The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes thereto included elsewhere in this Quarterly Report on Form 10-Q
("Quarterly Report") and our audited consolidated financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 2020 (the
"Annual Report") filed with the Securities and Exchange Commission (the "SEC")
on March 23, 2021. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Quarterly Report, including information
with respect to our plans and strategy for our business, includes forward
looking statements that involve risks and uncertainties. As a result of many
factors, including those factors set forth in the "Risk Factors" section in our
Annual Report and in this Quarterly Report, our actual results could differ
materially from the results described in or implied by, the forward-looking
statements contained in the following discussion and analysis.
OVERVIEW
We are a pharmaceutical company focused on developing and commercializing
products that have the potential to optimize the delivery of infused therapies,
advance patient care and reduce healthcare costs. Our strategy is designed to
enable the subcutaneous administration of therapies that have previously been
limited to intravenous, or IV, delivery. By moving delivery away from the
high-cost healthcare settings typically required for IV administration, we
believe our technology has the potential to reduce overall healthcare costs and
advances the quality and convenience of care. Our lead product candidate,
FUROSCIX, consists of our novel formulation of furosemide delivered via an
on-body infusor and is under development for treatment of congestion in patients
with heart failure who display reduced responsiveness to oral diuretics and do
not require hospitalization.
We resubmitted our new drug application, or NDA, for FUROSCIX, with the U.S.
Food and Drug Administration, or FDA, on June 30, 2020. The resubmission was a
response to a Complete Response Letter, or CRL, from the FDA with respect to our
NDA submitted in August 2017, which indicated that, among other things, certain
device modifications to our infusor were required. Based on our interactions
with the FDA, which required device modifications necessary to advance FUROSCIX
using its then current technology, we decided to transition to our next
generation device. The resubmission incorporated our next generation device
which is being developed through a partnership with West Pharmaceutical
Services, Inc., or West, using its proprietary on-body infusor.
On July 23, 2020, the FDA accepted the resubmission of our NDA and we were given
a Prescription Drug User Fee Act, or PDUFA, target action date of December 30,
2020; however, on December 3, 2020, we received a CRL from the FDA, in which,
among other things, the FDA raised questions related to testing, labeling and
features of the combination product unrelated to the drug constituent. The FDA
also indicated that they needed to conduct pre-approval inspections at three of
our third-party manufacturing facilities. No clinical deficiencies were noted.
On January 28, 2021, we had a Type A meeting with the FDA to discuss the issues
described in the CRL and steps required for the resubmission of the NDA for
FUROSCIX. On June 2, 2021, we had a Type C meeting with the FDA regarding the
requirements for resubmission of the FUROSCIX NDA. Based on guidance we received
during the meeting and subsequently contained within the meeting minutes, we are
conducting the required bench testing for the West proprietary on-body infusor.
The FDA has not requested modifications to the device and all testing to date on
devices manufactured on the planned commercial line has been successful,
however, due to COVID-19 related global supply chain logistics we plan to
resubmit our NDA in the first quarter of 2022. If the resubmission is approved,
we still anticipate a commercial launch in the fourth quarter of 2022.
In May 2021, we completed enrollment in FREEDOM-HF, a prospective clinical trial
evaluating overall and heart failure-related costs for subjects treated with
FUROSCIX outside the hospital for 30 days post-discharge from the emergency
department compared to patients receiving intravenous furosemide in the hospital
setting. Based on the results from a planned, prespecified interim analysis
conducted to confirm the final sample size, and following input from
statisticians, principal investigators, payer advisors and Health Economics and
Outcomes Research (HEOR) experts, enrollment was closed on May 17, 2021, prior
to the enrollment target of 34 patients. This decision was made due to the
statistically significant reduction observed in 30-day heart failure-related
costs in patients who received FUROSCIX in the interim analysis. The final
analysis included 24 subjects treated with FUROSCIX and 66 matched comparators
based on seven variables associated with hospitalization. On July 13, 2021, we
announced top-line results from FREEDOM-HF, demonstrating that average 30-day
heart failure-related costs were reduced by $17,753 per study subject in the
FUROSCIX arm compared to historically matched comparators (p < 0.0001). In
September, we announced additional results from FREEDOM-HF, demonstrating that
average 30-day total healthcare costs were reduced by $30,568 per study subject
in the FUROSCIX arm compared to historically matched comparators (p < 0.0001).
Since the price for FUROSCIX has not been established, the difference in costs
does not include the cost of FUROSCIX. These results support our hypothesis that
treating heart failure patients presenting to the emergency department with
worsening congestion with FUROSCIX outside of the hospital setting has the
potential to dramatically reduce the significant costs associated with hospital
admissions and readmissions.
We conducted an analysis of additional secondary endpoints in FREEDOM-HF which
provided additional insights into the clinical effectiveness of FUROSCIX. In
this analysis, it was determined that patients who received FUROSCIX had a
median reduction of
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heart failure peptide biomarkers from study entry to first visit, and to last
visit, of 42.3% and 28%, respectively (p < 0.01). In addition, patients who
received FUROSCIX had a 12.8-point improvement in the Kansas City Cardiomyopathy
Questionnaire (KCCQ-12) Summary Score 30 days after study entry.
We continued enrollment in AT HOME-HF PILOT, a multicenter, randomized, open
label, controlled study in heart failure patients with worsening signs and
symptoms of congestion requiring augmentation in diuretic therapy outside of an
acute care setting. The objective of this pilot study is to evaluate the
effectiveness and safety of FUROSCIX versus continued medical therapy to inform
a larger, pivotal clinical trial. We anticipate completing enrollment in the AT
HOME-HF PILOT study in the first half of 2022.
We have funded our operations from inception through September 30, 2021
primarily through the sale of shares of our common stock and, prior to that,
through the private placement of our preferred stock and the incurrence of debt.
We do not have any products approved for sale and have not generated any revenue
from product sales.
As of September 30, 2021, we had an accumulated deficit of $182.4 million. We
expect to continue to incur net losses for the foreseeable future as we develop
the infrastructure to commercialize our products, if approved, in the United
States, including building our sales and marketing organization, continuing
research and development efforts, engaging in scale-up manufacturing and seeking
regulatory approval for new product candidates and enhancements. We will need
additional funding to pay expenses related to our operating activities,
including selling, general and administrative expenses and research and
development expenses. Adequate funding may not be available to us on acceptable
terms, or at all. Our failure to obtain sufficient funds on acceptable terms
when needed could have a material adverse effect on our business, results of
operations or financial condition.
IMPACT OF COVID-19
A new strain of novel coronavirus which causes a severe respiratory disease
("COVID-19") was identified in 2019, and subsequently declared a pandemic by the
World Health Organization, affecting the populations of the United States as
well as the rest of the world. In response to the pandemic, we transitioned our
workforce to work from home in March 2020. In July 2020, we opened our offices
for limited access to employees integrating all recommendations for workplace
safety, including appropriate protocols to ensure social-distancing. The health
of our employees remains a top priority and we are continuing to monitor the
impact of COVID-19 including the pace of vaccinations and the emergence of new
and more contagious strains of the virus and government regulations.
To date, the third parties that perform our manufacturing, assembly, packaging
and testing of our products have experienced delays relating to supply chain
logistics but have remained operational. The extent of the impact of the
evolving COVID-19 pandemic on the timing of our ability to resubmit the FUROSCIX
NDA, the FDA's subsequent review of the FUROSCIX NDA or possible delays in
enrolling patients to our upcoming or recently initiated trials and our
operational and financial performance will depend on future developments,
including the duration, severity and spread of the pandemic, related
restrictions on travel and transportation, the impact of new strains of the
virus, the effectiveness and availability of vaccines and other actions that may
be taken by governmental authorities, including the ability of the FDA to
inspect facilities required for approval of our NDA, the impact to the business
of our suppliers, service providers or customers, and other items identified
under "Risk Factors" in our Annual Report on Form 10-K, all of which are
uncertain and cannot be predicted. An extended period of global supply chain and
economic disruption may continue to impact us and could materially affect our
business, results of operations, access to sources of liquidity and financial
condition.
COMPONENTS OF OUR RESULTS OF OPERATIONS
Research and Development Expenses
Research and development, or R&D, expenses consist of the cost of engineering,
clinical trials, regulatory and medical affairs and quality assurance associated
with developing our proprietary technology and product candidates. R&D expenses
consist primarily of:
?
employee-related expenses, including salaries, benefits, travel expense and
stock-based compensation expense;
?
cost of outside consultants who assist with technology development, regulatory
affairs, clinical trials and medical affairs, and quality assurance;
?
cost of clinical trial activities performed by third parties;
?
cost of pre-approval pharmaceutical batch manufacturing; and
?
cost of facilities and supplies used for internal research and development and
clinical activities.
We expense R&D costs as incurred. Given the emphasis to date on our lead product
candidate FUROSCIX, our R&D expenses have not been allocated on a
program-specific basis. In the future, we expect R&D expenses to increase in
absolute dollars as we
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continue to develop new products and enhance existing products and technologies.
We anticipate that our expenses will increase significantly as we:
?
pursue regulatory approval of FUROSCIX incorporating the West proprietary
on-body infusor;
?
continue to advance our pipeline programs beyond FUROSCIX;
?
continue our current research and development activity;
?
seek to identify additional research programs and additional product candidates;
?
initiate preclinical testing and clinical trials for any product candidates we
identify and develop, maintain, expand and protect our intellectual property
portfolio; and
?
hire additional research, clinical and scientific personnel.
General and Administrative Expenses
General and administrative, or G&A, expenses consist of employee-related
expenses, including salaries, benefits, travel expense and stock-based
compensation expense for personnel in executive, finance, commercial, human
resources, facility operations and administrative functions. Other G&A expenses
include pre-approval promotional activities, marketing, conferences and trade
shows, professional services fees, including legal, audit and tax fees,
insurance costs, general corporate expenses and allocated facilities-related
expenses.
If we receive FDA approval for FUROSCIX incorporating West's proprietary on-body
infusor, we anticipate that our G&A expenses will increase as we continue to
build our corporate and commercial infrastructure to support the development and
commercial launch of FUROSCIX in the United States.
Results of Operations
Comparison of Three Months Ended September 30, 2020 and 2021
The following table summarizes our results of operations for the three months
ended September 30, 2020 and 2021 (in thousands):
Three Months Ended September 30, Increase
2020 2021 (Decrease)
Operating expenses:
Research and development $ 5,119 $ 3,694 $ (1,425 )
General and administrative 3,319 2,211 (1,108 )
Total operating expenses 8,438 5,905 (2,533 )
Loss from operations (8,438 ) (5,905 ) (2,533 )
Other income 19 10 (9 )
Interest income 36 10 (26 )
Interest expense (655 ) (667 ) 12
Net loss $ (9,038 ) $ (6,552 ) $ (2,486 )Research and development expenses. R&D expenses were $3.7 million for the three
months ended September 30, 2021, compared to $5.1 million for the three months
ended September 30, 2020. The decrease of $1.4 million was primarily
attributable to a decrease of $1.1 million in device development costs, a $0.4
million decrease in pharmaceutical development costs, and a $0.1 million
decrease in clinical study costs. The decrease was partially offset by a $0.2
million increase in quality and regulatory consulting costs.
General and administrative expenses. G&A expenses were $2.2 million for the
three months ended September 30, 2021, compared to $3.3 million for the three
months ended September 30, 2020. The decrease of $1.1 million was primarily
attributable to a $0.6 million decrease in employee related costs, including
stock-based compensation and bonus, a $0.3 million decrease in commercial
preparation costs and a $0.3 million decrease in legal costs. The decrease was
partially offset by $0.1 million increase in director and officer's insurance.
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Other income. Other income was $10,000 for the three months ended September 30,
2021, compared to $19,000 for the three months ended September 30, 2020. The
decrease in income of $9,000 was primarily attributable to foreign exchange
losses offset by income from a rental arrangement.
Interest income. Interest income was $10,000 for the three months ended
September 30, 2021, compared to $36,000 for the three months ended September 30,
2020. The decrease of $26,000 was primarily attributable to lower interest rates
on our financial instruments.
Interest expense. Interest expense was $0.7 million for the three months ended
September 30, 2021 compared to $0.7 million for the three months ended September
30, 2020. Interest expense consists of interest on the $20.0 million term loan
with SLR Investment Corp. (f/k/a Solar Capital Ltd.) and Silicon Valley Bank.
Comparison of Nine Months Ended September 30, 2020 and 2021
The following table summarizes our results of operations for the nine months
ended September 30, 2020 and 2021 (in thousands):
Nine Months Ended September 30, Increase
2020 2021 (Decrease)
Operating expenses:
Research and development $ 14,404 $ 11,509 $ (2,895 )
General and administrative 8,359 7,593 (766 )
Total operating expenses 22,763 19,102 (3,661 )
Loss from operations (22,763 ) (19,102 ) (3,661 )
Other (expense) income (13 ) 298 311
Interest income 281 42 (239 )
Interest expense (1,930 ) (1,954 ) 24
Net loss $ (24,425 ) $ (20,716 ) $ (3,709 )Research and development expenses. R&D expenses were $11.5 million for the nine
months ended September 30, 2021, compared to $14.4 million for the nine months
ended September 30, 2020. The decrease of $2.9 million was primarily
attributable to a decrease of $4.4 million in device development costs. The
decrease was partially offset by a $0.5 million increase in employee-related
costs, a $0.4 million increase in contract services for medical affairs, a $0.3
million increase in clinical study activity, $0.2 million increase in quality
assurance professional services, and a $0.1 million increase in pharmaceutical
development costs.
General and administrative expenses. G&A expenses were $7.6 million for the nine
months ended September 30, 2021, compared to $8.4 million for the nine months
ended September 30, 2020. The decrease of $0.8 million was primarily
attributable to a $0.6 million decrease in legal costs, a $0.4 million decrease
in commercial preparation costs, a $0.3 million decrease in employee-related
costs, and a $0.2 million decrease in investor relation service costs. The
decrease was partially offset by a $0.4 million increase in director and
officer's insurance and a $0.3 million increase in consulting fees.
Other (expense) income. Other income was $0.3 million for the nine months ended
September 30, 2021, compared to other expense of $13,000 for the nine months
ended September 30, 2020. The increase in income of $0.3 million was primarily
attributable to the recovery of fees associated with a post-employment matter.
Interest income. Interest income was $42,000 for the nine months ended September
30, 2021, compared to $0.3 million for the nine months ended September 30, 2020.
The decrease of $0.2 million was primarily attributable to lower interest rates
on our financial instruments.
Interest expense. Interest expense was $2.0 million for the nine months ended
September 30, 2021 compared to $1.9 million for the nine months ended September
30, 2020. Interest expense consists of interest on the $20.0 million term loan
with SLR Investment Corp. (f/k/a Solar Capital Ltd.) and Silicon Valley Bank.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We have funded our operations from inception through September 30, 2021
primarily through the sale of shares of our common stock and, prior to that,
through the private placement of our preferred stock and the incurrence of debt.
As of September 30, 2021, we had received net cash proceeds of $92.7 million
from our initial public offering, $56.7 million from sales of our preferred
stock, $18.8 million from borrowings under our term loan, $13.5 million from
sales of convertible notes, $50.2 million from our
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public offering in 2020 and $14.4 million from the sale of common stock in our
2019 at-the-market offering. As of September 30, 2021, we had cash, cash
equivalents and restricted cash of $79.5 million and short-term investments of
$5.5 million.
On March 23, 2021, we entered into the 2021 ATM Agreement with Cowen to sell
shares of our common stock, from time to time, with aggregate gross sales
proceeds of up to $50.0 million, through an at-the-market equity offering
program under which Cowen will act as our sales agent. As of September 30, 2021,
we had received no proceeds from the sale of shares of common stock pursuant to
the 2021 ATM Agreement.
We expect to incur substantial additional expenditures in the near future to
support our ongoing activities and our plans to obtain regulatory approval for
FUROSCIX incorporating West's proprietary on-body infusor. We believe our
existing unrestricted cash is sufficient to fund our operations through at least
the next 12 months from the date of this quarterly report. We expect our costs
and expenses to increase in the future as we prepare for and, if approved,
commence U.S. commercialization of FUROSCIX, including the development of a
direct sales force, and as we continue to make substantial expenditures on
research and development, including to increase our manufacturing capacity and
for conducting clinical trials of our product candidates. Additionally, we will
incur additional costs as a result of operating as a public company. Our future
capital requirements will depend on many factors, including:
?
the time and expense required to resubmit the NDA for FUROSCIX;
?
the potential FDA approval of FUROSCIX;
?
the costs and expenses of establishing our U.S. sales and marketing
infrastructure;
?
the degree of success we experience in commercializing FUROSCIX, if approved;
?
the revenue generated by sales of FUROSCIX, if approved, and other products that
may be approved;
?
the pricing and reimbursement of FUROSCIX, if approved, and of other product
candidates that may be approved;
?
the costs, timing and outcomes of clinical trials and regulatory reviews
associated with our product candidates;
?
the emergence of competing or complementary technological developments;
?
the extent to which FUROSCIX, if approved, is adopted by the healthcare
community;
?
the number and types of future products we develop and commercialize;
?
the costs of preparing, filing and prosecuting patent applications and
maintaining, enforcing and defending intellectual property-related claims;
?
the impact of COVID-19 on our operations; and
?
the extent and scope of our general and administrative expenses.
Additional financing may not be available on a timely basis on terms acceptable
to us, or at all. We may raise funds in equity, royalty-based or debt financings
or enter into additional credit facilities in order to access funds for our
capital needs. If we raise additional funds through further issuances of equity
or convertible debt securities, our existing stockholders could suffer
significant dilution in their percentage ownership of our company, and any new
equity securities we issue could have rights, preferences and privileges senior
to those of holders of our common stock. If we raise additional funds through
royalty-based financing arrangements, we will likely agree to relinquish rights
to potentially valuable future revenue streams and may agree to covenants that
restrict our operations or strategic flexibility. Any debt financing obtained by
us in the future would cause us to incur additional debt service expenses and
could include restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more difficult
for us to obtain additional capital and pursue business opportunities. If we are
unable to obtain adequate financing or financing on terms satisfactory to us
when we require it, we may terminate or delay the development of one or more of
our products, delay clinical trials necessary to market our products, or delay
establishment or expansion of sales and marketing capabilities or other
activities necessary to commercialize our products.
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CASH FLOWS
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine Months Ended
September 30,
(in thousands) 2020 2021
Net cash (used in) provided by:
Operating activities $ (18,513 ) $ (20,053 )
Investing activities (70,161 ) 27,629
Financing activities 60,328 (72 )
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (28,346 ) $ 7,504Net Cash Used in Operating Activities
During the nine months ended September 30, 2021, net cash used in operating
activities was $20.1 million, consisting primarily of a net loss of $20.7
million and an increase in net operating assets of $1.9 million. This was offset
by non-cash charges of $2.6 million, which primarily consisted of depreciation,
amortization related to our right of use leased assets, stock-based compensation
expense, non-cash interest expense related to amortization of debt discount
associated with the 2019 Loan Agreement and accretion of discount on
investments. The increase in net operating assets is related to accrued expenses
for employee-related and device development costs.
During the nine months ended September 30, 2020, net cash used in operating
activities was $18.5 million, consisting primarily of a net loss of $24.4
million. This was offset by non-cash charges of $2.6 million and an increase in
net operating liabilities of $3.3 million. The non-cash charges primarily
consisted of depreciation, amortization related to our right of use leased
assets, stock-based compensation expense, non-cash interest expense related to
amortization of debt discount associated with the 2019 Loan Agreement, accretion
of discount on investments and the fair value adjustment to the derivative
liability.
Net Cash (Used in) Provided by Investing Activities
During the nine months ended September 30, 2021, net cash provided by investing
activities was $27.6 million, consisting primarily of maturities and purchases
of short-term investments.
During the nine months ended September 30, 2020, net cash used in investing
activities was $70.2 million, consisting of purchases of short-term investments.
Net Cash Provided by (Used in) Financing Activities
During the nine months ended September 30, 2021, net cash used in financing
activities was $72,000, consisting primarily of tax obligations on the
settlement of restricted stock units, offset by stock option exercises.
During the nine months ended September 30, 2020, net cash provided by financing
activities was $60.3 million, consisting primarily of net proceeds of $50.2
million from the public offering, net proceeds of $10.4 million from the 2019
at-the-market offering and stock option exercises. The proceeds were offset by
the $0.8 million Exit Fee associated with the 2019 Loan Agreement and tax
obligations on the settlement of restricted stock units.
OFF-BALANCE SHEET ARRANGEMENTS
We currently have no off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
There were no material changes in our commitments under contractual obligations,
as disclosed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2020, filed with the SEC on March 23, 2021.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The
preparation of these financial statements requires us to make estimates and
assumptions for the reported amounts of assets, liabilities, revenue, expenses
and related disclosures. Our estimates are based on our historical experience
and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions and any such differences may be material. Our critical
accounting policies are more fully described under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2020, filed with the SEC on March 23,
2021.
JOBS ACT ACCOUNTING ELECTION
In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was
enacted. Section 107 of the JOBS Act provides that an emerging growth company
can take advantage of an extended transition period for complying with new or
revised accounting standards. Thus, an emerging growth company can delay the
adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected not to avail ourselves of this
extended transition period and, as a result, we adopt new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for other public companies. This election is irrevocable.
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