UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36274
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) |
(Zip Code) | |
(646 ) 440-9333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | ☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☐ No ☒
12b-2
of the Exchange Act). Yes As of November 5, 2021, the registrant had 81,463,253 shares of common stock
outstanding.
Intra-Cellular Therapies, Inc.
Index to Form
10-Q
1 |
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| Item 1. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
35 |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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37 |
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In this Quarterly Report on Form
10-Q,
the terms “we,” “us,” “our,” and the “Company” mean Intra-Cellular Therapies, Inc. and our subsidiaries. “ITI” refers to our wholly-owned subsidiary ITI, Inc. and “ITI Limited” refers to our wholly-owned subsidiary ITI Limited. i
PART I: FINANCIAL INFORMATION
Item 1. |
FINANCIAL STATEMENTS |
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2021 |
December 31, 2020 |
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(Unaudited) |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ |
$ | ||||||
| Investment securities, available-for-sale |
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| Restricted cash |
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| Accounts receivable, net |
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| Inventory |
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| Prepaid expenses and other current assets |
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| Property and equipment, net |
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| Right of use assets, net |
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| Other assets |
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| Total assets |
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| Liabilities and stockholders’ equity |
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| Current liabilities: |
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| Accounts payable |
$ |
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| Accrued and other current liabilities |
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| Lease liabilities, short-term |
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| Accrued employee benefits |
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| Lease liabilities |
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| Total liabilities |
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| Stockholders’ equity: |
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| Common stock, $ |
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| Additional paid-in capital |
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| Accumulated deficit |
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| Accumulated comprehensive income |
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ |
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See accompanying notes to these condensed consolidated financial statements.
1
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2021 |
2020 |
2021 |
2020 |
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| Revenues |
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| Product sales, net |
$ |
$ | $ |
$ | ||||||||||||
| Grant revenue |
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| Total revenues |
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| Operating expenses: |
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| Cost of product sales |
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| Research and development |
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| Selling, general and administrativ e |
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| Total operating expenses |
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| Loss from operations |
( |
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( |
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| Interest income |
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| Loss before provision for income taxes |
( |
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| Income tax (expense) benefit |
( |
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( |
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| Net loss |
$ |
( |
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$ | ( |
) | $ |
( |
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$ | ( |
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| Net loss per common share: |
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| Basic & Diluted |
$ |
( |
) |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | ||||
| Weighted average number of common shares: |
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| Basic & Diluted |
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See accompanying notes to these condensed consolidated financial statements.
2
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2021 |
2020 | 2021 |
2020 | |||||||||||||
| Net loss |
$ |
( |
) |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | ||||
| Other comprehensive loss: |
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| Unrealized (loss) gain on investment securitie s |
( |
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( |
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| Comprehensive loss |
$ |
( |
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$ | ( |
) | $ |
( |
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$ | ( |
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See accompanying notes to these condensed consolidated financial statements.
3
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Comprehensive (Loss) Income |
Total Stockholders’ Equity |
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Shares |
Amount |
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| Balance at June 30, 2020 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Common shares issued |
— | — | ||||||||||||||||||||||
| Common shares issued receivable collected |
— | — | — | — | ||||||||||||||||||||
| Exercise of stock options and issuances of restricted stock |
— | — | ||||||||||||||||||||||
| Stock issued for services |
— | — | — | |||||||||||||||||||||
| Share-based compensation |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
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| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
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Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Comprehensive (Loss) Income |
Total Stockholders’ Equity |
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Shares |
Amount |
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| Balance at December 31, 2019 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Common shares issued |
— | — | ||||||||||||||||||||||
| Exercise of stock options and issuances of restricted stock |
— | — | ||||||||||||||||||||||
| Stock issued for services |
— | — | ||||||||||||||||||||||
| Share-based compensation |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| Other comprehensive gain |
— | — | — | — | ||||||||||||||||||||
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| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
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Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Comprehensive (Loss) Income |
Total Stockholders’ Equity |
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Shares |
Amount |
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| Balance at June 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
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| Exercise of stock options and issuances of restricted stock |
— |
— |
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| Stock issued for services |
— |
— |
— |
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| Share-based compensation |
— |
— |
— |
— |
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| Net loss |
— |
— |
— |
( |
) |
— |
( |
) | ||||||||||||||||
| Other comprehensive los s |
— |
— |
— |
— |
( |
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( |
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| Balance at September 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
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Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Comprehensive (Loss) Income |
Total Stockholders’ Equity |
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Shares |
Amount |
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| Balance at December 31, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
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| Exercise of stock options and issuances of restricted stock |
— |
— |
||||||||||||||||||||||
| Stock issued for services |
— |
— |
— |
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| Share-based compensation |
— |
— |
— |
— |
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| Net loss |
— |
— |
— |
( |
) |
— |
( |
) | ||||||||||||||||
| Other comprehensive loss |
— |
— |
— |
— |
( |
) |
( |
) | ||||||||||||||||
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| Balance at September 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
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See accompanying notes to these condensed consolidated financial statements.
4
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, |
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2021 |
2020 |
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| Cash flows used in operating activities |
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| Net loss |
$ |
( |
) |
$ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation |
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| Share-based compensation |
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| Stock issued for services |
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| Amortization of premiums and discounts on investment securities, net |
( |
) |
( |
) | ||||
| Changes in operating assets and liabilities: |
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| Accounts receivable, net |
( |
) |
( |
) | ||||
| Inventory |
( |
) |
( |
) | ||||
| Prepaid expenses and other assets |
( |
) |
( |
) | ||||
| Long term deferred tax asset, net |
— |
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| Accounts payable |
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| Accrued liabilities and other |
( |
) | ||||||
| Lease liabilities, net |
( |
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( |
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| Net cash used in operating activities |
( |
) |
( |
) | ||||
| Cash flows provided by (used in) investing activities |
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| Purchases of investments |
( |
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( |
) | ||||
| Maturities of investments |
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| Purchases of property and equipment |
( |
) |
( |
) | ||||
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| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows provided by financing activities |
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| Proceeds from exercise of stock options |
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| Proceeds of public offering, net |
— |
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| Net cash provided by financing activities |
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| Net increase in cash, cash equivalents, and restricted cash |
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| Cash, cash equivalents, and restricted cash at beginning of perio d |
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| Cash, cash equivalents, and restricted cash at end of period |
$ |
$ | ||||||
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| Non-cash investing and financing activities |
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| Right of use assets under operating leases |
$ |
$ | ||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
September 30, |
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2021 |
2020 |
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| Cash and cash equivalents |
$ |
$ | ||||||
| Restricted cash |
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| Total cash, cash equivalents and restricted cash |
$ |
$ | ||||||
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See accompanying notes to these condensed consolidated financial statements.
5
Intra-Cellular Therapies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
1. Organization
Intra-Cellular
Therapies, Inc. (the “Company”), through its wholly-owned operating subsidiaries, ITI, Inc. (“ITI”) and ITI Limited, is a biopharmaceutical company focused on the discovery, clinical development and commercialization of innovative, small molecule drugs that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system (“CNS”). In
December 2019, the Company announced that CAPLYTA
®
(lumateperone) had been approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of schizophrenia in adults
(42mg/day). The Company initiated the commercial launch of CAPLYTA in late
March 2020. As used in these Notes to Condensed Consolidated Financial Statements, “CAPLYTA” refers to lumateperone approved by the FDA for the treatment of schizophrenia in adults, and “lumateperone” refers to, where applicable, CAPLYTA as well as lumateperone for the treatment of indications beyond schizophrenia. Lumateperone is in Phase
3 clinical development as a novel treatment for bipolar depression and major depressive disorder.
On January 10, 2020, the Company completed a public offering o10,000,000 shares of common stock at an offering price of $29.50 per share for aggregate gross proceeds of $295.0 million. After deducting underwriting discounts, commissions and offering expenses, the net proceeds to the Company were approximately $277.0 million. On September 15, 2020, the Company completed a public offering of common stock in which the Company sold 12,666,667 shares of common stock at an offering price of $30.00 per share for aggregate gross proceeds of $380.0 million. After deducting underwriting discounts, commissions and offering expenses, the net proceeds to the Company were approximately $357.8 million.
f
common stock in which the Company sold In order to further its commercial activities and research projects and support its collaborations, the Company will require additional financing until such time, if ever, that revenue streams are sufficient to generate consistent positive cash flow from operations. The Company currently projects that its cash, cash equivalents and investments will be sufficient to fund operating expenses and capital expenditures for at least one year from the date that these financial statements are filed with the Securities and Exchange Commission (the “SEC”). Possible sources of funds include public or private sales of the Company’s equity securities, sales of debt or convertible debt securities, the incurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of the Company’s product candidates and technology and, to a much lesser extent, grant funding. On August 30, 2019, the Company filed a universal shelf registration statement on Form 350 million of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine, which included up to $75 742,791 shares of common stock under the Company’s equity program which resulted in the Company receiving net proceeds of $17.9 million.
S-3,
which was declared effective by the SEC on September 12, 2019, on which the Company registered for sale up to $“at-the-market”
“at-the-market”
“at-the-market”
In addition, on January 6, 2020, the Company filed an automatic shelf registration statement on Form
S-3
with the SEC, which became effective upon filing, on which the Company registered for sale an unlimited amount of any combination of its common stock, preferred stock, debt securities, warrants, rights, and/or units from time to time and at prices and on terms that the Company may determine, so long as the Company continues to satisfy the requirements of a “well-known seasoned issuer” under SEC rules. These registration statements will remain in effect for up to three years from the respective dates they became effective. 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of Intra-Cellular Therapies, Inc. and its wholly own subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP set forth in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All intercompany accounts and transactions have been eliminated in consolidation. The Company currently operates in one operating segment. Operating segments are defined as components of an enterprise about which separate discrete information is available for the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance. The Company views its operations and manages its business in one segment, which is discovering, developing and commercializing drugs primarily for the treatment of neurological and psychiatric disorders.
6
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although actual results could differ from those estimates, management does not believe that such differences would be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of checking accounts, money market accounts, money market mutual funds, and certificates of deposit with a maturity date of three months or less. The carrying values of cash and cash equivalents approximate the fair market value. Certificates of deposit, commercial paper, corporate notes and corporate bonds with a maturity date of more than three months are classified separately on the condensed consolidated balance sheets.
Investment Securities
Investment securities consisted of the following (in thousands):
September 30, 2021 |
||||||||||||||||
Amortized Cost |
Unrealized Gains |
Unrealized (Losses) |
Estimated Fair Value |
|||||||||||||
(Unaudited) |
||||||||||||||||
| U.S. Government Agency Securities |
$ | $ | $ | ( |
) | $ | ||||||||||
| Certificates of Deposit |
— | — | ||||||||||||||
| Commercial Paper |
( |
) | ||||||||||||||
| Corporate Notes/Bonds |
( |
) | ||||||||||||||
| |
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| $ | $ | $ | ( |
) | $ | |||||||||||
| |
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December 31, 2020 |
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Amortized Cost |
Unrealized Gains |
Unrealized (Losses) |
Estimated Fair Value |
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| U.S. Government Agency Securities |
$ | $ | $ | ( |
) | $ | ||||||||||
| Certificates of Deposit |
— | — | ||||||||||||||
| Commercial Paper |
( |
) | ||||||||||||||
| Corporate Notes/Bonds |
( |
) | ||||||||||||||
| |
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| $ | $ | $ | ( |
) | $ | |||||||||||
| |
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The Company has classified all of its investment securities as including those with maturities beyond one year, as current assets on the condensed consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. As of September 30, 2021 and December 31, 2020, the Company held $54.9 million and $188.5 million, respectively, of investment securities with contractual maturity dates more than one year and less than two years.
available-for-sale,
available-for-sale
7
The Company monitors its investment portfolio for overall risk, specifically credit risk loss, quarterly or more frequently if circumstances warrant. The Company would estimate the expected credit loss over the lifetime of the asset and record an allowance for the portion of the amortized cost basis of the financial asset that the Company does not expect to collect.
The aggregate related fair value of investments with unrealized losses as of September 30, 2021 was $165.3 million, which consisted of $46.5 million from U.S. government agency securities, $40.0 million of commercial paper, and $78.8 million of corporate notes/bonds. The aggregate amount of unrealized losses as of September 30, 2021 was approximately $53.5 thousand, which consisted of $7.9 thousand from U.S. government agency securities, $6.2 thousand from commercial paper, and $39.4 thousand from corporate notes/bonds. The $165.3 million aggregate fair value of investments with unrealized losses as of September 30, 2021 has been held in a continuous unrealized loss position for less than 12 months. As of December 31, 2020, the aggregate related fair value of investments with unrealized losses was $372.3 million and the aggregate amount of unrealized losses was approximately $169 thousand. The $372.3 million aggregate fair value of investments with unrealized losses as of December 31, 2020 had been held in a continuous unrealized loss position for less than 12 months.
The Company reviewed all of the investments which were in a loss position at the respective balance sheet dates, as well as the remainder of the portfolio. The Company has analyzed the unrealized losses and determined that market conditions were the primary factor driving these changes. After analyzing the securities in an unrealized loss position, the portion of these losses that relate to changes in credit quality is insignificant. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell them prior to the end of their contractual terms. Furthermore, the Company does not believe that these securities expose the Company to undue market risk or counterparty credit risk.
Fair Value Measurements
The Company applies the fair value method under ASC Topic 820, . ASC Topic 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value and requires expanded disclosures about fair value measurements. The ASC Topic 820 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories based on the lowest level input used that is significant to a particular fair value measurement:
Fair Value Measurements and Disclosures
| • | Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. |
| • | Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data. |
| • | Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity—e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security. |
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the ASC Topic 820 hierarchy.
The Company has no 88.2 million as of September 30, 2021 and $27.9 million as of December 31, 2020 is included in cash and cash equivalents on the condensed consolidated balance sheet and approximates market value based on quoted market prices or Level 1 inputs. The carrying value of cash held in commercial paper of approximately $7.0 million as of September 30, 2021 is included in cash and cash equivalents.
8
The fair value measurements of the Company’s cash equivalents and investment securities are identified in the following tables (in thousands):
available-for-sale
Fair Value Measurements at Reporting Date Using |
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September 30, 2021 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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| Money Market Funds |
$ | $ | $ | — | $ | — | ||||||||||
| U.S. Government Agency Securities |
— | — | ||||||||||||||
| Certificates of Deposit |
— | — | ||||||||||||||
| Commercial Paper |
— | — | ||||||||||||||
| Corporate Notes/Bonds |
— | — | ||||||||||||||
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$ |
$ |
$ |
$ |
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Fair Value Measurements at Reporting Date Using |
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December 31, 2020 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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| Money Market Funds |
$ | $ | $ | — | $ | — | ||||||||||
| U.S. Government Agency Securities |
— | — | ||||||||||||||
| Certificates of Deposit |
— | — | ||||||||||||||
| Commercial Paper |
— | — | ||||||||||||||
| Corporate Notes/Bonds |
— | — | ||||||||||||||
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$ |
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Financial Instruments
The Company considers the recorded costs of its financial assets and liabilities, which consist of cash equivalents, restricted cash, accounts receivable, prepaid expenses, right of use asset, net, other assets, accounts payable, accrued liabilities, accrued employee benefits and lease liabilities, short-term, to approximate their fair value because of their relatively short maturities at September 30, 2021 and December 31, 2020. Management believes that the risks associated with its financial instruments are minimal as the counterparties are various corporations, financial institutions and government agencies of high credit standing.
Restricted Cash
Restricted cash is collateral used under the letter of credit arrangement for the vehicle lease agreement. The Company adopted ASU
No. 2016-18,
“Restricted Cash” (“ASU 2016-18”)
and presents restricted cash balances within the cash, cash equivalents and restricted cash balance on the statement of cash flows. Accounts Receivable, Net
The Company’s accounts receivable, net, primarily arise from product sales. They are generally stated at the invoiced amount and do not bear interest. Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from chargebacks, prompt pay discounts, and distribution fees.
The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. The Company reserves against accounts receivable for estimated losses that may arise from a customer’s inability to pay and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The reserve amount for estimated collectability losses was not significant as of September 30, 2021 and December 31, 2020.
9
We are also subject to credit risk from our accounts receivable related to our product sales. We monitor our exposure within accounts receivable and record a credit loss reserve against uncollectible accounts receivable as necessary. We extend credit primarily to pharmaceutical wholesale distributors. Customer creditworthiness is monitored and collateral is not required. Historically, we have not experienced credit losses on our accounts receivable and as of September 30, 2021 and December 31, 2020, our credit loss reserve on receivables was not material.
Concentration of Credit Risk
Financial instruments which potentially subject th96 40 %, 29 %, and 27 % of product sales, respectively. As of September 30, 2021, the Company believes that such customers are of high credit quality. The percentage of the total net product sales by individual customers has not significantly changed since inception.
e
Company to concentrations of credit risk consist of accounts receivable, net from customers and cash, cash equivalent and investments held at financial institutions. For the nine-month period ended September 30, 2021, all of the Company’s accounts receivable, net arose from product sales in the United States and all customers have standard payment terms which generally require payment within 60 days. For the nine-month period ended September 30, 2021, Cash equivalents are held with major financial institutions in the United States. Certificates of deposit, cash and cash equivalents held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.
Inventory
The Company values its inventories at the lower of cost or estimated net realizable value. Inventories consist of raw materials (active pharmaceutical ingredients (“API”), drug product, and packaged product in saleable condition). The consumption of raw materials during production is classified as work in process until saleable. Once it is determined to be in saleable condition, inventory is classified as finished goods. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a
first-in,
first-out
(“FIFO”) basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated net realizable value in the period in which the impairment is first identified. Such impairment charges, if they occur, are recorded within cost of product sales. The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired and manufactured prior to receipt of regulatory approval of a product candidate is expensed as research and development expense as incurred. Inventory that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical manufacturing campaign. Inventory that is used in the production of sample product is reclassified to prepaid and other current assets when identified in the manufacturing process, and is then expensed to selling, general and administrative expenses when the sample product is distributed.
Shipping and handling costs for product shipments to customers are recorded as incurred in cost of product sales along with costs associated with manufacturing the product, and any inventory write-downs.
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line basis over estimated useful lives ranging fromto five years . Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the assets or the term of the related lease. Expenditures for maintenance and repairs are charged to operations as incurred.
When indicators of possible impairment are identified, the Company evaluates the recoverability of the carrying value of its long-lived assets based on the criteria established in ASC Topic 360, . The Company considers historical performance and anticipated future results in its evaluation of potential impairment. The Company evaluates the carrying value of those assets in relation to the operating performance of the business and undiscounted cash flows expected to result from the use of those assets. Impairment losses are recognized when carrying value exceeds the undiscounted cash flows, in which case management must determine the fair value of the underlying asset. No such impairment losses have been recognized to date.
Property, Plant and Equipment
10
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC Topic 606,(“ASC Topic 606”). The Company did not generate any product related revenue prior to January 1, 2020, and therefore the adoption of ASC Topic 606 did not have an impact on the Company’s financial statements for any prior periods. In accordance with ASC Topic 606, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount that reflects the consideration that the Company expects to receive in exchange for the good or service. The reported results for the three and nine-month periods ended September 30, 2021 and 2020 reflect the application of ASC Topic 606.
Revenue from Contracts with Customers
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under ASC Topic 606, including when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For additional discussion of accounting for product sales, see (below).
Product Sales, Net
To date, the Company’s only source of product sales has been from sales of CAPLYTA in the United States, which the Company began shipping to customers in March 2020.
Product Sales, Net
The Company sells CAPLYTA to a limited number of customers which include a number of national and select regional distributors. These customers subsequently resell the Company’s products to specialty pharmacy providers, as well as other retail pharmacies and certain medical centers or hospitals. In addition to distribution agreements with customers, the Company enters into arrangements with health care providers and payers that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The Company recognizes revenue on product sales when the Customer obtains control of the Company’s product, which occurs at a point in time (upon delivery). Product revenues are recorded net of applicable reserves for variable consideration, including rebates, discounts and allowances, among others. If taxes should be collected from customers relating to product sales and remitted to governmental authorities, they will be excluded from revenue.
Reserves for Variable Consideration
Revenues are calculated based on the wholesale acquisition cost that the Company charges to distributors for CAPLYTA less variable consideration for which reserves are established. Components of variable consideration may include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its customers, payers, and other indirect customers relating to the Company’s sales of its product.
These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, include the Company’s best estimates that take into consideration a range of possible outcomes which are considered more likely in accordance with the expected value method in ASC Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, and forecasted customer buying and payment patterns. The Company’s estimates regarding the payer mix for CAPLYTA are based on historical industry information regarding the payer mix for comparable pharmaceutical products and product portfolios, in particular, information related to similar products in their initial launch stages and through the use of historical information experienced in CAPLYTA’s launch period.
The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplated application of the constraint in accordance with the guidance, under which it determined it was probable that a significant reversal of revenue would not occur in a future period for the estimates detailed below as of September 30, 2021 and 2020, and, therefore, the transaction price was not reduced further during the three and nine-month periods ended September 30, 2021 and 2020. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product sales and earnings in the period such variances become known.
Trade Discounts and Allowances
11
from the Company’s sale of products to the Customer and, therefore, these payments have been recorded as a reduction of product sales, net within the condensed consolidated statements of operations for the three and nine-month periods ended September 30, 2021 and 2020, as well as a reduction to accounts receivable, net on the condensed consolidated balance sheets.
Product Returns
Provider Chargebacks and Discounts
r
fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who purchase the product directly from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable, net. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by customers, and the Company generally issues credits for such amounts within a few weeks of the customer’s notification to the Company of the resale. Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period-end
that the Company expects will be sold to qualified healthcare providers, and chargebacks that customers have claimed, but for which the Company has not yet issued a credit. For the three and nine-month periods ended September 30, 2021 and 2020, these amounts were not significant. Government Rebates
Payer Rebates
Other Incentives
co-pay
assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments
required by payers. The calculation of the accrual for co-pay
assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period. The Company also has a voucher program whereby a patient can receive a prescription at no cost and whereby the Company reimburses the pharmacy for 100% of the sales price of the prescription. The Company applies the claims for vouchers for product that is in the distribution channel and reduces recognized revenue accordingly. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.
12
Chargebacks, discounts, fees, and returns are recorded as reductions of trade receivables, net on the condensed consolidated balance sheets. Government and other rebates are recorded as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Cost of Product Sales
Our cost of product sales relates to sales of CAPLYTA. Cost of product sales primarily includes product royalty fees, overhead, and direct costs (inclusive of material, shipping, and manufacturing costs).
For the product royalty fees, the Company entered into an exclusive License Agreement with Bristol-Myers Squibb Company (“BMS”), for which the Company is obliged to make tiered single digit percentage royalty payments ranging between 5 – 9 % on sales of licensed products. The related royalties are recorded within cost of product sales on the condensed statement of operations.
Prior to FDA approval of CAPLYTA, the Company expensed all costs associated with the manufacturing of lumateperone as part of research and development expenses. From December 20, 2019, the date of approval of CAPLYTA, through December 31, 2019 there was no production of inventory and therefore, no inventory costs were incurred. Therefore, at December 31, 2019, no inventory costs had been capitalized. The cost of product sales in the three and nine-month periods ended September 30, 2021 and 2020, are lower than incurred due to the previously expensed inventory.
Research and Development, Including Clinical Trial Expenses
Except for payments made in advance of services, the Company expenses its research and development costs as incurred. For payments made in advance, the Company recognizes research and development expense as the services are rendered. Research and development costs primarily consist of salaries and related expenses for personnel and resources and the costs of clinical trials. Other research and development expenses include preclinical analytical testing, manufacturing of drug product for use in clinical and nonclinical trials, outside services, providers, materials and consulting fees.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to the Company by its vendors with respect to their actual costs incurred, among other factors. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed consolidated balance sheets as prepaid or accrued research and development expense, as the case may be.
As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate clinical trial expenses in its condensed consolidated statement of operations by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspects of the trial. The Company determines accrual estimates through financial models taking into account various clinical information provided by vendors and discussion with applicable personnel and external service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations, clinical sites and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period.
Advertising Expense
In connection with the FDA approval of CAPLYTA in 2019, the Company began to incur advertising costs in connection with the subsequent commercial launch of CAPLYTA in 2020. Advertising costs are expensed when services are rendered. Advertising expense for the three and nine months ended September 30, 2021 was $23.2 million and $57.4 million, respectively, as compared to $13.2 million and $18.6 million, respectively, for the three and nine months ended September 30, 2020, related to the Company’s marketed product, CAPLYTA.
13
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities o). Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on a
f
a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company accounts for uncertain tax positions pursuant to ASC Topic 740 (previously included in FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No.
109
more-likely-than-not
threshold of that position being sustained. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes. The Company’s effective tax rate for the three and nine months ended September 30, 2021 and 2020 was approximately 0 21 % due to valuation allowances recorded on current year losses where the Company is not more-likely than not to recognize a future tax benefit.
On March 27, 2020, the United States enacted The Coronavirus Aid, Relief and Economic Security (“CARES”) Act which includes several significant business tax provisions, of which the immediate relevance to the Company is the acceleration of refunds of previously generated corporate Alternative Minimum Tax (“AMT”) credits. The CARES Act also adds an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to the coronavirus, and a temporary provision allowing companies to defer remitting to the government the employee share of some payroll taxes, among other things. The Company reviewed the provisions and there was not a material tax impact on its financial statements for the year ended December 31, 2020. The Company did reclassify its deferred tax asset related to the AMT tax credit carryforward of approximately $265,000 to a current tax receivable in the first quarter of 2020 upon the filing of its tax return for year ended December 31, 2019 and received the refund in July 2020.
On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA 2021”) was signed into law. ARPA 2021 included various income and payroll tax provisions. The Company has analyzed the tax provisions of ARPA 2021 and determined they have no significant financial impact to the Company’s condensed consolidated financial statements.
Comprehensive Loss
All components of comprehensive loss, including net loss, are reported in the financial statements in the period in which they are incurred. Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from
non-owner
sources. In accordance with accounting guidance, the Company presents the impact of any unrealized gains or (losses) on its investment securities in a separate statement of comprehensive loss for each period. Share-Based Compensation
Share-based payments for stock options are accounted for in accordance with the provisions of ASC Topic 718, . The fair value of share-based payments is estimated, on the date of grant, using the Black-Scholes-Merton option-pricing model (the “Black-Scholes model”). The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option.
Compensation—Stock Compensation
For all awards granted with time-based vesting conditions, expense is amortized using the straight-line attribution method. Share-based compensation expense recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 accounts for forfeitures as they occur.
The Company utilizes the Black-Scholes model for estimating fair value of its stock options granted. Option valuation models, including the Black-Scholes model, require the input of subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.
Expected volatility rates for quarterly periods prior to December 31, 2019 were based on a combination of the historical volatility of the common stock of comparable publicly traded entities and the limited historical information about the Company’s common stock. Beginning in the fourth quarter of 2019, expected volatility rates have been based entirely on the historical volatility of the Company’s
14
common stock. The expected life of stock options is the period of time for which the stock options are expected to be outstanding. Given the limited historical exercise data, the expected life is determined using the “simplified method,” which defines expected life as the midpoint between the vesting date and the end of the contractual term.
The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not paid dividends to its stockholders since its inception and does not plan to pay cash dividends in the foreseeable future. Therefore, the Company has assumed an expected dividend rate of zero . For stock options granted, the exercise price was determined by using the closing market price of the Company’s common stock on the date of grant.
A restricted stock unit (“RSU”) is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the fair market value of the Company’s common stock on the date of grant. The Company has granted RSUs that vest in three equal annual installments provided that the employee remains employed with the Company.
In the first quarter of 2020, the Company granted performance-based RSUs for 86,000 shares of common stock, which vest based on the achievement of certain milestones that include (i) the approval of a planned NDA by the FDA (the “2020 Milestone RSUs”) and (ii) the achievement of certain comparative shareholder returns against the Company’s peers (the “2020 TSR RSUs”). The 2020 TSR RSUs were valued using the Monte Carlo Simulation method and will be amortized over the life of the RSUs based on the agreements.
In the first quarter of 2021, the Company granted performance-based RSUs for 64,518 shares of common stock, which vest based on the achievement of certain milestones that include (i) certain operational milestones (the “2021 Milestone RSUs”, and collectively with the 2020 Milestone RSUs, the “Milestone RSUs”) and (ii) the achievement of certain comparative shareholder returns against the Company’s peers (the “2021 TSR RSUs,” and collectively with the 2020 TSR RSUs, the “TSR RSUs”). The 2021 TSR RSUs were valued using the Monte Carlo Simulation method and will be amortized over the life of the RSUs based on the agreements.
Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law is considered to be a deductible difference in applying ASC Topic 740, . The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.
Income Taxes
Equity instruments issued to . Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date the required services are completed and are marked to market during the service period.
non-employees
for services are accounted for under the provisions of ASC Topic 718 and ASC Topic 505-50,
Equity/Equity-Based Payments to
Non-Employees
In June 2018, the Company’s stockholders approved the Company’s 2018 Equity Incentive Plan pursuant to which 4,750,000 additional shares of common stock were reserved for future equity grants. In May 2020, the Company’s stockholders approved the Company’s 2018 Amended and Restated Equity Incentive Plan pursuant to which 6,500,000 additional shares of common stock were reserved for future equity grants.
In December 2019, the Company adopted the Intra-Cellular Therapies, Inc. 2019 Inducement Award Plan (the “2019 Inducement Plan”) without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. Pursuant to the 2019 Inducement Plan, the Company may grant stock options, RSUs, stock awards and other share-based awards for up to a total of 1,000,000 shares of common stock to new employees of the Company. As of September 30, 2021, stock options and RSUs for 314,138 shares have been granted under the 2019 Inducement Plan. The Company does not intend to make additional grants under the 2019 Inducement Plan.
Loss Per Share
Basic net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants and RSUs.
15
The following awards were excluded in th
e
calculation of diluted loss per share because their effect could be anti-dilutive as applied to the loss from operations for the three and nine months ended September 30, 2021 and 2020: Three and Nine Months Ended September 30, |
||||||||
2021 |
2020 |
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Stock options |
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RSUs |
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TSR RSUs |
||||||||
3. Inventory
Inventory consists of the following:
September 30, 2021 |
December 31, 2020 |
|||||||
Raw materials |
$ |
$ | ||||||
Work in process |
||||||||
Finished goods |
||||||||
$ |
$ | |||||||
Inventory acquired prior to receipt of the FDA approval on December 20, 2019 for CAPLYTA was expensed as research and development expense as incurred.
4. Property and Equipment
Property and equipment consist of the following:
September 30, 2021 |
December 31, 2020 |
|||||||
Computer equipment |
$ |
$ | ||||||
Furniture and fixtures |
||||||||
Scientific equipment |
||||||||
Leasehold improvement s |
||||||||
Less accumulated depreciation |
( |
) |
( |
) | ||||
$ |
$ | |||||||
Depreciation expense for the three and nine months ended September 30, 2021 was $133,945 and $386,534 , respectively, as compared to $121,044 and $402,146 for the three and nine months ended September 30, 2020, respectively.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of September 30, 2021 and December 31, 2020 consisted of the following:
September 30, 2021 |
December 31, 2020 |
|||||||
Accrued expenses |
$ | $ | ||||||
Medicaid rebates |
||||||||
Other revenue related accruals |
||||||||
Total accrued expenses and other current liabilities |
$ | $ | ||||||
16
6. Right of Use Assets and Lease Liabilities
Real Estate Leases
In 2014, the Company entered into a long-term lease with a related party which, as amended, provided for a lease of useable laboratory and office space located in New York, New York. A member of the Company’s board of directors is the Executive Chairman of the parent company to the landlord under this lease. Concurrent with this lease, the Company entered into a license agreement to occupy certain vivarium related space in the same facility for the same term and rent escalation provisions as the lease. This license has the primary characteristics of a lease and is characterized as a lease in accordance with ASU 14.3 years ending in May 2029. In February 2019, the Company entered into a long-term lease for office space in Towson, Maryland beginning March 1, 2019. The lease has a term of 3.2 years ending in April 2022 and includes limited rent abatement and escalation provisions. The Company has no other significant leases. In addition, no identified leases require allocations between lease and
2016-02
for accounting purposes. In September 2018, the Company further amended the lease to obtain an additional office space beginning October 1, 2018 and to extend the term of the lease for previously acquired space. The lease, as amended, has a term of non-lease
components. In adopting ASU 7.2 % for the Company’s Maryland lease of 3.2 years and 9.1 % for the Company’s New York leases of 14.3 years. On January 1, 2019, upon adoption of ASU 20.2 million, lease liabilities of $23.4 million and eliminated deferred rent of $3.2 million. At the execution of the Maryland lease in 2019, the Company recorded a right of use asset and a lease liability of $0.2 million, which represented a
2016-02
as of January 1, 2019, the Company elected the package of practical expedients, which permit the Company not to reassess under the new standard the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the consolidated balance sheets. The Company also elected the lessee component election, allowing the Company to account for the lease and non-lease
components as a single lease component. In determining whether a contract contains a lease, asset and service agreements are assessed at onset and upon modification for criteria of specifically identified assets, control and economic benefit. The Company recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. On the lease commencement dates, the Company estimated the lease liabilities and the right of use assets at present value using its applicable incremental borrowing rates of its two long-term leases of 2016-02,
the Company recorded right of use assets of approximately $non-cash
transaction. Maturity analysis under the lease agreements are as follows:
Three months ending December 31, 2021 |
$ | |||
Year ending December 31, 2022 |
||||
Year ending December 31, 2023 |
||||
Year ending December 31, 2024 |
||||
Year ending December 31, 2025 |
||||
Thereafter |
||||
Total |
||||
Less: Present value discount |
( |
) | ||
Total Lease liability |
||||
Less: Current portion |
( |
) | ||
Long-term lease liabilities |
$ | |||
Lease expense for the three and nine months ended September 30, 2021 was approximately $0.8 million and $2.5 million, respectively, as compared to approximately $0.8 million and $2.5 million, respectively, for the three and nine months ended September 30, 2020.
Vehicle Fleet Lease
On May 17, 2019, the Company entered into an agreement (the “Vehicle Lease”) with a company (the “Lessor”) to acquire motor vehicles for certain employees. The Vehicle Lease provides for individual leases for the vehicles, which at each lease commencement was determined to qualify for operating lease treatment. The Company began leasing vehicles under the Vehicle Lease in March 2020.
The contractual period of each lease is 12 months, followed by renewal periods. The Company estimates the lease term for each vehicle to be 30 months based on industry standards. The lease permits either party to terminate the lease at any time via written notice to the other party. The Company neither acquires ownership of, nor has the option to purchase the vehicles at any time. The Company is required to maintain an irrevocable $1.4 million letter of credit that the Lessor may draw upon in the event the Company defaults on the Vehicle Lease. The $1.4 million is recorded as restricted cash on the condensed consolidated balance sheet.
month-to-month
17
The nature of the lease is one commonly referred to as “TRAC” lease, as it contains a terminal rental adjustment clause, or “TRAC clause.” The TRAC clause limits lessee exposure, or likelihood of having a variable lease payment due at lease termination. This variable lease payment amount would be any difference between the vehicle stipulated (capitalized) cost and the sum of the reserve and net proceeds from disposal as described in the Vehicle Lease. Further, the Lessor guarantees that the net proceeds will not be less than 20 % of the vehicle capitalized cost in the first 12 months, and 30 % of the vehicle capitalized cost at the beginning of subsequent
12-month
period increments. Right of use asset an5.7 million and $7.3 million, respectively, as of September 30, 2021 and December 31, 2020. The vehicle leases entered into since March 2020 represent 583,142 and $1.8 million, respectively. The operating cash outflows related to vehicle fleet operating lease obligations for the nine months ended September 30, 2021 and 2020 were $1.8 million and $585,490 , respectively.
d
lease liability for the vehicle fleet lease was approximately $non-cash
transactions. The total operating lease cost for the three and nine months ended September 30, 2021 was $The following table presents the Vehicle Lease balances within the condensed consolidated balance sheet, weighted average remaining fleet lease term, and the weighted average discount rates related to the Vehicle Lease as of September 30, 2021 and December 31, 2020:
Lease Assets and Liabilities – Fleet |
Classification |
September 30, 2021 |
December 31, 2020 |
|||||||||
| Assets |
||||||||||||
| Right of use assets, net |
Operating lease right of use assets | $ | $ | |||||||||
| |
|
|
|
|||||||||
| $ | $ | |||||||||||
| |
|
|
|
|||||||||
| Liabilities |
||||||||||||
| Current |
||||||||||||
| Lease liabilities, short-term |
Operating lease liabilities | $ | $ | |||||||||
| Non-Current |
||||||||||||
| Lease liabilities |
Non-current operating lease liabilities |
|||||||||||
| |
|
|
|
|||||||||
| Total lease liabilities |
$ | $ | |
|||||||||
| |
|
|
|
|||||||||
| Weighted average remaining lease term |
||||||||||||
| Weighted average discount rate |
% | % | ||||||||||
The following table presents the maturity of the Company’s fleet lease liability as of September 30, 2021:
Time Period
| Three months ending December 31, 2021 |
$ | |||
| Year ending December 31, 2022 |
||||
| Year ending December 31, 2023 |
||||
| Thereafter |
||||
| |
|
|||
| Total |
||||
| Less: Present value discount |
( |
) | ||
| |
|
|||
| Total operating lease liabilities |
||||
| |
|
|||
| Less: Current portion |
( |
) | ||
| |
|
|||
| Long-term lease liabilities |
$ | |||
| |
|
Right of use assets and lease liabilities for all operating leases were approximately $21.7 million and $26.4 million, respectively, as of September 30, 2021.
18
7. Commitments and Contingencies
License and Royalty Commitments
On May 31, 2005, the Company entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company (“BMS”), pursuant to which the Company holds a license to certain patents and
know-how
of BMS relating to lumateperone and other specified compounds. The agreement was amended on November 3, 2010. The licensed rights are exclusive, except BMS retains rights in specified compounds in the fields of obesity, diabetes, metabolic syndrome and cardiovascular disease. However, BMS has no right to use, develop or commercialize lumateperone and other specified compounds in any field of use. The Company has the right to grant sublicenses of the rights conveyed by BMS. The Company is obliged under the agreement to use commercially reasonable efforts to develop and commercialize the licensed technology. The Company is also prohibited from engaging in the clinical development or commercialization of specified competitive compounds. Under the agreement, the Company made an upfront payment of $1.0 million to BMS in 2005, a milestone payment of $1.25 million in December 2013, and a milestone payment of $1.5 million in December 2014 following the initiation of the Company’s first Phase 3 clinical trial for lumateperone for patients with exacerbated schizophrenia. Upon FDA acceptance of an NDA filing for lumateperone, the Company was obligated to pay BMS a $2.0 million milestone payment, which was paid in January 2019. The FDA approved the NDA filing on December 23, 2019 and as a result the Company accrued an additional milestone liability of $5.0 million in the fourth quarter of 2019 which was paid in January 2020. Possible milestone payments remaining total $5.0 million. Under the agreement, the Company may be obliged to make other milestone payments to BMS for each licensed product of up to an aggregate of approximately $14.75 million. The Company is also obliged to make tiered single digit percentage royalty payments ranging between 5 – 9 % on sales of licensed products. The Company is obliged to pay to BMS a percentage of
non-royalty
payments made in consideration of any sublicense. The agreement extends, and royalties are payable, on a and basis, through the later of 10 years after first commercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product , its method of manufacture or use, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on the occurrence of certain events. On termination of the agreement, the Company may be obliged to convey to BMS rights in developments relating to a licensed compound or licensed product, including regulatory filings, research results and other intellectual property rights.
country-by-country
product-by-product
In September 2016, the Company transferred certain of its rights under the BMS agreement to its wholly owned subsidiary, ITI Limited. In connection with the transfer, the Company guaranteed ITI Limited’s performance of its obligations under the BMS agreement. The Company expensed approximately $1.1 million and $2.8 million, respectively, for the three and nine-month periods ended September 30, 2021, in cost of product sales to satisfy its obligation under the BMS agreement, in comparison to $0.4 million and $0.5 million, respectively, for the three and nine-month periods ended September 30, 2020.
Research and Other Commitments
As of September 30, 2021, the Company has committed to purchasing production campaigns for various raw materials and API from each of its supply vendors – Siegfried Evionnaz SA (“Siegfried”) and Lonza Ltd. (“Lonza”). The campaigns are expected to be received into inventory during 2022. The Company has a total commitment of $32.1 million related to these agreements. As of September 30, 2021, the Company had paid a deposit of $5.2 million and $4.3 million for the Siegfried and Lonza campaigns, respectively, which is recorded within prepaid expenses and other current assets. Over the course of the vendors’ manufacturing period, the Company will remit payments to each vendor based on the payment plan within the executed agreements.
8. Share-Based Compensation
On June 18, 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provided for the granting of share-based awards, such as stock options, restricted common stock, RSUs and stock appreciation rights to employees, directors and consultants as determined by the Board of Directors. On May 27, 2020, the Company’s stockholders approved the Amended and Restated 2018 Equity Incentive Plan (the “Amended 2018 Plan”), which amended and restated the 2018 Plan. The Amended 2018 Plan provides for the granting of up to 6,500,000 additional share-based awards, such as stock options, restricted common stock, RSUs and stock appreciation rights to employees, directors and consultants as determined by the Board of Directors. In December 2019, the Company adopted the 2019 Inducement Award Plan (the “2019 Inducement Plan”) for the grant of equity awards of up to 1,000,000 shares of common stock to newly hired employees.
As of December 31, 2020, the total number of shares reserved under all equity plans was 17,787,390 and the Company had 7,459,117 shares available for future issuance under the Amended 2018 Plan and the 2019 Inducement Plan. Stock options granted under the 2018 Plan and the 2019 Inducement Plan may be either incentive stock options (“ISOs”) as defined by the Internal Revenue Code of 1986, as amended, or three years ) and the exercise prices of such options. Options have a maximum term of 10 years. The exercise price of stock options granted under the Amended 2018 Plan and the 2019 Inducement Plan must be at least equal to the fair market value of the common stock on the date of grant. The Company does not intend to issue any additional equity awards under the 2019 Inducement Plan.
non-qualified
stock options. The Board of Directors determines who will receive options, the vesting periods (which are generally to 19
Total share-based compensation expense related to all of th
e
Company’s share-based awards, including stock options and RSUs to employees, directors and consultants, recognized during the three and nine months ended September 30, 2021 and 2020, was comprised of the following: Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Inventoriable costs |
$ |
$ | $ |
$ | ||||||||||||
Research and development |
||||||||||||||||
General and administrative |
||||||||||||||||
Total share-based compensation expense |
$ |
$ | $ |
$ | ||||||||||||
The following table describes the weighted-average assumptions used for calculating the value of options granted during the nine months ended September 30, 2021 and 2020:
2021 |
2020 | |||
Dividend yield |
||||
Expected volatility |
||||
Weighted-average risk-free interest rate |
||||
Expected term (in years) |
Information regarding stock option awards under the 2019 Inducement Plan, including with respect to grants to employees as of September 30, 2021, and changes during the three-month period then ended, are summarized as follows:
Number of Shares |
Weighted- Average Exercise Price |
Weighted- Average Contractual Life |
||||||||||
Outstanding at December 31, 2020 |
$ | |||||||||||
Options granted in 2021 |
||||||||||||
Options exercised in 2021 |
( |
) | ||||||||||
Outstanding at September 30, 2021 |
$ | |||||||||||
Vested and expected to vest at September 30, 2021 |
$ | |||||||||||
Exercisable at September 30, 2021 |
$ | |||||||||||
Information regarding RSU awards under the 2019 Inducement Plan during the three-month period ended September 30, 2021 are summarized as follows:
Number of Shares |
Weighted- Average Grant Date Fair Value Per Share |
Weighted- Average Contractual Life |
||||||||||
Outstanding at December 31, 2020 |
$ | |||||||||||
Time based RSUs vested in 2021 |
( |
) | $ | |||||||||
Time based RSUs cancelled in 2021 |
( |
) | $ | |||||||||
Outstanding at September 30, 2021 |
$ | |||||||||||
Vested and expected to vest at September 30, 2021 |
$ | |||||||||||