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, future expenses and cash flows, anticipated working capital requirements, capital expenditures and cash preservation plans; our ability to comply with our debt obligations; our ability to draw on the Second Tranche (as defined below); our future financing plans and strategies; our future responses to and the effects of the COVID-19 pandemic; our ability to obtain, and the timing relating to, regulatory submissions and approvals with respect to our drug product candidates and third-party manufacturers, including with respect to DaxibotulinumtoxinA-lanm for injection ("DAXXIFY™") for indications other than glabellar lines and the RHA® Pipeline Products (as defined below); our expectations regarding the HintMD fintech platform (the "HintMD Platform") and OPUL® Relational Commerce Platform ("OPUL®" 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 DAXXIFY™; 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 commercializeTeoxane SA's ("Teoxane") line of Resilient Hyaluronic Acid® dermal fillers (the "RHA® Collection of dermal fillers") and DAXXIFYTM; the potential benefits of DAXXIFYTM, the RHA® Collection of dermal fillers, our drug product candidates and the Fintech Platform; the potential safety, efficacy and duration of DAXXIFY™; the extent to which our products and services are considered innovative, differentiated or premium; our ability to set a new standard in healthcare; the rate and degree of economic benefit of DAXXIFYTM , the RHA® Collection of dermal fillers and the Fintech Platform; patent defensive measures; timing related to our ongoing litigation matters; our ability to defend ourselves in ongoing litigation; and our 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 31
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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 DAXXIFY™, 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 are unable to successfully commercialize our products, 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. •If we are not able to effectively and reliably manufacture DAXXIFY™, 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 fromTeoxane SA ("Teoxane"), our product development, regulatory approval, commercialization and sales efforts and our ability to generate revenue may be adversely affected. •We may require substantial additional funding to achieve our goals, and a failure to obtain the necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts. 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. •DAXXIFYTM, future hyaluronic acid filler advancements and products byTeoxane (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. •DAXXIFYTM 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 theU.S. Food and Drug Administration (the "FDA") and other regulatory authorities. Our failure to effectively compete may prevent us from achieving significant market penetration and expansion. •We use third-party collaborators and partners, 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") andLyophilization Services of New England, Inc. ("LSNE"), to help us develop, validate, manufacture and/or commercialize product candidates. Our ability to commercialize our products could be impaired or delayed if these collaborations are unsuccessful. •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 regulatory 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 32
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disposable income levels, which could reduce consumer spending and lower demand for our products and services.
•Adverse events or safety concerns involving DAXXIFY™ or the RHA® Collection of dermal fillers or other product candidates could prevent us orTeoxane from maintaining regulatory approval for DAXXIFYTM and the RHA® Collection of dermal fillers, or delay or prevent us orTeoxane from obtaining additional regulatory approval for DAXXIFY™ in other indications or the RHA® Pipeline Products, as applicable. 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 DAXXIFY™, the RHA® Collection of dermal fillers, 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 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 biotechnology company focused on setting the new standard in healthcare with innovative aesthetic and therapeutic offerings that elevate patient and physician experiences. Revance's aesthetics portfolio of expertly created products and services, including DAXXIFY™, the RHA® Collection of dermal fillers and OPUL®, the first-of-its-kind Relational Commerce platform for aesthetic practices, deliver a differentiated and exclusive offering for the company's elite practice partners and their consumers. Revance has also partnered with Viatris Inc. to develop a biosimilar to BOTOX®, which will compete in the existing short-acting neuromodulator marketplace. Revance's therapeutics pipeline is currently focused on muscle movement disorders including evaluating DAXXIFY™ in two debilitating conditions, cervical dystonia and upper limb spasticity.
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. For example, the timing of theFDA's inspection of our manufacturing facility as a part of the regulatory approval process for DAXXIFYTM was delayed due to theFDA's travel restrictions associated with the COVID-19 pandemic. We cannot be certain of the continued impact of the COVID-19 pandemic on the timing of the regulatory approval process for DAXXIFY™ in indications other than glabellar lines or on any supplemental biologics license application ("BLAs") or post-approval supplements 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 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 RHA® Collection of dermal fillers to us inJune 2020 . As a result, our initial product launch of the 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. In 2021 and 2022, the global computer chip shortage impacted 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 a similar issue occurred, resulting in our third-party partner not being able to provide enough POS terminals to meet OPUL® demand, it would affect our ability to to timely board new customers or fulfill orders for additional hardware from existing customers. If such issues continue 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. 34
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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 the approval process for DAXXIFY™ in indications other than 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
OnSeptember 8, 2022 , we announced the FDA approval of DAXXIFY™ for the temporary improvement of moderate to severe frown lines (glabellar lines) in adults. For the three months endedSeptember 30, 2022 , we have not generated revenue from DAXXIFY™ sales.
In
In
RHA® Collection of Dermal Fillers
We recognized$26.1 million in product revenue and$8.7 million in cost of product revenue (exclusive of amortization) for the three months endedSeptember 30, 2022 , and$72.4 million in product revenue and$24.1 million in cost of product revenue (exclusive of amortization) for the nine months endedSeptember 30, 2022 from the sale of the RHA® Collection of dermal fillers.
The Fintech Platform
For the three months endedSeptember 30, 2022 , the Fintech Platform processed$164 million of gross processing volume ("GPV"). GPV for the trailing-twelve months endedSeptember 30, 2022 totaled over$630 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 OPUL®. 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®. 35
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Table of Contents Follow-on Public Offering InSeptember 2022 , we completed a follow-on public offering, pursuant to which we issued 9.2 million shares of common stock at a public offering price of$25.00 per share, which included the exercise of the underwriters' over-allotment option to purchase 1.2 million additional shares of common stock, for net proceeds of$215.9 million , after underwriting discounts, commission and other offering expenses. Note Purchase Agreement InMarch 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. InMarch 2022 , we issued to the Purchasers notes in an aggregate principal amount for all such notes of$100.0 million (the "Notes Payable"). Since the FDA approval of DAXXIFY™ for the temporary improvement of moderate to severe glabellar lines inSeptember 2022 , we are eligible to draw on the Second Tranche of$100.0 million in full under the Note Purchase Agreement provided certain conditions are met. 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"), and the 2020 ATM Agreement was terminated onMay 10, 2022 . FromJanuary 1, 2022 throughMay 10, 2022 , we sold 1.7 million 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 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 of bothSeptember 30, 2022 and the filing date of this Report, no shares of common stock had been sold under the 2022 ATM Agreement.
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 approved products and product
candidates, including DAXXIFY™, the onabotulinumtoxinA biosimilar 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 September 30, Nine Months Ended September 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % change
Product revenue $ 26,081 $ 18,296 $ 7,785 43 % $ 72,401 $ 46,982 $ 25,419 54 %
Collaboration revenue 970 1,129 $ (159) (14) % 6,197 4,034 $ 2,163 54 %
Service revenue 1,964 320 $ 1,644 514 % 4,046 832 $ 3,214 386 %
Total revenue $ 29,015 $ 19,745 $ 9,270 47 % $ 82,644 $ 51,848 $ 30,796 59 %
Product Revenue
We have generated product revenue from the sale of the RHA® Collection of dermal fillers.
For the three and nine months ended
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 services incurred over the total estimated cost of development services multiplied by the determined transactions price of the contract.
For the three 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 nine months ended
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Operating Expenses
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Operating expenses:
Cost of product revenue
(exclusive of amortization) $ 8,681 $ 5,827 $ 2,854 49 % $ 24,130 $ 15,453 $ 8,677 56 %
Cost of service revenue
(exclusive of amortization) 2,055 59 $ 1,996 3,383 % 4,022 76 $ 3,946 5,192 %
Selling, general and
administrative 65,775 52,782 $ 12,993 25 % 158,697 152,385 $ 6,312 4 %
Research and development 26,103 30,095 $ (3,992) (13) % 81,745 86,787 $ (5,042) (6) %
Amortization 3,885 3,705 $ 180 5 % 11,597 10,219 $ 1,378 13 %
Total operating expenses $ 106,499 $ 92,468 $ 14,031 15 % $ 280,191 $ 264,920 $ 15,271 6 %
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 nine months ended
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 nine months endedSeptember 30, 2022 , cost of service revenue (exclusive of amortization) increased compared to the same periods in 2021 due to the increase of OPUL® GPV 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 September 30, Nine Months Ended September 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021
Change % Change
Selling, general and
administrative $ 51,492 $ 45,146 $ 6,346 14 % $ 127,570 $ 128,329 $ (759) (1) %
Stock-based compensation 13,245 6,624 $ 6,621 100 % 27,937 21,193 $ 6,744 32 %
Depreciation and amortization 1,038 1,012 $ 26 3 % 3,190 2,863 $ 327 11 %
Total selling, general and
administrative expenses $ 65,775 $ 52,782 $ 12,993 25 % $ 158,697 $ 152,385 $ 6,312 4 %
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 departments, including related stock-based compensation costs;
•Costs of sales and marketing activities and sales force compensation related to DAXXIFY™, the RHA® Collection of dermal fillers and the Fintech Platform;
•DAXXIFY™ 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 months ended
For the nine months endedSeptember 30, 2022 , selling, general and administrative expenses decreased compared to the same periods in 2021 of which$1.9 million was attributed to the Product Segment. 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. The decrease was partially offset by additional sales and marketing expenses and business support related to the RHA® Collection of dermal fillers and investments in the Service Segment.
We expect our selling, general and administrative expenses to increase in the future due to the anticipated commercial launch of DAXXIFYTM.
Stock-based compensation
For the three and nine months endedSeptember 30, 2022 , stock-based compensation included in selling, general and administrative expenses increased compared to the same periods in 2021, primarily due to the initiation of recognizing stock-based compensation expense for the performance based stock units that were granted in early 2022 and for which the performance condition was achieved inSeptember 2022 as well as more stock award grants to employees in selling, general and administrative functions. 39
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Research and Development Expenses
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Manufacturing and quality $ 10,514 $ 11,701 $ (1,187) (10) % $ 37,022 $ 33,296 $ 3,726 11 %
Stock-based compensation 4,742 3,914 $ 828 21 % 13,676 11,320 $ 2,356 21 %
Clinical and regulatory 3,749 7,294 $ (3,545) (49) % 11,631 21,673 $ (10,042) (46) %
Other research and
development expenses 3,911 2,709 $ 1,202 44 % 9,211 9,008 $ 203 2 %
Platform and software
development 2,671 4,044 $ (1,373) (34) % 8,726 10,138 $ (1,412) (14) %
Depreciation and
amortization 516 433 $ 83 19 % 1,479 1,352 $ 127 9 %
Total research and
development expenses $ 26,103 $ 30,095 $ (3,992) (13) % $ 81,745 $ 86,787 $ (5,042) (6) %
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 DAXXIFY™, 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® Pipeline Products 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 cost runway to be relatively consistent in the near term, primarily due to deferring the Phase 3 clinical program for upper limb spasticity and other therapeutics pipeline activities as part of our capital preservation measures. However, we will continue 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 DAXXIFY™ and research and development activities for DAXXIFY™. 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 endedSeptember 30, 2022 and 2021, manufacturing and quality expenses were 40% and 39% of the total research and development expenses for the respective periods. For the nine months endedSeptember 30, 2022 and 2021, manufacturing and quality expenses were 45% and 38% of the total research and development expenses for the respective periods. We began capitalizing manufacturing costs related to DAXXIFY™ commercial products at ourNewark, CA facility after the FDA approval was obtained in earlySeptember 2022 . For the three months endedSeptember 30, 2022 , manufacturing and quality expenses decreased compared to the same periods in 2021, primarily due to the capitalization of inventory costs on the condensed consolidated balance sheet related to DAXXIFY™ commercial products at our approved manufacturing facility. For the nine months endedSeptember 30, 2022 , manufacturing and quality expenses increased compared to the same periods in 2021, primarily due to expenses related to ramp up of pre-commercial manufacturing and quality activities for DAXXIFY™, partially offset by the capitalization of inventory costs on the condensed consolidated balance sheet related to DAXXIFY™ commercial products at our approved manufacturing facility. We expect that our manufacturing and quality expenses within the research and development expense will decrease going forward due to the approval of DAXXIFY™ in earlySeptember 2022 , at which point we began recognizing inventory costs associated with DAXXIFY™ on the condensed consolidated balance sheet.
Stock-based compensation
For the three and nine months endedSeptember 30, 2022 , stock-based compensation included in research and development expenses increased compared to the same periods in 2021, primarily due to the initiation of recognizing stock-based compensation expense for the performance based stock units that were granted in early 2022 and for which the performance condition was achieved inSeptember 2022 , offset by a lower market value of stock awards granted to employees in research and development related functions. 41
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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 DAXXIFY™ and RHA® Pipeline Products. For the three months endedSeptember 30, 2022 and 2021, clinical and regulatory costs were 14% and 24% of the total research and development expenses for the respective periods. For the nine months endedSeptember 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 nine months endedSeptember 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 DAXXIFY™. We expect clinical and regulatory expenses runway to be consistent in the near term primarily due to capital preservation measures still in effect which includes deferring the Phase 3 clinical program for upper limb spasticity and other therapeutics pipeline activities.
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 DAXXIFY™ and the onabotulinumtoxinA biosimilar program. For the three months endedSeptember 30, 2022 and 2021, other research and development expenses were 15% and 9% of the total research and development expenses for the respective periods. For the nine months endedSeptember 30, 2022 and 2021, other research and development expenses were 11% and 10% of the total research and development expenses for the respective periods. For the three and nine months endedSeptember 30, 2022 , other research and development expenses increased compared to the same periods in 2021, primarily due to a$2.0 million non-recurring milestone payment upon achievement of the FDA approval of DAXXIFY™, offset by the research and development activities related to DAXXIFY™ in 2021 in preparation for the FDA inspection.
Platform and software development
Platform and software development includes expenses associated with research and development activities in the Service Segment, namely the costs of developing new functionality or features of OPUL® that are not subject to capitalization. For the three months endedSeptember 30, 2022 and 2021, platform and software development expenses were 10% and 13% of the total research and development expenses for the respective periods. For the nine months endedSeptember 30, 2022 and 2021, platform and software development expenses were 11% and 12% of the total research and development expenses for the respective periods. For the three and nine months endedSeptember 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.
Amortization
For the three and nine months endedSeptember 30, 2022 , amortization increased compared to the same periods in 2021, primarily due to the amortization related to the in-process research and development assets as well as the platform software, which were placed in service in the second quarter of 2021. 42
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Net Non-Operating Income and Expense
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except
percentages) 2022 2021 Change % Change 2022 2021 Change % Change
Interest income $ 1,165 $ 84 $ 1,081 1,287 % $ 1,860 $ 266 $ 1,594 599 %
Interest expense (6,917) (1,571) $ (5,346) 340 % (12,722) (4,700) $ (8,022) 171 %
Change in fair value of
derivative liability (875) (20) $ (855) 4,275 % (980) (98) $ (882) 900 %
Other expense, net 118 (146) $ 264 (181) % (381) (608) $ 227 (37) %
Total net non-operating
expense $ (6,509) $ (1,653) $ (4,856) 294 % $ (12,223) $ (5,140) $ (7,083) 138 %
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 primarily consists of the contractual interest charges for our 2027 Notes and Notes Payable, as well as our finance lease liability interest expense. The non-cash component of the interest expense primarily consists of 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 nine months endedSeptember 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, and our finance lease liability interest expense in 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.
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:
September 30, December 31, Increase
(in thousands) 2022 2021 (Decrease)
Cash, cash equivalents, and short-term investments
225,071$ 153,556 Working capital$ 340,862 $ 178,828 $ 162,034 Stockholders' equity$ 145,713 $ 68,471 $ 77,242 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 ofSeptember 30, 2022 andDecember 31, 2021 , we had cash, cash equivalents and short-term investments of$378.6 million and$225.1 million , respectively, which represented an increase of$153.6 million . The increase was primarily due to the proceeds from the issuance of common stock in connection with follow-on offering, net of commissions and discount of$216.2 million , 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$2.6 million . The increase was primarily offset by other operating activities of$164.6 million , finance lease prepayments of$17.8 million , principal payments on finance leases of$5.0 million , net settlement of restricted stock awards for employee taxes of$4.6 million , purchase of property and equipment of$1.9 million , and payment of debt issuance cost and offering costs of$1.7 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:
Nine Months Ended September 30,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ (163,366) $ (176,927)
Investing activities $ (179,758) $ (57,306)
Financing activities $ 337,867 $ 29,464 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 nine months endedSeptember 30, 2022 , net cash used in operating activities was$163.4 million , which was primarily due to personnel and compensation costs of approximately$96 million ; professional services and consulting fees of approximately$67 million ; rent, supplies and utilities expenses of approximately$47 million ; legal and other administrative expense of approximately$14 million ; the 2027 Notes and Notes Payable interest paid of$10 million , clinical trials expenses of approximately$4 million , offset by approximately$74 million from product and service revenue. For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$176.9 million , which was primarily due to personnel and compensation costs of approximately$95 million ; professional services and consulting fees of approximately$72 million ; rent, supplies and utilities expenses of approximately$37 million ; clinical trials expenses of approximately$9 million ; legal and other administrative expense of approximately$11 million ; and the 2027 Notes interest paid of approximately$5 million , offset by approximately$52 million from product and service revenue. 44
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Cash Flows from Investing Activities
For the nine months endedSeptember 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 nine months endedSeptember 30, 2022 , net cash provided by financing activities was driven by the the proceeds from issuance of common stock in connection with follow-on offering, net of discounts and commissions, 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, principal payments on finance lease obligations, and payments of debt issuance costs and offering costs. For the nine months endedSeptember 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 employee stock purchase plan. The inflows were offset by the net settlement of restricted stock awards for employee taxes and payments of offering costs.
Follow-On Public Offering
InSeptember 2022 , we completed the 2022 follow-on public offering, pursuant to which we issued 9.2 million shares of common stock at a public offering price of$25.00 per share, including the exercise of the underwriters' over-allotment option to purchase 1.2 million additional shares of common stock, for net proceeds of$215.9 million , after underwriting discounts, commission and other offering expenses. Note Purchase Agreement InMarch 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"). Since the FDA approval of DAXXIFY™ for the temporary improvement of moderate to severe glabellar lines inSeptember 2022 , we are eligible to draw on the Second Tranche of$100.0 million in full under the Note Purchase Agreement provided certain conditions are met. 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 DAXXIFY™ 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 Notes 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 45
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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 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 InFebruary 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 at any time by the holders 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 46
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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.
Contractually, 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. 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
InNovember 2020 , we entered into the 2020 ATM Agreement. FromJanuary 1, 2022 throughMay 10, 2022 , we sold 1.7 million 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. We terminated the 2020 ATM Agreement onMay 10, 2022 . OnMay 10, 2022 , we entered into the 2022 ATM Agreement with Cowen. Under the 2022 ATM Agreement, we may sell up to$150.0 million of common stock. As of bothSeptember 30, 2022 and the filing date of this Report, no shares of common stock had been sold under the 2022 ATM Agreement.
Common Stock and Common Stock Equivalents
As ofOctober 31, 2022 , outstanding shares of common stock were 82.3 million, outstanding stock options were 5.0 million, unvested restricted stock awards and performance stock awards were 2.2 million, unvested restricted stock units and performance stock units were 2.8 million, shares expected to be purchased onDecember 31, 2022 under the 2014 ESPP were 0.2 million and shares of common stock underlying the 2027 Notes was 8.9 million, based upon the initial conversion price.
Operating and Capital Expenditure Requirements
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 DAXXIFY™, DaxibotulinumtoxinA Topical, the onabotulinumtoxinA biosimilar, obtaining regulatory approval of DAXXIFY™ and the commercial launch of our products and services. As a result, we have incurred net losses and net cash outflows from operations. Although we received the FDA approval of DAXXIFY™ in earlySeptember 2022 , we expect to continue to incur losses in the foreseeable future while we ramp up commercial sales of DAXXIFY™ and our other product and services. 47
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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 approval of DAXXIFYTM. Disciplined capital allocation continues to be a priority. Following theFDA's approval of DAXXIFYTM inSeptember 2022 , we began to focus our capital allocation on the preparation for the commercial launch of DAXXIFYTM, the continued growth of the RHA® Collection of dermal fillers and OPUL®, and the advancement of our therapeutics program. We will continue to assess expense management and capital allocation measures as it relates to our Phase 3 clinical program for upper limb spasticity, other therapeutics pipeline activities, and international regulatory investments for DAXXIFYTM. We expect to make expenditures related to our ongoing operations consistent with our current capital allocation priorities. In connection with theTeoxane 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. 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 ongoing COVID-19 pandemic or for other reasons. To date, we have funded our operations primarily through the sale of common stock, convertible senior notes, payments received from collaboration arrangements, sales of the RHA® Collection of dermal fillers and, inMarch 2022 , we received proceeds from the First Tranche of the Note Purchase Agreement. Since the FDA approval of DAXXIFY™ for the temporary improvement of moderate to severe glabellar lines inSeptember 2022 , we are eligible to draw on the Second Tranche of$100.0 million in full under the Note Purchase Agreement provided certain conditions are met. We believe that our existing capital resources will be sufficient to fund our operating plan through at least the next 12 months following the issuance of this Report. However, we may need to raise substantial additional financing in the future to fund our operations. Our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans. 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 nine months ended
Contractual Obligations
Except as follows, there were no material changes outside of the ordinary course of business in our contractual obligations as ofSeptember 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
In
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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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