022 , with a reinspection required. InJuly 2022 , the FDA completed the reinspection of our manufacturing facility and issued a Form 483. We have responded to the Form 483. We cannot be certain of the continued impact of the COVID-19 pandemic on the regulatory approval process for the BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines, including whether the PDUFA date will be met or the future impact of the COVID-19 pandemic on the timing of the regulatory approval process for DaxibotulinumtoxinA for Injection in indications outside of glabellar lines or on any supplemental BLAs we may file. Our supply of and our ability to commercialize the RHA® Collection of dermal fillers has been impacted by the ongoing COVID-19 pandemic. The product supply of the Current RHA® Collection of dermal fillers was delayed by our distribution partnerTeoxane as they temporarily suspended production inGeneva, Switzerland as a precaution in early 2020 in response to the COVID-19 pandemic.Teoxane resumed manufacturing operations at the end ofApril 2020 and delivered the first shipment of the Current RHA® Collection of dermal fillers to us inJune 2020 . As a result, our initial product launch of the Current RHA® Collection of dermal fillers was delayed by one quarter toSeptember 2020 . We have taken steps to build sufficient levels of inventory to help mitigate potential future supply chain disruptions, but we cannot be certain of whether we will experience additional delays in the future. In addition, port closures and other restrictions resulting from the COVID-19 pandemic have and may continue to disrupt our supply chain or limit our ability to obtain sufficient materials for the production of our products and the sale of our services. The global computer chip shortage has impacted and may in the future impact our third-party partners' ability to provide us with the point of sale ("POS") hardware terminals that are provided to customers as a part of the OPUL™ service offering. If our third-party partner cannot provide enough POS terminals to meet OPULTM demand or we are unable to 33
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provide a substitute device, we may be unable to timely board new customers or fulfill orders for additional hardware from existing customers. If the shortage continues for an extended period of time, it could materially and adversely affect the Fintech Platform's business. Our clinical trials have been and may continue to be affected by the COVID-19 pandemic. The COVID-19 pandemic has and may further delay enrollment in and the progress of clinical trials for our product candidates and the RHA® Pipeline Products. Even as some restrictions have been lifted and vaccines are widely available inthe United States and certain other countries, the COVID-19 pandemic may continue to result in government imposed quarantines and consume hospital resources, especially if infection rates rise or more contagious variants develop and spread. Patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. For example, enrollment in the JUNIPER Phase 2 adult upper limb spasticity trial was paused inMarch 2020 due to challenges related to the COVID-19 pandemic. The trial was originally designed to include 128 subjects. Due to COVID-19 challenges related to continued subject enrollment and the scheduling of in-person study visits, inJune 2020 , we announced the decision to end screening and complete the JUNIPER trial with the 83 patients enrolled at that time. The COVID-19 pandemic has caused and may continue to cause general business disruption worldwide. In response to the COVID-19 pandemic, we curtailed employee travel and implemented a corporate work-from-home policy inMarch 2020 . Throughout the COVID-19 pandemic, certain manufacturing, quality and laboratory-based employees continued to work onsite, and certain employees with customer-facing roles have been onsite for training and interfacing in-person with customers in connection with the product launch of the RHA® Collection of dermal fillers. We have resumed essential on-site corporate operations and have begun to transition certain employees back on-site on a full or part-time basis and in accordance with local and regional restrictions. Although many of our employees have returned to working on-site, if the severity, duration or nature of the COVID-19 pandemic changes, it may have an impact on our ability to continue on-site operations, which could disrupt our manufacturing operations, clinical trials, sales activities and other operations. See "Item 1A. Risk Factors-The current COVID-19 pandemic has and may continue to, and other actual or threatened epidemics, pandemics, outbreaks, or public health crises may, adversely affect our financial condition and our business." The ultimate impact of the COVID-19 pandemic is highly uncertain and we do not yet know the full extent of potential delays or impacts on our BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines, our manufacturing operations, supply chain, end user demand for our products and services, commercialization efforts, business operations, clinical trials and other aspects of our business, the healthcare systems or the global economy as a whole. As such, it is uncertain as to the full magnitude that the COVID-19 pandemic will have on our financial condition, liquidity and results of operations.
Regulatory Update on DaxibotulinumtoxinA for Injection for the Treatment of Glabellar Lines
OnMarch 8, 2022 , we announced that we resubmitted the BLA to the FDA with respect to DaxibotulinumtoxinA for Injection for the treatment of glabellar lines in response to the CRL previously issued by the FDA. OnApril 21, 2022 , the FDA accepted the resubmission of the BLA and designated the BLA as a Class 2 resubmission with a PDUFA date ofSeptember 8, 2022 , with a reinspection required. OnJuly 15, 2022 , the FDA completed the reinspection of our manufacturing facility. The FDA issued a Form 483 with the following three observations. Observations 1 & 2 each relate to an individual development lot. •Observation #1 - Deviations are not always initiated according to Standard Operating Procedures ("SOP") _xx_xxxx. Specifically, DaxibotulinumtoxinA drug substance (DS) development lot (Dxxxx) was aborted due to a leak in the filtration system, which is the same equipment used for commercial production of DaxibotulinumtoxinA. For this development lot, the SOP was not followed regarding the initiation of a deviation. •Observation # 2 - The SOP for operation and cleaning of filtration equipment does not contain adequate information to ensure consistent process performance. Specifically, the SOP requires the performance of either clean-in-place (CIP), steam-in-place or storage in a basic solution within 7 days of CIP. Development lot (Dxxxx) failed to follow the existing SOP.
•Observation # 3 - The redundant site for storage of the working cell bank was not added to the BLA.
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We also announced that the corrective and preventive actions completed in response to the five observations from the Form 483 we received inJuly 2021 related to our preapproval inspection were reviewed by the FDA and considered closed. We have responded to theJuly 2022 Form 483 related to our reinspection.
RHA® Collection of Dermal Fillers
We recognized$25.5 million in product revenue and$8.1 million in cost of product revenue (exclusive of amortization) for the three months endedJune 30, 2022 , and$46.3 million in product revenue and$15.4 million in cost of product revenue (exclusive of amortization) for the six months endedJune 30, 2022 from the sale of the RHA® Collection of dermal fillers.
The Fintech Platform
For the three months endedJune 30, 2022 , the Fintech Platform processed$166 million of gross processing volume ("GPV"). GPV for the trailing-twelve months endedJune 30, 2022 totaled over$600 million . GPV measures the total dollar amount of all transactions processed in the period through the Fintech Platform, net of refunds. We also use the Fintech Platform PayFac capabilities to process credit card transactions for products purchased from us; these transactions are not included in GPV. Since the Fintech Platform predominantly generates revenue as a percentage of credit card processing volumes, we use GPV as a key indicator of the ability of the Fintech Platform to generate revenue. Presentation of revenue generated by the Fintech Platform may be impacted by the ongoing migration of customers from the HintMD Platform to OPULTM. We have started migrating existing customers on the HintMD Platform to OPUL™. While the ongoing migration of existing customers is not expected to have a material impact to the gross margin generated by the Fintech Platform, it is expected to cause a gross-up effect to service revenue and cost of service revenue (exclusive of amortization) due to the gross vs. net presentation difference in revenue accounting between the HintMD Platform and OPUL™.
Note Purchase Agreement
OnMarch 18, 2022 , we entered into a note purchase agreement (the "Note Purchase Agreement") withAthyrium Buffalo LP (together with its affiliates, "Athyrium"), as administrative agent, the purchasers party thereto from time to time (the "Purchasers"), including Athyrium, and HintMD, as a guarantor, pursuant to which the Purchasers agreed to purchase from us, and we agreed to issue to such Purchasers, notes payable by us. OnMarch 18, 2022 , we issued to the Purchasers notes in an aggregate principal amount for all such notes of$100.0 million (the "Notes Payable"). See "- Liquidity and Capital Resources " for additional information.
At-The-Market ("ATM") Offerings
InNovember 2020 , we entered into a sales agreement withCowen and Company, LLC ("Cowen") as sales agent (the "2020 ATM Agreement"). For the three months endedJune 30, 2022 , we sold 1,264,783 shares of common stock under the 2020 ATM Agreement at a weighted average price of$18.41 per share resulting in net proceeds of$22.7 million after sales agent commissions and offering costs. For the six months endedJune 30, 2022 , we sold 1,734,853 shares of common stock at a weighted average price of$18.71 per share resulting in net proceeds of$31.6 million after sales agent commissions and offering costs. OnMay 10, 2022 , we terminated the 2020 ATM Agreement and entered into a new sales agreement (the "2022 ATM Agreement") with Cowen. Under the 2022 ATM Agreement, we may sell up to$150.0 million of common stock. As bothJune 30, 2022 and the filing date of this Report, no shares of common stock had been sold under the 2022 ATM Agreement. 35
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Preservation of Capital and Expense Management
Beginning inOctober 2021 , we took measures to defer or reduce costs in the near term in order to preserve capital and increase financial flexibility as a result of the delay in the potential approval of DaxibotulinumtoxinA for Injection for the treatment of glabellar lines. These measures include but are not limited to: pausing non-critical hires; deferring the Phase 3 clinical program for upper limb spasticity and other therapeutics pipeline activities; and deferring international regulatory and commercial investment for DaxibotulinumtoxinA for Injection, with the exception of supporting our partnership with Fosun. The commercial launch delay and its impact on our capital resources has raised substantial doubt with respect to our ability to meet our obligations to continue as a going concern. Our existing cash, cash equivalents and short-term investments will not allow us to fund our operations for at least 12 months following the filing date of this Report. We are dependent on our ability to execute our commercial strategy for the RHA® Collection of dermal fillers, obtain the approval of DaxibotulinumtoxinA for Injection for the treatment of glabellar lines and meet certain other conditions in order to draw on the Second Tranche (defined below) and raise sufficient additional capital outside of the Note Purchase Agreement to mitigate the substantial doubt to continue as a going concern. If adequate funds are not available to us on a timely basis, or at all, we will be required to take additional actions beyond the cost preservation measures previously initiated to address our liquidity needs, including to continue to further reduce operating expense and delay, reduce the scope of, discontinue or alter our research and development activities for DaxibotulinumtoxinA for Injection, the RHA® Pipeline Products and our onabotulinumtoxinA biosimilar program; the development of OPUL™; our sales and marketing capabilities or other activities that may be necessary to continue to commercialize the RHA® Collection of dermal fillers, OPUL™ and our product candidates, if approved, and other aspects of our business plan. See Part I, Item 1, "Financial Information-Condensed Consolidated Financial Statements (Unaudited)-Notes to consolidated financial statements- Note 1 -The Company and Summary of Significant Accounting Policies."
Results of Operations
We operate in two reportable segments: our Product Segment and our Service
Segment. Our Product Segment refers to the business that includes the research,
development and commercialization of our product candidates and the RHA®
Collection of dermal fillers. Our Service Segment refers to the business that
includes the development and commercialization of the Fintech Platform.
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Revenue
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % change
Product revenue $ 25,483 $ 17,039 $ 8,444 50 % $ 46,320 $ 28,686 $ 17,634 61 %
Collaboration revenue 1,659 1,394 $ 265 19 % 5,227 2,905 $ 2,322 80 %
Service revenue 1,226 371 $ 855 230 % 2,082 512 $ 1,570 307 %
Total revenue $ 28,368 $ 18,804 $ 9,564 51 % $ 53,629 $ 32,103 $ 21,526 67 %
Product Revenue
We have only generated product revenue from the sale of the RHA® Collection of dermal fillers.
For the three and six months endedJune 30, 2022 , our product revenue increased compared to the same periods in 2021 due to higher sales volumes of the RHA® Collection of dermal fillers.
Collaboration Revenue
We are actively developing an onabotulinumtoxinA biosimilar in collaboration with Viatris. As described in Part I, Item 1. "Condensed Consolidated Financial Statements (Unaudited)-Notes to Condensed Consolidated Financial Statements (Unaudited) - Note 2 -Revenue," we generally recognize collaboration revenue for the onabotulinumtoxinA biosimilar program based on the cost of development service incurred over the total estimated cost of development service multiplied by the determined transactions price of the contract.
For the three and six months ended
Service Revenue
Our service revenue is generated from the Fintech Platform, which earns revenues through payment processing fees and certain value-added services. In our HintMD Platform service offerings, we generally recognize service revenue net of costs as an accounting agent. In our OPUL™ service offerings, we generally recognize service revenue on a gross basis as the accounting principal because we maintain control of the service offerings to our customers as the PayFac. Since the fourth quarter of 2021, we have been onboarding new customers exclusively to OPUL™, and sinceOctober 2021 , migrating existing customers from the HintMD Platform to OPUL™. While the ongoing migration of existing customers is not expected to have a material impact to the gross margin generated by the Fintech Platform in the near term, it is expected to cause a gross-up effect to service revenue and cost of service revenue (exclusive of amortization) due to the gross versus net presentation difference in revenue accounting between the HintMD Platform and OPUL™. For the three and six months endedJune 30, 2022 , our service revenue increased compared to the same period in 2021 primarily due to increased GPV associated with the commercial launch of OPUL™ sinceOctober 2021 and the presentation difference in revenue accounting as described above. 37
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Operating Expenses
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Operating expenses:
Cost of product revenue
(exclusive of amortization) $ 8,121 $ 5,409 $ 2,712 50 % $ 15,449 $ 9,626 $ 5,823 60 %
Cost of service revenue
(exclusive of amortization) 1,402 17 $ 1,385 8,147 % 1,967 17 $ 1,950 11,471 %
Selling, general and
administrative 47,847 50,598 $ (2,751) (5) % 92,922 99,603 $ (6,681) (7) %
Research and development 24,913 29,441 $ (4,528) (15) % 55,642 56,692 $ (1,050) (2) %
Amortization 3,927 3,676 $ 251 7 % 7,712 6,514 $ 1,198 18 %
Total operating expenses
(3) % $ 173,692 $ 172,452 $ 1,240 1 %
Our operating expenses consist of costs of product revenue (exclusive of
amortization), cost of service revenue (exclusive of amortization), selling,
general and administrative expenses, research and development expenses, and
amortization. The largest component of our operating expenses is our personnel
costs, including stock-based compensation, which is a subset of our selling,
general and administrative and research and development expenses.
Cost of Product Revenue (exclusive of amortization)
Cost of product revenue (exclusive of amortization) primarily consists of the cost of inventory and distribution expenses related to the RHA® Collection of dermal fillers. For the three and six months endedJune 30, 2022 , our cost of product revenue (exclusive of amortization) increased compared to the same periods in 2021 due to higher sales volumes of the RHA® Collection of dermal fillers.
Cost of Service Revenue (exclusive of amortization)
Cost of service revenue (exclusive of amortization) primarily consists of interchanges fees, hardware costs, and various fees in the fulfillment of our financial services.
For the three and six months endedJune 30, 2022 , cost of service revenue (exclusive of amortization) increased compared to the same periods in 2021 due to the increase of OPUL™ processing volume as well as the change to the gross accounting presentation of revenue and costs associated with OPUL™ as described in the Service Revenue section above. We expect the cost of service revenue (exclusive of amortization) to increase in the future as we expand the general availability of OPUL™ for existing and new customers and due to the change to the gross accounting presentation of revenue and costs associated with OPUL™ as described in the Service Revenue section above. 38
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Selling, General and Administrative Expenses
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Selling, general and
administrative $ 40,301 $ 42,391 $ (2,090) (5) % $ 76,078 $ 83,183 $ (7,105) (9) %
Stock-based compensation 6,528 7,288 $ (760) (10) % 14,692 14,569 $ 123 1 %
Depreciation and amortization 1,018 919 $ 99 11 % 2,152 1,851 $ 301 16 %
Total selling, general and
administrative expenses $ 47,847 $ 50,598 $ (2,751) (5) % $ 92,922 $ 99,603 $ (6,681) (7) %
Selling, general and administrative expenses consist primarily of the following:
•Personnel and professional service costs in our finance, information technology, commercial, investor relations, legal, human resources, and other administrative functions, including related stock-based compensation costs;
•Costs of sales and marketing activities and sales force compensation related to the RHA® Collection of dermal fillers and the Fintech Platform;
•DaxibotulinumtoxinA for Injection pre-commercial activities such as market research and public relations; and
•Depreciation and amortization of certain assets used in selling, general and administrative activities.
Selling, general and administrative expenses before stock-based compensation and depreciation and amortization
For the three and six months ended
The decreases in selling, general and administrative expenses were primarily related to cash preservation and expense management initiatives discussed above as well as other ongoing operating cost efficiencies realized related to travel and training costs in the Product Segment, partially offset by sales and marketing expenses related to the RHA® Collection of dermal fillers.
Stock-based compensation
For the three months ended
For the six months ended
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Research and Development Expenses
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Manufacturing and quality $ 12,883 $ 11,517 $ 1,366 12 % $ 26,508 $ 21,595 $ 4,913 23 %
Clinical and regulatory 3,905 6,315 $ (2,410) (38) % 7,882 14,379 $ (6,497) (45) %
Stock-based compensation 2,735 4,080 $ (1,345) (33) % 8,934 7,406 $ 1,528 21 %
Platform and software
development 2,937 4,013 $ (1,076) (27) % 6,055 6,094 $ (39) (1) %
Other research and
development expenses 1,947 3,068 $ (1,121) (37) % 5,300 6,299 $ (999) (16) %
Depreciation and
amortization 506 448 $ 58 13 % 963 919 $ 44 5 %
Total research and
development expenses $ 24,913 $ 29,441 $ (4,528) (15) % $ 55,642 $ 56,692 $ (1,050) (2) %
In the Product Segment, we do not believe that allocation of all research and
development costs by product candidate would be meaningful; therefore, we
generally do not track these costs by product candidates unless contractually
required by our business partners. In the Service Segment, our research and
development expenses relate to the development and introduction of new
functionalities and features of OPUL™ that are not subjected to capitalization.
Research and development expenses consist primarily of:
•salaries and related expenses for personnel in research and development functions, including stock-based compensation;
•expenses related to the initiation and completion of clinical trials and studies for DaxibotulinumtoxinA for Injection, future innovations related to the RHA® Collection of dermal fillers and an onabotulinumtoxinA biosimilar, including expenses related to the production of clinical supplies;
•fees paid to clinical consultants, contract research organizations ("CROs") and other vendors, including all related fees for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;
•expenses related to medical affairs, medical information, publications and pharmacovigilance oversight;
•other consulting fees paid to third parties;
•expenses related to the establishment and maintenance of our manufacturing facilities;
•expenses related to the manufacturing of supplies for clinical activities, regulatory approvals, and pre-commercial inventory;
•expenses related to license fees, milestone payments, and development efforts under in-licensing agreements;
•expenses related to compliance with drug development regulatory requirements in
the
•expenses related to the development of new features and functionalities of OPUL™ and services that are not subjected to capitalization;
•depreciation and other allocated expenses; and
•charges from the RHA® Collection of dermal fillers asset acquisition related to in-process research and
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development.
Our research and development expenses are subject to numerous uncertainties, primarily related to the timing and cost needed to complete our respective projects. In our Product Segment, the development timelines, probability of success and development expenses can differ materially from expectations, and the completion of clinical trials may take several years or more depending on the type, complexity, novelty and intended use of a product candidate. Accordingly, the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development. We expect our research and development costs to decrease in the near term, primarily due to capital preservation measures which includes deferring the Phase 3 clinical program for upper limb spasticity and other therapeutics pipeline activities, offset by continued product development related to OPUL™ not subjected to software capitalization, and certain shared development costs withTeoxane related to future dermal filler innovations and indications. When we conduct additional clinical trials, we expect our research and development expenses to fluctuate as projects transition from one development phase to the next. Depending on the stage of completion and level of effort related to each development phase undertaken, we may reflect variations in our research and development expenses. We expense both internal and external research and development expenses as they are incurred.
Manufacturing and quality
Manufacturing and quality expenses include personnel and occupancy expenses, external contract manufacturing costs, and pre-approval manufacturing of drug product used in preparation for our regulatory activities and anticipated commercial launch with respect to DaxibotulinumtoxinA for Injection for the treatment of glabellar lines and research and development activities for DaxibotulinumtoxinA for Injection. Manufacturing and quality expenses also include raw materials, lab supplies, and storage and shipment of our products to support quality control and assurance activities. For the three months endedJune 30, 2022 and 2021, manufacturing and quality expenses were 52% and 39% of the total research and development expenses for the respective periods. For the six months endedJune 30, 2022 and 2021, manufacturing and quality expenses were 48% and 38% of the total research and development expenses for the respective periods. For the three and six months endedJune 30, 2022 , manufacturing and quality expenses increased compared to the same periods in 2021, primarily due to expenses related to pre-commercial manufacturing and quality activities for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines. We expect that our manufacturing and quality expenses will remain at least at the current level until the potential approval of DaxibotulinumtoxinA for Injection. Certain amounts of the manufacturing and quality expenses, among other costs, are expected to be treated as inventory costs after the potential approval of DaxibotulinumtoxinA for Injection for the treatment of glabellar lines is obtained.
Clinical and regulatory
Clinical and regulatory expenses include costs related to personnel, external clinical sites for clinical trials, clinical research organizations, central laboratories, data management, contractors and regulatory activities associated with the clinical development of DaxibotulinumtoxinA for Injection. For the three months endedJune 30, 2022 and 2021, clinical and regulatory costs were 16% and 21% of the total research and development expenses for the respective periods. For the six months endedJune 30, 2022 and 2021, clinical and regulatory costs were 14% and 25% of the total research and development expenses for the respective periods. For the three and six months endedJune 30, 2022 , clinical and regulatory expenses decreased compared to the same periods in 2021, primarily due to the completion of multiple clinical trials in 2021, offset by ongoing support of the regulatory approval process for the BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines. We expect clinical and regulatory expenses to remain at the current level or decrease in the near term primarily due to capital preservation measures which includes deferring the Phase 3 clinical program for upper limb spasticity and other therapeutics pipeline activities. 41
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Stock-based compensation
For the three months endedJune 30, 2022 , stock-based compensation included in research and development expenses decreased compared to the same periods in 2021, primarily due to less market value of stock award granted to employees in research and development related functions. For the six months endedJune 30, 2022 , stock-based compensation included in research and development expenses increased compared to the same periods in 2021, primarily due to stock modification accounting adjustments related to the separation of an executive officer from the Company in the first quarter of 2022.
Platform and software development
Platform and software development include expenses associated with research and development activities in the Service Segment, which primarily represent the costs of developing new functionality or features of OPUL™ that are not subject to capitalization. For the three months endedJune 30, 2022 and 2021, platform and software development expenses were 12% and 14% of the total research and development expenses for the respective periods. For both the six months endedJune 30, 2022 and 2021, platform and software development expenses were 11% of the total research and development expenses. For the three and six months endedJune 30, 2022 , platform and software development expenses decreased compared to the same periods in 2021, primarily related to decreased research and development activities after the OPUL™ launch in the second quarter of 2021.
Other research and development expenses
Other research and development expenses include expenses for personnel, CROs, consultants, and supplies used to conduct preclinical research and development of DaxibotulinumtoxinA for Injection and an onabotulinumtoxinA biosimilar. For the three months endedJune 30, 2022 and 2021, other research and development expenses were 8% and 10% of the total research and development expenses for the respective periods. For the six months endedJune 30, 2022 and 2021, other research and development expenses were 10% and 11% of the total research and development expenses for the respective periods. For the three and six months endedJune 30, 2022 , other research and development expenses decreased compared to the same periods in 2021, primarily due to research and development activities related to DaxibotulinumtoxinA for Injection in the second quarter of 2021 in preparation for the FDA inspection.
Amortization
For the three and six months ended
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Net Non-Operating Income and Expense
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Interest income $ 619 $ 85 $ 534 628 % $ 695 $ 182 $ 513 282 %
Interest expense (3,874) (1,569) $ (2,305) 147 % (5,805) (3,129) $ (2,676) 86 %
Change in fair value of
derivative liability (61) (19) $ (42) 221 % (105) (78) $ (27) 35 %
Other expense, net (277) (357) $ 80 (22) % (499) (462) $ (37) 8 %
Total net non-operating
expense $ (3,593) $ (1,860) $ (1,733) 93 % $ (5,714) $ (3,487) $ (2,227) 64 %
Interest Income
Interest income primarily consists of interest income earned on our deposit,
money market fund, and investment balances. We expect interest income to vary
each reporting period depending on our average deposit, money market fund, and
investment balances during the period and market interest rates.
Interest Expense
Interest expense includes cash and non-cash components. The cash component of the interest expense represents the contractual interest charges for our 2027 Notes and Notes Payable. The non-cash component of the interest expense represents the amortization of debt issuance costs for our 2027 Notes and the amortization of debt insurance cost and debt discount for the Notes Payable. For the three and six months endedJune 30, 2022 , interest expense increased compared to the same periods in 2021 primarily due to the contractual interest on the Notes Payable, which we began to incur in the first quarter of 2022.
Change in Fair Value of Derivative Liability
The derivative liability on our consolidated balance sheets is remeasured to fair value at each balance sheet date with the corresponding gain or loss recorded. We will continue to record adjustments to the fair value of derivative liability until paid. Other Expense, net
Other expense, net primarily consists of miscellaneous tax and other expense items.
Liquidity and Capital Resources
Our financial condition is summarized as follows:
December 31, Increase
(in thousands) June 30, 2022 2021 (Decrease)
Cash, cash equivalents, and short-term investments
$ 225,071 $ 8,744 Working capital$ 183,719 $ 178,828 $ 4,891 Stockholders' equity (deficit)$ (2,631) $ 68,471 $ (71,102) 43
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Sources and Uses of Cash
We hold our cash, cash equivalents, and short-term investments in a variety of non-interest bearing bank accounts and interest-bearing instruments subject to investment guidelines allowing for certain lower-risk holdings such as, but not limited to, money market accounts, commercial paper, and corporate bonds. Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs. As ofJune 30, 2022 andDecember 31, 2021 , we had cash, cash equivalents and short-term investments of$233.8 million and$225.1 million , respectively, which represented an increase of$8.7 million . The increase was primarily due to the proceeds from the issuance of the Notes Payable pursuant to the Note Purchase Agreement, net of debt discount of$98.2 million , the issuance of shares of our common stock in connection with the ATM offering program, net of commissions, of$31.8 million , and proceeds from the purchase of shares of our common stock in connection with our 2014 Employee Stock Purchase Plan of$2.1 million . The increase was primarily offset by other operating activities of 106.9 million, finance lease prepayments of$9.9 million , net settlement of restricted stock awards for employee taxes of$2.8 million , principal payments on finance leases of$1.8 million , and payment of debt issuance cost and offering costs of$1.4 million .
We derived the following summary of our condensed consolidated cash flows for the periods indicated from Part I, Item 1, "Financial Information-Condensed Consolidated Financial Statements (Unaudited)" in this Report:
Six Months Ended June 30,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ (105,495) $ (123,760)
Investing activities $ (61,313) $ (74,113)
Financing activities $ 126,478 $ 31,956 Cash Flows from Operating Activities
Our cash used in operating activities is primarily driven by personnel, manufacturing and facility costs, clinical development, and sales and marketing activities. The changes in net cash used in operating activities are primarily related to our net loss, working capital fluctuations and changes in our non-cash expenses, all of which are highly variable. Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the extent to which we increase spending on personnel, commercial activities, and research and development activities as our business grows. For the six months endedJune 30, 2022 , net cash used in operating activities was$105.5 million , which was primarily due to personnel and compensation costs of approximately$68 million ; professional services and consulting fees of approximately$38 million ; rent, supplies and utilities expenses of approximately$27 million ; legal and other administrative expense of approximately$11 million ; the 2027 Notes and Notes Payable interest paid of$5 million , clinical trials expenses of approximately$3 million , offset by approximately$47 million from product and service revenue. For the six months endedJune 30, 2021 , net cash used in operating activities was$123.8 million , which was primarily due to personnel and compensation costs of approximately$66 million ; professional services and consulting fees of approximately$53 million ; rent, supplies and utilities expenses of approximately$21 million ; clinical trials expenses of approximately$6.5 million ; legal and other administrative expense of approximately$9 million ; and the 2027 Notes interest paid of approximately$2.3 million , offset by approximately$34 million from product and service revenue. 44
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Cash Flows from Investing Activities
For the six months endedJune 30, 2022 and 2021, net cash provided by or used in investing activities was primarily due to fluctuations in the timing of purchases and maturities of investments, purchases of property and equipment and prepayments for a finance lease.
Cash Flows from Financing Activities
For the six months endedJune 30, 2022 , net cash provided by financing activities was driven by the issuance of the Notes Payable pursuant to the Note Purchase Agreement, net of debt discount, and the ATM offering program, net of commissions. The inflows were offset by the net settlement of restricted stock awards for employee taxes. For the six months endedJune 30, 2021 , net cash provided by financing activities was driven by the at-the-market offering program, net of commissions, and proceeds from the exercise of stock options and common stock warrants. The inflows were offset by the net settlement of restricted stock awards for employee taxes and payments of offering costs.
Note Purchase Agreement
OnMarch 18, 2022 , we entered into the Note Purchase Agreement and issued Notes Payable to the Purchasers in an aggregate principal amount for all such notes of$100.0 million (the "First Tranche"). Subject to satisfaction of certain conditions set forth in the Note Purchase Agreement, including the FDA approval of DaxibotulinumtoxinA for Injection for the treatment of glabellar lines,$100.0 million in additional Notes Payable (the "Second Tranche") remains available to us under the Note Purchase Agreement untilSeptember 18, 2023 . In addition, there is an uncommitted tranche of additional Notes Payable in an aggregate amount of up to$100.0 million (the "Third Tranche") available untilMarch 31, 2024 , subject to the satisfaction of certain conditions set forth in the Note Purchase Agreement, including the achievement of greater than or equal to$50 million in trailing twelve-months revenue for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines preceding the date of the draw request for the Third Tranche, and approval byAthyrium Capital Management, LP .
Our obligations under the Note Purchase Agreement are secured by substantially all of our assets and the assets of our wholly owned domestic subsidiaries, including their respective intellectual property.
Initially, the Notes Payable bear interest at an annual fixed interest rate equal to 8.50%. If the Third Tranche of Notes Payable becomes committed, the Notes Payable will then bear interest at an annual rate equal to the sum of (a) 7.0% and (b) Adjusted Three-Month LIBOR for such interest period (subject to a floor of 1.50% and a cap of 2.50%). We are required to make quarterly interest payments on each Note Payable commencing on the last business day of the calendar month following the funding date thereof, and continuing until the last business day of each March, June, September and December throughSeptember 18, 2026 (the "Maturity Date"). The Maturity Date may be extended toMarch 18, 2028 if, as ofSeptember 18, 2026 , less than$90 million principal amount of our existing 2027 Notes remain outstanding and with the consent of the Purchasers. Initially, all principal for each tranche is due and payable on the Maturity Date. Upon the occurrence of an Amortization Trigger (as defined in the Note Purchase Agreement), we are required to repay the principal of the Second Tranche and the Third Tranche in equal monthly installments beginning on the last day of the month in which the Amortization Trigger occurred and continuing through the Maturity Date. At our option, we may prepay the outstanding principal balance of all or any portion of the principal amount of the Notes Payable, subject to a prepayment fee equal to (i) a make-whole amount if the prepayment occurs on or prior to the first anniversary of the Effective Date and (ii) 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date. Upon prepayment or repayment of all or any portion of the principal amount of the notes (whether on the Maturity Date or otherwise), we are also required to pay an exit fee to the Purchasers. The Note Purchase Agreement includes affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. We must also (i) maintain at least$30.0 million of unrestricted cash and cash equivalents in accounts subject to a control agreement in favor of Athyrium at all times and (ii) upon the occurrence of certain specified events set forth in the Note Purchase Agreement, achieve at least$70.0 million of Consolidated Teoxane 45
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Distribution Net Product Sales (as defined in the Note Purchase Agreement) on a trailing twelve-months basis. The negative covenants include, among others, restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and undergoing a change in control, in each case subject to certain exceptions. If we do not comply with the affirmative and negative covenants, such non-compliance may be an event of default under the Note Purchase Agreement. The Note Purchase Agreement also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 2.0% and would provide Athyrium, as administrative agent, with the right to exercise remedies against us and the collateral, including foreclosure against our property securing the obligations under the Note Purchase Agreement, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the Note Purchase Agreement, a breach of certain covenants under the Note Purchase Agreement, our insolvency, the occurrence of a circumstance which could have a material adverse effect and the occurrence of any default under certain other indebtedness. Convertible Senior Notes OnFebruary 14, 2020 , we issued the 2027 Notes with an aggregate principal balance of$287.5 million , pursuant to the Indenture. The 2027 Notes are senior unsecured obligations and bear interest at a rate of 1.75% per year, payable semiannually in arrears onFebruary 15 andAugust 15 of each year, beginning onAugust 15, 2020 . The 2027 Notes will mature onFebruary 15, 2027 , unless earlier converted, redeemed or repurchased. In connection with issuing the 2027 Notes, we received$278.3 million in net proceeds, after deducting the initial purchasers' discount, commissions, and other issuance costs. The 2027 Notes may be converted by the holders at any time prior to the close of business on the business day immediately precedingNovember 15, 2026 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending onJune 30, 2020 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price (as defined in the Indenture) per$1,000 principal amount of the 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the 2027 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or afterNovember 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2027 Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The conversion rate will initially be 30.8804 shares of our common stock per$1,000 principal amount of the 2027 Notes (equivalent to an initial conversion price of approximately$32.38 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event or notice of redemption, as the case may be. We may not redeem the 2027 Notes prior toFebruary 20, 2024 . We may redeem for cash all or any portion of the 2027 Notes, at our option, on or afterFebruary 20, 2024 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2027 Notes. 46
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If we undergo a fundamental change (as defined in the Indenture), holders may require us to repurchase for cash all or any portion of their 2027 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. We used$28.9 million of the net proceeds from the 2027 Notes to pay the cost of the capped call transactions. The capped call transactions are expected generally to reduce the potential dilutive effect upon conversion of the 2027 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2027 Notes, as the case may be, with such reduction and/or offset subject to a price cap of$48.88 of our common stock per share, which represents a premium of 100% over the last reported sale price of our common stock onFebruary 10, 2020 . The capped calls have an initial strike price of$32.38 per share, subject to certain adjustments, which corresponds to the conversion option strike price in the 2027 Notes. The capped call transactions cover, subject to anti-dilution adjustments, approximately 8.9 million shares of our common stock.
ATM Programs
For the three months ofJune 30, 2022 , we sold 1,264,783 shares of common stock under the 2020 ATM Agreement at a weighted average price of$18.41 per share resulting in net proceeds of$22.7 million after sales agent commissions and offering costs. For the six months endedJune 30, 2022 , we sold 1,734,853 shares of common stock under the 2020 ATM Agreement at a weighted average price of$18.71 per share resulting in net proceeds of$31.6 million after sales agent commissions and offering costs. OnMay 10, 2022 , we terminated the 2020 ATM Agreement and entered into a new sales agreement (the "2022 ATM Agreement") with Cowen. Under the 2022 ATM Agreement, we may sell up to$150 million of our common stock. As of bothJune 30, 2022 and the filing date of this Report, no shares of common stock have been sold under the 2022 ATM Agreement.
Common Stock and Common Stock Equivalents
As ofJuly 29, 2022 , outstanding shares of common stock were 73.1 million, outstanding stock options were 5.0 million, unvested restricted stock awards and performance stock awards were 2.6 million, unvested restricted stock units and performance stock units were 2.6 million, and shares of common stock underlying the 2027 Notes is 8.9 million based upon the initial conversion price.
Operating and Capital Expenditure Requirements - Going Concern
Since inception, we have devoted substantial efforts to identifying and
developing product candidates for the aesthetic and therapeutic pharmaceutical
markets, recruiting personnel, raising capital, conducting preclinical and
clinical development of, and manufacturing development for DaxibotulinumtoxinA
for Injection, DaxibotulinumtoxinA Topical, the onabotulinumtoxinA biosimilar,
development of the Fintech Platform and the commercial launch of our products
and services. We have not generated substantial revenue to date. As a result, we
have incurred losses and negative cash flows from operations and we expect to
continue to incur losses for the foreseeable future. We expect to continue to
devote capital toward significant research and development, sales and marketing,
and other expenses related to our ongoing operations. In connection with the
Teoxane Agreement, we must make specified annual minimum purchases of the RHA®
Collection of dermal fillers and meet annual minimum expenditures in connection
with the commercialization of the RHA® Collection of dermal fillers. We have
incurred substantial transaction expenses in order to complete the HintMD
Acquisition. Further, to grow the Fintech Platform business, we must develop
features, products and services that reflect the needs of customers and the
changing nature of payments processing software and continually modify and
enhance the Fintech Platform to keep pace with changes in updated hardware,
software, communications and database technologies and standards. In addition,
we have dedicated manufacturing capacity, buyback obligations, cost sharing
arrangements and related minimum purchase obligations under our manufacturing
and supply agreements in connection with the manufacture and supply of our
product candidates. In addition, other unanticipated costs may arise from
disruptions associated with the COVID-19 pandemic.
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We have funded our operations primarily through the sale of common stock, convertible senior notes, payments received from collaboration arrangements, and sales of the RHA® Collection of dermal fillers, and inMarch 2022 , we received proceeds from the First Tranche of the Note Purchase Agreement. Our capital requirements and operating plan may change as a result of many factors, the most significant of which relates to the timing of potential approval of the BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines. OnOctober 15, 2021 , the FDA issued a CRL regarding our BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines. The FDA indicated it was unable to approve the BLA in its present form due to deficiencies related to theFDA's onsite inspection at our manufacturing facility. As a result, the potential commercial launch of DaxibotulinumtoxinA for Injection for the treatment of glabellar lines has been delayed. The commercial launch delay and its impact on our capital resources has raised substantial doubt with respect to our ability to meet our obligations to continue as a going concern. Our existing cash, cash equivalents, and short-term investments will not allow us to fund our operations for at least 12 months following the filing of this Report. In order to mitigate the substantial doubt to continue as a going concern, we will be required to continue to execute our commercial strategy for the RHA® Collection of dermal fillers, obtain the approval of DaxibotulinumtoxinA for Injection for the treatment of glabellar lines and meet certain other conditions in order to draw on the Second Tranche under the Note Purchase Agreement and raise additional capital outside of the Note Purchase Agreement. We may seek additional capital through public or private equity or debt financings, royalty financings or other sources, such as strategic collaborations. Additional capital may not be available when needed, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timely basis, or at all, because we are unable to draw on the Second Tranche or because we are unable to raise capital through another method, we will be required to take additional actions beyond the cost preservation measures previously initiated to address our liquidity needs, including to continue to further reduce operating expense and delay, reduce the scope of, discontinue or alter our research and development activities for DaxibotulinumtoxinA for Injection, the RHA® Pipeline Products and our onabotulinumtoxinA biosimilar program; the development of OPUL™; our sales and marketing capabilities or other activities that may be necessary to continue to commercialize the RHA® Collection of dermal fillers, OPUL™ and our product candidates, if approved, and other aspects of our business plan. If we raise additional capital through marketing and distribution arrangements, royalty financings or other collaborations, strategic alliances or licensing arrangements with third parties, we may need to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted and the terms of any new equity securities may have a preference over our common stock. If we raise additional capital through debt financing, we may be subject to specified financial covenants or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or pursuing certain transactions, any of which could restrict our ability to commercialize our product candidates or operate as a business. In addition, our ability to raise capital may be limited by restrictions under the Note Purchase Agreement. If the BLA for DaxibotulinumtoxinA for Injection for the treatment of glabellar lines is approved, following approval, we may draw on the Second Tranche, which could generate up to$100.0 million of operating capital, and expect to increase operating expenditures with respect to: activities required to support the preparation for and commercialization of DaxibotulinumtoxinA for Injection; internal and external manufacturing capabilities; the development and continued commercialization of OPUL™; the completion of clinical trials and associated programs relating to DaxibotulinumtoxinA for Injection for various indications, an onabotulinumtoxinA biosimilar and our investment in future innovations in the RHA® Pipeline Products; and the procurement of regulatory approval for DaxibotulinumtoxinA for Injection in various indications and an onabotulinumtoxinA biosimilar. Please read Part II, Item 1A. " Risk Factors -We will require substantial additional financing to continue to operate our business and achieve our goals" for additional information.
Critical Accounting Policies and Estimates
For the six months endedJune 30, 2022 , there have been no material changes in our critical accounting policies compared to those disclosed in Item 7 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 28, 2022 . 48
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Contractual Obligations
Except as follows, there were no material changes outside of the ordinary course of business in our contractual obligations as ofJune 30, 2022 , from those as ofDecember 31, 2021 as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC onFebruary 28, 2022 .
Note Purchase Agreement
On theMarch 18, 2022 , we issued the First Tranche of the Notes Payable under the Note Purchase Agreement, and the Notes Payable bear interest at an annual fixed interest rate equal to 8.50%. We are required to make quarterly interest payments on each Note Payable issued under the Note Purchase Agreement commencing on the last business day of the calendar month following the funding date thereof, and continuing until the last business day of each March, June, September and December throughSeptember 18, 2026 (the "Maturity Date"). The Maturity Date may be extended toMarch 18, 2028 if, as ofSeptember 18, 2026 , less than$90 million principal amount of our existing 2027 Notes remain outstanding and with the consent of the Purchasers. Initially, all principal for each tranche is due and payable on the Maturity Date. Upon the occurrence of an Amortization Trigger (as defined in the Note Purchase Agreement), we are required to repay the principal of the Second Tranche and the Third Tranche in equal monthly installments beginning on the last day of the month in which the Amortization Trigger occurred and continuing through the Maturity Date. At our option, we may prepay the outstanding principal balance of all or any portion of the principal amount of the Notes Payable, subject to a prepayment fee equal to (i) a make-whole amount if the prepayment occurs on or prior to the first anniversary of the Effective Date and (ii) 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date. Upon prepayment or repayment of all or any portion of the principal amount of the Notes Payable (whether on the Maturity Date or otherwise), we are also required to pay an exit fee to the Purchasers.
Refer to Part I, Item 1. "Condensed Consolidated Financial Statements (Unaudited)-Notes to Condensed Consolidated Financial Statements (Unaudited) - Note 8 -Debt" for details of the Notes Payable.
Finance Lease Obligation
InJanuary 2022 , we had substantively obtained the right of control for the dedicated fill-and-finish-line and the associated lease commenced as a finance lease. Refer to Part I, Item 1. "Condensed Consolidated Financial Statements (Unaudited)-Notes to Condensed Consolidated Financial Statements (Unaudited) - Note 7 -Leases" for details of the finance lease obligations.
Recent Accounting Pronouncements
Refer to "Recent Accounting Pronouncements" in Part I, Item 1, "Financial Information-Notes to Condensed Consolidated Financial Statements (Unaudited)- Note 1 -The Company and Summary of Significant Accounting Policies" in this Report.
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