UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-50440
SUPERNUS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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20-2590184 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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1550 East Gude Drive, Rockville, MD |
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20850 |
(Address of principal executive offices) |
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(Zip Code) |
(301) 838-2500
(Registrant’s telephone number, including area code)
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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of the close of business on July 31, 2013 was 30,940,330.
SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
PART I — FINANCIAL INFORMATION
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Supernus Pharmaceuticals, Inc. |
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Consolidated Balance Sheets |
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(in thousands, except share amounts) |
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June 30, |
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December 31, |
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2013 |
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2012 |
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Assets |
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(unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
33,907 |
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$ |
40,302 |
Marketable securities |
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68,725 |
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48,206 |
Accounts receivable, net |
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537 |
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— |
Interest receivable |
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791 |
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664 |
Inventories |
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4,315 |
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1,152 |
Prepaid expenses and other |
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1,912 |
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994 |
Deferred financing costs, current |
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430 |
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144 |
Total current assets |
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110,617 |
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91,462 |
Property and equipment, net |
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2,247 |
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1,421 |
Purchased patents, net |
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568 |
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683 |
Long term investments |
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16,072 |
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— |
Other assets |
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360 |
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334 |
Deferred financing costs, long-term |
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2,109 |
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89 |
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Total assets |
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$ |
131,973 |
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$ |
93,989 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
11,732 |
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$ |
10,666 |
Deferred product revenue, net |
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3,967 |
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— |
Deferred licensing revenue |
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325 |
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508 |
Secured notes payable, net of discount |
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— |
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11,809 |
Total current liabilities |
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16,024 |
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22,983 |
Deferred licensing revenue, net of current portion |
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738 |
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309 |
Convertible notes, net of discount |
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59,100 |
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— |
Secured notes payable, net of current portion and discount |
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— |
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11,088 |
Other non-current liabilities |
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2,158 |
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1,788 |
Derivative liabilities |
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18,061 |
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251 |
Total liabilities |
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96,081 |
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36,419 |
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Stockholders' equity: |
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Common stock, $0.001 par value, 130,000,000 shares authorized at June 30, |
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2013 and December 31, 2012; 30,940,330 and 30,621,869 shares issued and |
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outstanding at June 30, 2013 and December 31, 2012, respectively |
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31 |
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31 |
Additional paid-in capital |
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168,122 |
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143,851 |
Accumulated other comprehensive (loss) income |
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(235) |
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(57) |
Accumulated deficit |
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(132,026) |
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(86,255) |
Total stockholders' equity |
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35,892 |
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57,570 |
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Total liabilities and stockholders' equity |
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$ |
131,973 |
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$ |
93,989 |
See accompanying notes.
1
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Supernus Pharmaceuticals, Inc. |
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Consolidated Statements of Operations |
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(in thousands, except share and per share data) |
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Three Months ended June 30, |
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Six Months ended June 30, |
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2013 |
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2012 |
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2013 |
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2012 |
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(unaudited) |
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(unaudited) |
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Revenue |
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Net product sales |
$ |
154 |
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$ |
— |
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$ |
154 |
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$ |
— |
Licensing revenue |
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127 |
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91 |
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274 |
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299 |
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Total revenue |
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281 |
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91 |
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428 |
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299 |
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Costs and expenses |
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Cost of product sales |
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4 |
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— |
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4 |
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— |
Research and development |
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3,542 |
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4,703 |
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8,065 |
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10,061 |
Selling, general and administrative |
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12,214 |
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4,645 |
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25,747 |
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7,374 |
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Total costs and expenses |
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15,760 |
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9,348 |
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33,816 |
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17,435 |
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Operating loss |
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(15,479) |
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(9,257) |
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(33,388) |
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(17,136) |
Other income (expense) |
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Interest income |
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55 |
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32 |
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107 |
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52 |
Interest expense |
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(2,144) |
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(929) |
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(2,872) |
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(1,891) |
Changes in fair value of derivative liabilities |
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(8,619) |
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(144) |
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(8,540) |
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(472) |
Loss on extinguishment of debt |
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(1,162) |
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— |
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(1,162) |
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— |
Other (expense) income |
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(8) |
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285 |
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84 |
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159 |
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Total other (expense) income |
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(11,878) |
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(756) |
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(12,383) |
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(2,152) |
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Net loss |
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(27,357) |
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(10,013) |
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(45,771) |
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(19,288) |
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Cumulative dividends on Series A convertible preferred stock |
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— |
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(286) |
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— |
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(1,143) |
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Net loss attributable to common stockholders |
$ |
(27,357) |
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$ |
(10,299) |
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$ |
(45,771) |
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$ |
(20,431) |
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Loss per common share: |
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Basic and diluted |
$ |
(0.89) |
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$ |
(0.61) |
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$ |
(1.48) |
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$ |
(2.21) |
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Weighted-average number of common shares: |
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Basic and diluted |
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30,897,075 |
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16,817,841 |
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30,886,309 |
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9,247,142 |
See accompanying notes.
2
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Supernus Pharmaceuticals, Inc. |
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Consolidated Statements of Comprehensive Loss |
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(in thousands) |
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Three Months ended June 30, |
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Six Months ended June 30, |
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2013 |
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2012 |
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2013 |
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2012 |
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(unaudited) |
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(unaudited) |
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Net loss |
$ |
(27,357) |
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$ |
(10,013) |
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$ |
(45,771) |
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$ |
(19,288) |
Other comprehensive loss: |
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Unrealized net (loss) gain on marketable securities |
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(147) |
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(3) |
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(178) |
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6 |
Other comprehensive (loss) income |
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(147) |
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(3) |
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(178) |
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6 |
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Comprehensive loss |
$ |
(27,504) |
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$ |
(10,016) |
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$ |
(45,949) |
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$ |
(19,282) |
See accompanying notes.
3
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Supernus Pharmaceuticals, Inc. |
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Consolidated Statements of Cash Flows |
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(in thousands) |
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Six Months Ended June 30, |
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2013 |
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2012 |
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(unaudited) |
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Cash flows from operating activities |
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Net loss |
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$ |
(45,771) |
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$ |
(19,288) | |
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Adjustments to reconcile loss to net cash used |
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in operating activities: |
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Loss on extinguishment of debt |
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1,162 |
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— |
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Change in fair value of derivative liabilities |
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8,540 |
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472 | |
Unrealized (loss) gain on marketable securities |
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(178) |
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6 | |
Depreciation and amortization |
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326 |
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438 | |
Amortization of deferred financing costs and debt discount |
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887 |
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164 | |
Stock-based compensation expense |
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769 |
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105 | |
Changes in operating assets and liabilities: |
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Accounts receivable |
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(537) |
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— |
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Interest receivable |
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(127) |
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— |
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Inventory |
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(3,163) |
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— |
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Prepaid expenses and other assets |
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(918) |
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(544) | |
Accounts payable and accrued expenses |
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1,341 |
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(994) | |
Deferred product revenue, net |
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3,967 |
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— |
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Deferred licensing revenue |
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246 |
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(149) | |
Other non-current liabilities |
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|
478 |
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33 | |
Net cash used in operating activities |
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(32,978) |
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(19,757) | |
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Cash flows from investing activities |
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Purchases of marketable securities |
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(61,004) |
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(36,824) | |
Sales and maturities of marketable securities |
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24,413 |
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7,674 | |
Purchases of property and equipment, net |
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(1,037) |
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(160) | |
Net cash used in investing activities |
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(37,628) |
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(29,310) | |
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Cash flows from financing activities |
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Proceeds from issuance of common stock |
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2,153 |
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52,408 | |
Proceeds from convertible debt issuance |
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90,000 |
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— |
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Repayment of secured notes payable |
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(24,344) |
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(1,771) | |
Financing costs and underwriters discounts |
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(3,598) |
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(2,872) | |
Net cash provided by financing activities |
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64,211 |
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47,765 | |
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Net change in cash and cash equivalents |
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(6,395) |
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(1,302) | |
Cash and cash equivalents at beginning of period |
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40,302 |
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|
48,544 | |
Cash and cash equivalents at end of period |
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$ |
33,907 |
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$ |
47,242 | |
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Supplemental cash flow information: |
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Cash paid for interest |
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$ |
975 |
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$ |
1,488 | |
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Noncash financial activity: |
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Conversion of preferred stock |
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$ |
— |
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$ |
49 | |
Initial value of interest make-whole derivative |
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Issued in connection with the convertible debt |
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$ |
9,270 |
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$ |
— |
See accompanying notes.
4
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2013 and 2012
(unaudited)
1. Organization and Business
Supernus Pharmaceuticals, Inc. (the Company) is a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system diseases, including neurological and psychiatric disorders. The Company has two proprietary products and several proprietary product candidates in clinical development that address the epilepsy and attention deficit hyperactivity disorder markets.
The Company is currently focused on the commercialization of Oxtellar XR and the anticipated commercialization of Trokendi XR. Oxtellar XR received final approval from the Food and Drug Administration (FDA) on October 19, 2012 and the Company began the commercial launch of this product on February 4, 2013. The Company anticipates the commercial launch of Trokendi XR during the third quarter of 2013 pending receipt of final approval from the FDA.
2. Management’s Plans as to Continuing as a Going Concern
The Company’s Independent Auditor's opinion with respect to the Financial Statements as of and for the period ended December 31, 2012 contained an explanatory paragraph regarding conditions that raise substantial doubt about the Company's ability to continue as a going concern. The accompanying unaudited financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and continues to incur, significant losses from operations.
The Company’s current operating assumptions, which reflect management’s best estimate of future revenue and operating expenses, indicate that current cash on hand, including the cash proceeds received from the common stock offerings in 2012 and the issuance of
the $90.0 million aggregate principal amount of the 7.50% Convertible Senior Secured Notes due 2019 (see Note 9), should be sufficient to fund operations through the end of 2014, by which time we project to be cash flow break even.
3. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and Supernus Europe Ltd., These are collectively referred to herein as “Supernus” or “the Company.” All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information. In the opinion of management, the consolidated financial statements reflect all adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods presented. These adjustments are of a normal recurring nature. The Company currently operates in one business segment.
Certain notes and other information have been omitted from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K.
The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the Company’s future financial results.
5
Accounts Receivable
Accounts receivable are reported in the consolidated balance sheets at outstanding amounts, less an allowance for doubtful accounts if necessary and net of prompt pay discounts. The Company extends credit without requiring collateral. The Company writes off uncollectible receivables when the likelihood of collection is remote. The Company evaluates the collectability of accounts receivable on a regular basis. An allowance, when needed, is based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. No allowance is recorded at June 30, 2013 or December 31, 2012.
Revenue Recognition
Deferred Revenue
At the present time, the Company records shipments to wholesalers as deferred revenue as the Company is unable to reasonably estimate product returns and related product costs (primarily rebates, chargebacks and other sales deductions (defined below)) due to the lack of sufficient historical sales data for Oxtellar XR. Accordingly, the Company records deferred revenue at sales price net of sales deductions. The Company currently defers recognition of revenue and the related cost of product sales on shipments of Oxtellar XR, and recognizes revenue only upon filling prescriptions at pharmacies and realization of related product costs.
We have entered into collaboration agreements to have both Oxtellar XR and Trokendi XR commercialized outside of the U.S. These agreements generally include an up-front license fee and ongoing milestone payments upon the achievement of specific events. We believe the milestones meet all of the necessary criteria to be considered substantive and therefore should be recognized as revenue when achieved. For up-front license fees, we have estimated the service period of the contract and are recognizing this payment as revenue on a straight-line basis over the respective service period.
Multiple Element Arrangements
For arrangements entered into with multiple elements, the Company evaluates whether the components of each arrangement are separate elements based on certain criteria. Accordingly, revenues from collaboration agreements are recognized based on the performance requirements of the agreements. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable, and collection is reasonably assured.
Non-refundable license fees are recognized as revenue when the Company has a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured, and the Company has no further significant performance obligations in exchange for the license.
Product Sales
The Company records revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred and title of the product and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer has been reasonably assured, all performance obligations have been met and returns and allowances can be reasonably estimated. Until then, the Company records shipments to wholesalers as deferred revenue. Product sales are recorded net of provisions for estimated rebates, chargebacks, discounts, co-pay assistance and other accruals (collectively, “sales deductions”) and returns.
· |
Rebates. Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program as well as negotiated discounts with commercial health-care providers. Rebates are amounts owed after the final dispensing of products to a benefit plan participant and are based upon contractual agreements or legal requirements with the public sector (e.g. Medicaid) and with private sector benefit providers. The allowance for rebates is based on statutory and contractual discount rates and expected claimed rebates paid based on plan providers’ utilization. Our estimates for expected claimed rebates are based in part on third party market research. Rebates are generally invoiced and paid quarterly in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment. |
· |
Chargebacks. Chargebacks are discounts that occur when contracted customers purchase directly from an intermediary distributor or wholesaler. Contracted customers, which currently consist primarily of Public Health Service institutions and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The distributor or wholesaler, in turn, charges back the difference between the price initially paid by the distributor or
6
wholesaler and the discounted price paid to the distributor or wholesaler by the customer. The allowance for distributor/wholesaler chargebacks is based on known sales to contracted customers. |
· |
Distributor/Wholesaler deductions and discounts. U.S. specialty distributors and wholesalers are offered various forms of consideration including allowances, service fees and prompt payment discounts. Distributor allowances and service fees arise from contractual agreements with distributors and are generally a percentage of the purchase price paid by the distributors and wholesalers. Wholesale customers are offered a prompt pay discount for payment within a specified period. |
· |
Co-pay assistance. Patients who pay in cash or have commercial insurance and meet certain eligibility requirements may receive co-pay assistance from the Company. Liabilities for co-pay assistance will be based on actual program participation and estimates of program redemption using data provided by third-party administrators. |
· |
Returns. Sales of our products are not subject to a general right of return; however, the Company will accept product that is damaged or defective when shipped directly from our warehouse or for expired product up to 12 months subsequent to its expiry date. Product that has been used to fill patient prescriptions is no longer subject to any right of return. |
Our products are distributed through wholesalers and specialty distributors. Each of these distributors take title to and ownership of the product upon physical receipt of the product and distribute these products to pharmacies. Until there is sufficient history of product sales, the Company cannot make a reasonable estimate of either future product returns, expected rebates and chargebacks, or expected sales deductions from the eventual sale of these products to healthcare providers. Therefore, the Company does not record revenue upon the shipment of product to the distributors, even though the distributors are invoiced upon product shipment. Sales, less deductions, are recorded as deferred revenue. The Company will recognize revenue at the time the prescriptions for our products are filled and delivered to the patient end-user until such time as the Company can reasonably estimate expected sales deductions and returns. At that time the Company will begin to recognize revenue at the time of shipment of product to the distributors reduced by estimated amounts for future returns and allowances.
On February 4, 2013, the Company launched Oxtellar XR, its first commercial product. We anticipate the launch of Trokendi XR to occur during the third quarter of 2013, pending receipt of final approval from the FDA.
Milestone Payments
Milestone payments have been recognized as revenue when the collaborative partner acknowledges completion of the milestone and substantive effort was necessary to achieve the milestone. Management may recognize revenue contingent upon the achievement of a milestone in its entirety in the period in which the milestone is achieved only if the milestone meets all the criteria to be considered substantive. Substantive milestone payments are recognized upon achievement of the milestone only if all of the following conditions are met:
· |
the milestone payments are non-refundable; |
· |
achievement of the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement; |
· |
substantive effort on the Company’s part is involved in achieving the milestone; |
· |
the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone; and, |
· |
a reasonable amount of time passes between the up-front license payment and the first milestone payment as well as between each subsequent milestone payment. |
Determination as to whether a payment meets the aforementioned conditions involves management’s judgment. If any of these conditions are not met, the resulting payment would not be considered a substantive milestone, and therefore the resulting payment would be considered part of the consideration for the single unit of accounting and amortized over the appropriate period.
The Company’s recorded milestone revenues were approximately, $0, and $0 during the three and six months ended June 30, 2013 and $0 and $150,000 during the three and six months ended June 30, 2012, respectively.
7
Reclassifications
Certain December 31, 2012 consolidated balance sheet amounts have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In April 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amended interim and annual reporting requirements about accumulated other comprehensive income (AOCI). In interim periods, companies are required to report information about reclassifications out of AOCI and changes in AOCI balances. The provision of ASU 2013-02 became effective for the first quarter of 2013. The adoption of ASU 2013-02 did not have a material effect on the Company’s consolidated results of operations, financial position or liquidity.
4. Fair Value of Financial Instruments
The fair value of an asset or liability should represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Such transactions to sell an asset or transfer a liability are assumed to occur in the principal or most advantageous market for the asset or liability. Accordingly, fair value is determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant rather than from a reporting entity’s perspective.
The Company reports assets and liabilities that are measured at fair value using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
· |
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
· |
Level 2 — Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
· |
Level 3 — Unobservable inputs that reflect the Company’s own assumptions, based on the best information available, including the Company’s own data. |
In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at |
|||||||
|
|
|
|
|
June 30, 2013 |
|||||||
|
|
|
|
|
(unaudited) |
|||||||
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Total Carrying |
|
Quoted Prices |
|
Other |
|
Significant |
||||
|
|
Value at |
|
in Active |
|
Observable |
|
Unobservable |
||||
|
|
June 30, |
|
Markets |
|
Inputs |
|
Inputs |
||||
|
|
2013 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
33,907 |
|
$ |
23,656 |
|
$ |
10,251 |
|
$ |
— |
Marketable securities |
|
|
84,797 |
|
|
— |
|
|
84,797 |
|
|
— |
Marketable securities - restricted (Other Assets) |
|
|
305 |
|
|
— |
|
|
305 |
|
|
— |
Total assets at fair value |
|
$ |
119,009 |
|
$ |
23,656 |
|
$ |
95,353 |
|
$ |
— |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
18,061 |
|
$ |
— |
|
$ |
— |
|
$ |
18,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at |
|||||||
|
|
|
|
|
December 31, 2012 |
|||||||
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Total Carrying |
|
Quoted Prices |
|
Other |
|
Significant |
||||
|
|
Value at |
|
in Active |
|
Observable |
|
Unobservable |
||||
|
|
December 31, |
|
Markets |
|
Inputs |
|
Inputs |
||||
|
|
2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
40,302 |
|
$ |
31,561 |
|
$ |
8,741 |
|
$ |
— |
Marketable securities |
|
|
48,206 |
|
|
— |
|
|
48,206 |
|
|
— |
Marketable securities - restricted (Other Assets) |
|
|
279 |
|
|
— |
|
|
279 |
|
|
— |
Total assets at fair value |
|
$ |
88,787 |
|
$ |
31,561 |
|
$ |
57,226 |
|
$ |
— |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
251 |
|
$ |
— |
|
$ |
— |
|
$ |
251 |
8
The Company’s Level 1 assets include money market funds and U.S. Treasuries and government agency debt securities with quoted prices in active markets. At June 30, 2013 and December 31, 2012, Level 2 assets include mutual funds in which the SERP assets are invested, commercial paper and corporate bonds and other fixed income securities. Level 2 securities are valued using third-party pricing sources that apply applicable inputs and other relevant data into their models to estimate fair value.
Level 3 liabilities include the fair market value of the interest make-whole liability associated with the Notes and the outstanding warrants to purchase Common Stock recorded as derivative liabilities. The fair value of the common stock warrant liability was calculated using a Monte-Carlo simulation on a Black-Scholes model with the following assumptions as of June 30, 2013:
|
|
Exercise Price |
$4 - $5 per share |
Volatility |
80% |
Stock Price as of June 30, 2013 |
$6.43 per share |
Term |
7.2 - 8.5 years |
Dividend Yield |
0.0% |
Risk-Free Rate |
2.1% - 2.3% |
The fair value of the interest make-whole liability of the Notes was calculated using a binomial-lattice model with the following key assumptions as of June 30, 2013:
|
|
Volatility |
45% |
Stock Price as of June 30, 2013 |
$6.43 per share |
Credit Spread |
1335 bps |
Term |
4 years |
Dividend Yield |
0.0% |
Significant changes to these assumptions would result in increases/decreases to the fair value of the outstanding liabilities.
Changes in the fair value of the warrants and the interest make-whole liability are recognized as a component of Other Income (Expense) in the Consolidated Statements of Operations. The following table presents information about the Company’s Level 3 liabilities as of June 30, 2013 and December 31, 2012 that are included in the Non-Current Liabilities section of the Consolidated Balance Sheets, in thousands:
9
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30, 2013 |
|
|
|
|
(unaudited) |
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
$ |
251 |
Initial value of interest make-whole payment |
|
|
|
|
associated with the convertible notes |
|
|
|
9,270 |
Changes in fair value of derivative liabilities included in earnings |
|
|
|
8,540 |
|
|
|
|
|
Balance at June 30, 2013 |
|
|
$ |
18,061 |
The carrying value and estimated fair value of the convertible notes was approximately $59.1 million and $115.0 million, respectively, as of June 30, 2013. The fair value was estimated based on actual trade information as well as quoted process provided by bond traders.
The carrying amounts of other financial instruments, including accounts receivable, accounts payable and accrued expenses approximate fair value due to their short-term maturities.
Unrestricted marketable securities held by the Company were as follows, in thousands:
10
At June 30, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
Amortized Cost |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
||||
Corporate debt securities |
|
$ |
85,029 |
|
$ |
5 |
|
$ |
(237) |
|
$ |
84,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
Amortized Cost |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
||||
Corporate debt securities |
|
$ |
48,259 |
|
$ |
1 |
|
$ |
(54) |
|
$ |
48,206 |
The Company has not experienced any other-than-temporary losses on its marketable securities and restricted marketable securities.
5. Inventories
Inventories consist of the following, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2013 |
|
2012 |
||
|
|
|
(unaudited) |
|
|
|
Raw materials |
|
$ |
3,390 |
|
$ |
1,152 |
Finished goods |
|
|
925 |
|
|
— |
|
|
$ |
4,315 |
|
$ |
1,152 |
There were no inventory reserves at June 30, 2013 and December 31, 2012. As of June 30, 2013 and December 31, 2012 the Company had recorded approximately $3.0 million and $0.9 million, respectively, of inventory related to Trokendi XR, which has received tentative approval from the FDA. The remainder of the inventory relates to Oxtellar XR. We anticipate recovering these amounts through future product sales of Trokendi XR upon receipt of final approval.
The Company capitalizes inventories produced in preparation for commercial launches when it becomes probable that the related product candidates will receive regulatory approval and that the related costs will be recoverable through the commercial sale of the product.
Inventory is evaluated for impairment through consideration of factors such as the net realizable value, lower of cost or market, obsolescence, and expiry. Inventories do not have carrying values that exceed either replacement cost or net realizable value.
6. Property and Equipment
Property and equipment consist of the following, in thousands:
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
Computer equipment |
|
$ |
663 |
|
$ |
615 |
Software |
|
|
209 |
|
|
209 |
Lab equipment and furniture |
|
|
4,407 |
|
|
3,896 |
Leasehold improvements |
|
|
2,257 |
|
|
1,779 |
|
|
|
7,536 |
|
|
6,499 |
Less accumulated depreciation and amortization |
|
|
(5,289) |
|
|
(5,078) |
|
|
$ |
2,247 |
|
$ |
1,421 |
11
Depreciation expense on property and equipment was approximately $105,000 and $211,000 for the three and six months ended June 30, 2013, respectively and $156,000 and $323,000 for the three and six months ended June 30, 2012, respectively.
7. Purchased Patents
In connection with a purchase agreement with Shire Laboratories, Inc., the Company acquired certain patents in 2005. The following sets forth the gross carrying amount and related accumulated amortization of the patents, in thousands:
|
|
|
|
June 30, 2013 |
|
|
December 31, 2012 |
|||||||
|
|
|
|
(unaudited) |
|
|
|
|||||||
|
|
Weighted- |
|
Gross Carrying |
|
Accumulated |
|
Gross Carrying |
|
Accumulated |
||||
|
|
Average Life |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased patents |
|
10.0 |
|
$ |
2,292 |
|
$ |
1,724 |
|
$ |
2,292 |
|
$ |
1,609 |
Amortization expense was approximately $57,000 each of the three month periods ended June 30, 2013 and 2012 and was approximately $115,000 each of the six month periods ended June 30, 2013 and 2012. The estimated annual aggregate amortization expense through December 31, 2015 is $229,000.
There were no indicators of impairment identified at June 30, 2013 or December 31, 2012.
8. Accrued Liabilities
Accrued Liabilities are comprised of the following (and are included within the accounts payable and accrued expenses line item on the consolidated balance sheets), in thousands:
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2013 |
|
2012 |
||
|
|
|
(unaudited) |
|
|
|
Accrued clinical trial and clinical supply costs |
|
$ |
2,043 |
|
$ |
3,335 |
Accrued compensation |
|
|
2,617 |
|
|
2,492 |
Interest payable |
|
|
1,125 |
|
|
213 |
Other accrued liabilities |
|
|
3,774 |
|
|
1,820 |
|
|
$ |
9,559 |
|
$ |
7,860 |
Accrued clinical trial and clinical supply costs consist primarily of investigator fees, contract research organization services and laboratory costs. Other accrued expenses consist primarily of marketing, sales and miscellaneous accrued expenses.
9. Convertible Senior Secured Notes
On May 3, 2013, the “Company issued $90.0 million aggregate principal amount of 7.50% Convertible Senior Secured Notes due 2019 (the “Notes”). The Company completed this in a private placement offering in reliance on Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”). The notes were available for resale in transactions exempt from the registration requirements of the Securities Act to persons reasonably believed by the initial purchasers to be “qualified institutional buyers” as defined in Rule 144A under the Securities Act.
12
Aggregate estimated offering expenses in connection with the transaction, including the initial purchasers’ discount of $3.0 million, were approximately $3.5 million, resulting in net proceeds of approximately $86.5 million. The Company used approximately $19.6 million to repay in full its borrowings under and terminate its existing secured credit facility. The remainder of the net proceeds will be used to fund the commercialization of the Company’s approved and tentatively approved products, Oxtellar XR and Trokendi XR, as well as to continue development of the Company’s pipeline products and for other general corporate purposes, which may include research and development expenses, capital expenditures, working capital and general administrative expenses.
The Company issued the Notes under an Indenture, dated May 3, 2013 (the “Indenture”), between the Company and U.S. Bank National Association, as Trustee and Collateral Agent. The Notes provide for 7.50% interest per annum on the principal amount of the Notes, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2013. Interest will accrue on the Notes from and including May 3, 2013 and the Notes will mature on May 1, 2019, unless earlier converted, redeemed or repurchased by the Company. The Notes are convertible into the Company’s common stock (“Common Stock”) as described below.
The Notes are the Company’s senior secured obligations and (i) rank senior in right of payment to any of the indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank effectively senior to any of the unsecured indebtedness to the extent of the value of the collateral securing the Notes; (iii) rank equal in right of payment with all of the Company’s indebtedness that is not subordinated to the Notes; and (iv) are structurally subordinated to all indebtedness and liabilities, including trade payables, of the Company’s existing and future subsidiaries.
The Notes are secured by a first-priority lien, other than customary permitted liens, on substantially all of the Company’s and its domestic subsidiaries’ assets, whether now owned or hereafter acquired, including license agreements, general intangibles, accounts, instruments, investment property, intellectual property and any proceeds of the foregoing pursuant to that certain Security and Pledge Agreement, dated May 3, 2013 (the “Security Agreement”), between the Company and U.S. Bank National Association, as Collateral Agent. The Indenture restricts the ability of the Company and its existing and future subsidiaries to make investments, including transfers of the Company’s assets that constitute collateral securing the Notes, in its existing and future foreign subsidiaries. The Company is entitled to the release of property and other assets constituting collateral from the liens securing the Notes and the obligations thereunder (i) to enable the Company to consummate the sale, transfer, license, monetization or other disposition of such property or assets; (ii) with the consent of the holders of at least 66 2/3% of the aggregate principal amount of the Notes then outstanding and affected; or (iii) pursuant to a modification or amendment of the Indenture, the Notes or the Security Agreement.
If the Company has not received stockholder approval (as defined in the Indenture), a holder of Notes may surrender all or a portion of its Notes for conversion at any time prior to the close of business on the business day immediately preceding the maturity date of the Notes and the Company will deliver for each $1,000 principal amount of converted Notes a number of shares of Common Stock equal to the conversion rate, together with a cash payment in lieu of any fractional shares of Common Stock issuable upon conversion. If the Company obtains stockholder approval, (i) on and after such date of approval and prior to the close of business on the business day immediately preceding November 1, 2018, a holder of Notes may convert all or a portion of its Notes, in principal amounts equal to $1,000 or an integral multiple thereof, only if one or more of the following conditions has been satisfied: (1) if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending within five trading days prior to a conversion date, the last reported sale price of the Company’s Common Stock exceeds the conversion price on each such trading day; (2) during the five consecutive business day period immediately following any five consecutive trading day period (the ‘‘Measurement Period’’), in which, for each trading day of that Measurement Period, the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s Common Stock on such trading day and the applicable conversion rate on such trading day; (3) upon the occurrence of specified corporate transactions; or (4) if the Company calls the Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; and (ii) on and after November 1, 2018, a holder of Notes may convert all or a portion of its Notes, in principal amounts equal to $1,000 or an integral multiple thereof, at any time prior to the close of business on the business day immediately preceding the maturity date of the Notes, regardless of the foregoing circumstances. If stockholder approval has been received, the Company will settle conversion of the Notes through payment or delivery, as the case may be of cash, shares of Common Stock or a combination thereof, at its election. The Company has no obligation to seek stockholder approval and, even if it does, it cannot be certain that its stockholders will grant the stockholder approval.
The conversion rate for the Notes is equal to 188.7059 shares of Common Stock per $1,000 principal amount of notes (which is equivalent to an initial conversion price of approximately $5.30 per share of Common Stock). The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a ‘‘make-whole fundamental change’’ (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its notes in connection with such make-whole fundamental change as described in the Indenture.
13
On or after November 1, 2013, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending within five trading days prior to a conversion date, the last reported sale price of the Company’s common stock exceeds the conversion price on each such trading day, the Company will, in certain circumstances, make an interest make-whole payment to converting holders equal to the sum of the present value of the remaining scheduled payments of interest that would have been made on the Notes to be converted had such notes remained outstanding until May 1, 2017 computed using a discount rate equal to 2%. The Company may pay an interest make-whole payment either in cash or in Common Stock, at its election. If the Company elects to pay an interest make-whole payment in Common Stock, then the stock will be valued at 95% of the simple average of the daily volume-weighted average price (“VWAP”) per share for the 10 trading days ending on and including the trading day immediately preceding the conversion date. Notwithstanding the foregoing, the number of shares the Company may deliver in connection with an interest make-whole payment and repayment of principal will not exceed 221.7294 shares per $1,000 principal amount of Notes, subject to adjustment. If, pursuant to its election to deliver Common Stock in connection with the payment of the interest make-whole amount, the Company would be required to deliver a number of shares of Common Stock in excess of such threshold, the Company would deliver cash in lieu of shares otherwise deliverable upon conversions in excess thereof (based on the simple average of the daily VWAP for the 10 trading days ending on and including the trading day immediately preceding the conversion date).
Upon (i) the occurrence of a fundamental change (as defined in the Indenture) or (ii) if the Company calls the Notes for redemption as described below (either event, a ‘‘make-whole fundamental change’’) and a holder elects to convert its Notes in connection with such make-whole fundamental change, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares (the ‘‘Additional Shares’’) as described below. The Company will notify holders within one business day after the first public announcement by it or a third party of an event or transaction that the Company reasonably determines would, if consummated, constitute a make-whole fundamental change. Upon receiving notice or otherwise becoming aware of a potential make-whole fundamental change described, the Company will use commercially reasonable efforts to announce or cause the announcement of such potential make-whole fundamental change in time to deliver such notice at least 50 scheduled trading days prior to the anticipated effective date for such transaction if stockholder approval has been obtained. The Company will notify the Trustee and holders of the effective date of any make-whole fundamental change no later than one business day after such effective date.
The number of additional shares by which the Company will increase the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective (the ‘‘Effective Date’’) and the price (the ‘‘Stock Price’’) paid (or deemed paid) per share of the Company’s Common Stock in the fundamental change. If the holders of the Company’s common stock receive only cash in a make-whole fundamental change (i) the Stock Price shall be the cash amount paid per share and (ii) the Company will satisfy its conversion obligation to a holder that converts its Notes any time after such make-whole fundamental change by delivering to such holder, on the third business day immediately following the relevant conversion date, an amount of cash, for each $1,000 principal amount of Notes converted, equal to the product of (x) the conversion rate in effect on the relevant conversion date (as increased by the Additional Shares, if any) and (y) the Stock Price. Otherwise, (i) the Stock Price will equal the average of the last reported sale prices of the Company’s Common Stock over the five trading day period ending on, and including, the trading day immediately preceding the Effective Date of the make-whole fundamental change and (ii) the Company will satisfy its conversion obligation to a holder that converts its Notes in connection with such make-whole fundamental change based on the conversion rate as increased by the number of Additional Shares. In connection with a make-whole fundamental change triggered by a redemption of the Notes, the Effective Date of such make-whole fundamental change will be the date on which the Company delivers notice of the redemption. Notwithstanding the foregoing, in no event will the conversion rate exceed the maximum conversion rate, which is 221.7294 shares per $1,000 principal amount of Notes, which amount is inclusive of repayment of the principal of the Notes.
If a fundamental change occurs at any time, holders will have the right, at their option, to require the Company to purchase for cash any or all of the Notes, or any portion of the principal amount thereof, that is equal to $1,000 or an integral multiple of $1,000 in excess thereof, on a date of the Company’s choosing that is not less than 20 calendar days nor more than 35 calendar days after the date on which it delivers a fundamental change notice. The price the Company is required to pay for a Note is equal to 100% of the principal amount of such Note plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. Any Notes purchased by the Company will be paid for in cash.
The Company may not redeem the Notes prior to May 1, 2017. On or after May 1, 2017, the Company may redeem for cash all, but not less than all, of the Notes if the last reported sale price of the Company’s Common Stock equals or exceeds 140% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date the Company delivers written notice of the redemption. The redemption price will be equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company calls the Notes for redemption, a make-whole fundamental change will be deemed to occur and the Company will, in certain circumstances, increase the conversion rate for holders who convert their notes in connections with such make-whole fundamental change as described in the Indenture.
14
The table below summarizes how the issuance of the Convertible Secure Senior Note is reflected in the balance sheet at June 30, 2013, in thousands:
|
|
|
|
|
|
June 30, |
|
|
|
2013 |
|
|
|
|
(unaudited) |
Gross proceeds |
|
$ |
90,000 |
Conversion option reported in equity |
|
|
(22,336) |
Interest make-whole derivative |
|
|
(9,270) |
Amortization of debt discount |
|
|
706 |
Carrying value |
|
$ |
59,100 |
|
|
|
|
The Company incurred approximately $3.5 million of financing costs (including the underwriters’ discount) in connection with the issuance of the Notes. Approximately $0.9 million of this amount was allocated to APIC and the remaining $2.6 million is recorded as a deferred cost being amortized over the life of the Notes. As of June 30, 2013, approximately $2.5 million remained unamortized, of which $0.4 million is current and $2.1 million is long-term.
10. Share-Based Payments
The Company has adopted the Supernus Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the 2012 Plan), which is stockholder-approved, and provides for the grant of stock options and certain other awards, including stock appreciation rights (“SAR”), restricted and unrestricted stock, stock units, performance awards, cash awards and other awards that are convertible into or otherwise based on the Company’s common stock, to the Company’s key employees, directors, and consultants and advisors. The 2012 Plan is administered by the Company’s Board of Directors and provides for the issuance of up to 2,500,000 shares of the Company’s Common Stock. Option awards are granted with an exercise price equal to the estimated fair value of the Company’s Common Stock at the grant date; those option awards generally vest in four annual installments, starting on the first anniversary of the date of grant and have ten-year contractual terms. The 2012 Plan provides for the issuance of Common Stock of the Company upon the exercise of stock options. Stock-based compensation recognized related to the grant of employee and non-employee stock option, SARS, and non-vested stock was as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, |
|
Six Months ended June 30, |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
131 |
|
$ |
14 |
|
$ |
239 |
|
$ |
29 |
Selling, general and administrative |
|
|
301 |
|
|
39 |
|
|
530 |
|
|
76 |
Total |
|
$ |
432 |
|
$ |
53 |
|
$ |
769 |
|
$ |
105 |
The following table summarizes stock option and SAR activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
Weighted- |
|
Average |
|
|
|
Number of |
|
Average |
|
Remaining |
|
|
|
Options |
|
Exercise Price |
|
Contractual Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012 |
|
569,911 |
|
$ |
5.72 |
|
7.88 |
Granted (unaudited) |
|
899,832 |
|
$ |
7.89 |
|
|
Exercised (unaudited) |
|
(40,512) |
|
$ |
0.66 |
|
|
Forfeited or expired (unaudited) |
|
(11,593) |
|
$ |
7.00 |
|
|
Outstanding, June 30, 2013 (unaudited) |
|
1,417,638 |
|
$ |
7.23 |
|
8.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012 |
|
|
|
|
|
|
|
Vested and expected to vest |
|
564,083 |
|
$ |
5.72 |
|
7.87 |
Exercisable |
|
200,312 |
|
$ |
2.11 |
|
5.73 |
|
|
|
|
|
|
|
|
As of June 30, 2013 |
|
|
|
|
|
|
|
Vested and expected to vest (unaudited) |
|
1,367,439 |
|
$ |
7.22 |
|
8.77 |
Exercisable (unaudited) |
|
173,759 |
|