Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
or
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o |
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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: 001-34703
Alimera Sciences, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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20-0028718
(I.R.S. Employer
Identification No.) |
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6120 Windward Parkway, Suite 290 |
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Alpharetta, GA
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30005 |
(Address of principal executive offices)
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(Zip Code) |
(678) 990-5740
(Registrants 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.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes þ No o
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 the
definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(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). Yes o No þ
As of August 3, there were 31,392,972 shares of the registrants common stock issued
and outstanding.
ALIMERA SCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
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ITEM 1 |
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Financial Statements |
ALIMERA SCIENCES, INC.
BALANCE SHEETS
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June 30, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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(In thousands except share and |
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per share data) |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
43,932 |
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$ |
28,514 |
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Investments in marketable securities |
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502 |
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26,330 |
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Prepaid expenses and other current assets |
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954 |
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1,078 |
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Deferred financing costs |
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265 |
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272 |
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Total current assets |
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45,653 |
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56,194 |
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PROPERTY AND EQUIPMENT at cost less accumulated depreciation |
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221 |
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220 |
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TOTAL ASSETS |
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$ |
45,874 |
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$ |
56,414 |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
1,431 |
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$ |
1,677 |
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Accrued expenses (Note 5) |
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1,352 |
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2,731 |
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Outsourced services payable |
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335 |
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841 |
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Notes payable (Note 7) |
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2,083 |
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1,157 |
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Capital lease obligations |
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11 |
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11 |
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Total current liabilities |
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5,212 |
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6,417 |
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LONG-TERM LIABILITIES: |
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Notes payable, net of discount less current portion (Note 7) |
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4,000 |
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4,767 |
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Other long-term liabilities |
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12 |
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18 |
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STOCKHOLDERS EQUITY: |
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Preferred stock, $.01 par value 10,000,000 shares
authorized and no shares issued and outstanding at June
30, 2011 and at December 31, 2010 |
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Common stock, $.01 par value 100,000,000 shares
authorized and 31,392,972 shares issued and outstanding at
June 30, 2011 and 100,000,000 shares authorized and
31,255,953 shares issued and outstanding at December 31,
2010 |
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314 |
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313 |
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Additional paid-in capital |
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234,680 |
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233,338 |
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Common stock warrants |
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415 |
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415 |
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Accumulated deficit |
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(198,759 |
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(188,854 |
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TOTAL STOCKHOLDERS EQUITY |
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36,650 |
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45,212 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
45,874 |
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$ |
56,414 |
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See Notes to Financial Statements.
2
ALIMERA SCIENCES, INC.
STATEMENTS OF OPERATIONS
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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(Unaudited) |
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(In thousands except share and per share data) |
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RESEARCH AND DEVELOPMENT EXPENSES |
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$ |
1,751 |
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$ |
4,140 |
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$ |
3,508 |
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$ |
7,205 |
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GENERAL AND ADMINISTRATIVE EXPENSES |
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1,866 |
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1,174 |
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3,406 |
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2,078 |
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MARKETING EXPENSES |
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1,309 |
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379 |
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2,426 |
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626 |
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OPERATING EXPENSES |
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4,926 |
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5,693 |
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9,340 |
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9,909 |
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INTEREST INCOME |
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2 |
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14 |
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14 |
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16 |
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INTEREST EXPENSE |
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(284 |
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(144 |
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(579 |
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(618 |
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GAIN ON EARLY EXTINGUISHMENT OF
DEBT (NOTE 6) |
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1,343 |
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1,343 |
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DECREASE IN FAIR VALUE OF PREFERRED
STOCK CONVERSION FEATURE |
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379 |
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3,644 |
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LOSS FROM CONTINUING OPERATIONS |
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(5,208 |
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(4,101 |
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(9,905 |
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(5,524 |
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INCOME FROM DISCONTINUED OPERATIONS
(NOTE 3) |
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4,000 |
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NET LOSS |
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(5,208 |
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(4,101 |
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(9,905 |
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(1,524 |
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REDEEMABLE PREFERRED STOCK ACCRETION |
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(107 |
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(466 |
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REDEEMABLE PREFERRED STOCK DIVIDENDS |
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(613 |
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(2,638 |
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NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS |
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$ |
(5,208 |
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$ |
(4,821 |
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$ |
(9,905 |
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$ |
(4,628 |
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NET LOSS PER SHARE APPLICABLE TO
COMMON SHAREHOLDERS Basic and
diluted |
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$ |
(0.17 |
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$ |
(0.20 |
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$ |
(0.32 |
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$ |
(0.36 |
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WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and diluted |
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31,354,243 |
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24,293,458 |
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31,316,181 |
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13,008,707 |
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See Notes to Financial Statements.
3
ALIMERA SCIENCES, INC.
STATEMENTS OF CASH FLOWS
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Six Months Ended |
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June 30, |
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2011 |
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2010 |
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(Unaudited) |
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(In thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(9,905 |
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$ |
(1,524 |
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Income from discontinued operations (Note 3) |
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(4,000 |
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Change in fair value of preferred stock conversion feature |
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(3,644 |
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Gain from early extinguishment of debt |
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(1,343 |
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Depreciation |
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79 |
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95 |
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Stock compensation and other |
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1,041 |
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379 |
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Amortization of deferred financing costs |
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216 |
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Non-cash investment gain |
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5 |
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Changes in assets and liabilities: |
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Prepaid expenses and other current assets |
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124 |
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(599 |
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Accounts payable |
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(246 |
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(63 |
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Accrued expenses and other current liabilities |
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(1,885 |
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(92 |
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Other long-term liabilities |
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2 |
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Net cash used in operating activities |
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(10,576 |
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(10,784 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of investments |
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(14,550 |
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Proceeds from maturities of investments |
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25,828 |
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Purchases of property and equipment |
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(80 |
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(47 |
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Net cash
provided by (used in) investing activities of continuing operations |
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25,748 |
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(14,597 |
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Net cash provided by investing activities of discontinued operations (Note 3) |
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4,000 |
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Net cash provided by (used in) investing activities |
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25,748 |
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(10,597 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from exercises of stock options |
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190 |
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20 |
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Proceeds from exercise of Series C-1 preferred warrants |
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9,997 |
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Proceeds from exercise of common stock warrants |
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458 |
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Proceeds from sale of common stock |
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111 |
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68,395 |
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Payment of common stock offering costs |
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(1,708 |
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Repayment of pSivida note payable (Note 6) |
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(15,000 |
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Payment of debt modification costs |
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(50 |
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Payments on capital lease obligations |
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(5 |
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(4 |
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Net cash provided by financing activities |
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246 |
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62,158 |
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NET INCREASE IN CASH |
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15,418 |
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40,777 |
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CASH Beginning of period |
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28,514 |
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4,858 |
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CASH End of period |
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$ |
43,932 |
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$ |
45,635 |
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4
STATEMENTS OF CASH FLOWS
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Six Months Ended |
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June 30, |
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2011 |
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2010 |
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SUPPLEMENTAL DISCLOSURES |
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Cash paid for interest |
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$ |
325 |
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$ |
525 |
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Supplemental schedule of noncash investing and financing activities: |
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Property and equipment acquired under capital leases |
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$ |
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$ |
36 |
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Reclassification of fair value of preferred stock conversion feature to additional paid-in capital |
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$ |
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$ |
36,528 |
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IPO issuance costs charged to equity |
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$ |
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$ |
4,228 |
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There were no income tax or dividend payments made for the six months ended June 30, 2011 and 2010.
See Notes to Financial Statements.
5
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
Alimera Sciences, Inc. (Company) is a biopharmaceutical company that specializes in
the research, development, and commercialization of ophthalmic pharmaceuticals. The Company
was formed on June 4, 2003 under the laws of the State of Delaware.
On April 21, 2010, the Companys Registration Statement on Form S-1 (as amended) was
declared effective by the Securities and Exchange Commission (SEC) for the Companys
initial public offering (IPO), pursuant to which the Company sold 6,550,000 shares of its
common stock at a public offering price of $11.00 per share. The Company received net
proceeds of approximately $68,395,000 from this transaction, after deducting underwriting
discounts and commissions.
During the year ended December 31, 2006, management and the board of directors of the
Company approved a plan to discontinue the operations of its non-prescription business (see
Note 3). As a result of the completion of the disposal of its non-prescription business in
July 2007, the Company no longer has active products and will not have active products until
and unless the Company receives U.S. Food and Drug Administration (FDA) approval and
launches its initial prescription product (see Note 4).
The Company is presently focused on diseases affecting the back of the eye, or retina,
because the Companys management believes these diseases are not well treated with current
therapies and represent a significant market opportunity. The Companys most advanced
product candidate is ILUVIEN, which is being developed for the treatment of diabetic macular
edema (DME). DME is a disease of the retina which affects individuals with diabetes and
can lead to severe vision loss and blindness. The Company has completed its two Phase 3
pivotal clinical trials (collectively referred to as the FAME
Study) for ILUVIEN
involving 956 patients in sites across the U.S., Canada, Europe and India to assess the
efficacy and safety of ILUVIEN in the treatment of DME.
In June 2010, the Company submitted a New Drug Application (NDA) for ILUVIEN to the FDA that included data
through month 24 of the FAME Study. In December 2010, the FDA issued a Complete Response Letter (CRL) in response to
the Companys NDA. In the CRL, the FDA communicated its decision that the NDA could not be approved in its then present
form. No new clinical studies were requested in the CRL. However, the FDA asked for analyses of the safety and efficacy
data through month 36 of the FAME Study, including exploratory analyses in addition to those previously submitted in
the NDA, to further assess the relative benefits and risks of ILUVIEN. The FDA also sought additional information
regarding controls and specifications concerning the manufacturing, packaging and sterilization of ILUVIEN. In May
2011, the Company submitted to the FDA a complete response to the CRL. The FDA classified the response as a Class 2
resubmission with a Prescription Drug User Fee Act (PDUFA) date of November 12, 2011. The PDUFA date is the date by
which the Company can reasonably expect to have received the FDAs response. In July 2011 the FDA notified the Company
that it will not call an advisory committee during this review.
In July 2010, using the Decentralized Procedure, the Company submitted a Marketing Authorization Application for
ILUVIEN to the Medicines and Healthcare products Regulatory Agency (MHRA) in the United Kingdom, which serves as the
Reference Member State, and to regulatory authorities in Austria, France, Germany, Italy, Portugal and Spain. In
November 2010, the Company received the Preliminary Assessment Report from the MHRA followed by additional comments
from the other health authorities in December 2010. In July 2011, the Company submitted its draft responses to the
clinical, non-clinical, and quality questions to the MHRA. The submission included the additional safety and efficacy
data through the final readout at the end of the FAME Study. The MHRA will provide comments to the Companys draft
responses and the Company anticipates submitting the final response to the MHRA and other health authorities by
December 31, 2011.
2. Basis of Presentation
The Company has prepared the accompanying unaudited interim financial statements and
notes thereto in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) for interim financial information and the instructions to
Form 10-Q and Article 10-01 of Regulation S-X of the SEC. Accordingly, they do not include
all of the information and disclosures required by U.S. GAAP for complete financial
statements. In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, which include normal recurring adjustments, necessary to
present fairly the Companys interim financial information.
The accompanying unaudited interim financial statements and related notes should be
read in conjunction with the Companys audited financial statements for the year ended
December 31, 2010 and related notes included in the Companys Annual Report on Form 10-K,
which was filed with the SEC on March 25, 2011. The financial results for any interim period
are not necessarily indicative of the expected financial results for the full year.
On April 21, 2010, the Company effected a 1 for 3.4 reverse split of the Companys
common and preferred stock. All share and per share amounts in the accompanying financial
statements and notes have been retroactively adjusted for all periods presented to give
effect to the reverse stock split.
6
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Discontinued Operations
In October 2006, management and the board of directors of the Company approved a plan
to discontinue the operations of its non-prescription ophthalmic pharmaceutical business
(OTC Business). The plan included the sale of the assets of the Companys OTC Business and
also the termination of its sales and marketing personnel. The Company previously determined
that the discontinued OTC Business comprised operations and cash flows that could be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the
Company. Accordingly, the results of operations for the discontinued OTC Business have been
presented as discontinued operations. During the six months ended June 30, 2010, the Company
received a $4,000,000 option payment from the acquirer of the assets of the OTC Business to
provide it with an additional two years to develop one of the acquired products. There were
no revenues or expenses from discontinued operations during the six month period ended June
30, 2011. The following table presents basic and diluted earnings per share from
discontinued operations for the six months ended June 30, 2010:
|
|
|
|
|
Net income from discontinued operations (in thousands) |
|
$ |
4,000 |
|
Net income from discontinued operations per share Basic and diluted |
|
$ |
0.31 |
|
Weighted-average shares outstanding Basic and diluted |
|
|
13,008,707 |
|
4. Factors Affecting Operations
To date the Company has incurred recurring losses, negative cash flow from operations,
and has accumulated a deficit of $198,759,000 from the Companys inception through June 30,
2011. The Company does not expect to generate revenues from its product, ILUVIEN, until early 2012, if at all, and therefore does not expect to have cash flow from operations until 2012,
if at all. As of June 30, 2011, the Company had approximately $44,434,000 in cash, cash
equivalents, and investments in marketable securities. In October 2010, the Company obtained a $32,500,000 senior
secured credit facility (Credit Facility) to help fund its working capital requirements
(see note 7). The Credit Facility consisted of a $20,000,000 working capital revolver and a
$12,500,000 term loan. The lenders advanced $6,250,000 under the term loan and the remaining
$6,250,000 was available to be advanced following FDA approval of ILUVIEN, but no later than
July 31, 2011. In May 2011, the Company
and its lenders amended the terms of the Credit Facility to, among other things, extend the
FDA approval deadline for the second advance under the term loan to
December 31, 2011, and to increase the amount available under the second advance of the
term loan from $6,250,000 to $11,000,000. Management believes it has sufficient funds
available to fund its operations through the projected launch of ILUVIEN and the
expected generation of revenue in early 2012. The commercialization of ILUVIEN is dependent
upon approval by the FDA, however, and management cannot be sure that ILUVIEN will be
approved by the FDA or that, if approved, future sales of ILUVIEN will generate enough
revenue to fund the Companys operations beyond its launch. Due to the
uncertainty around FDA approval, management also cannot be certain that the Company will not
need additional funds for the launch of ILUVIEN. If ILUVIEN is not approved, or
if approved, does not generate sufficient revenue, the Company may adjust its commercial
plans so that it can continue to operate with its existing cash resources or seek to raise
additional financing.
5. Accrued Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Accrued clinical investigator expenses |
|
$ |
647 |
|
|
$ |
1,911 |
|
Accrued compensation expenses |
|
|
649 |
|
|
|
730 |
|
Other accrued expenses |
|
|
56 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
1,352 |
|
|
$ |
2,731 |
|
|
|
|
|
|
|
|
7
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. pSivida Agreement
In March 2008, in connection with the Companys collaboration agreement with pSivida
U.S., Inc. (pSivida), the licensor of the ILUVIEN technology, the Company and pSivida
amended and restated the agreement to provide the Company with 80% of the net profits and pSivida
with 20% of the net profits. In connection with the amended and restated agreement , the
Company also agreed to:
|
|
pay $12.0 million to pSivida upon the execution of the March 2008 agreement; |
|
|
|
issue a $15.0 million promissory note to pSivida; |
|
|
|
forgive all outstanding development payments, penalties and interest as of
the effective date of the March 2008 agreement, which totaled $6.8 million; |
|
|
|
continue responsibility for regulatory, clinical, preclinical,
manufacturing, marketing and sales for the remaining development and
commercialization of the products; |
|
|
|
assume all financial responsibility for the development of the products and
assume 80% of the commercialization costs of the products (instead of 50%
as provided under the February 2005 agreement); and |
|
|
|
make an additional milestone payment of $25.0 million after the first
product under the March 2008 agreement has been approved by the FDA. |
The $15,000,000 promissory note accrued interest at 8% payable quarterly and was
payable in full to pSivida upon the earlier of a liquidity event as defined in the note
(including an initial public offering of the Companys common stock greater than
$75,000,000), the occurrence of an event of default under the Companys agreement with
pSivida or September 30, 2012. If the note was not paid in full by March 31, 2010, the
interest rate was to increase to 20% effective as of April 1, 2010, and the Company would be
required to begin making principal payments of $500,000 per month. On April 27, 2010, the
Company paid pSivida $15,225,000 in principal and interest to satisfy the note payable. As a
result, the Company recognized a gain of $1,343,000 on the extinguishment of this debt in
the accompanying financial statements for the three and six month periods ended June 30,
2010.
The Companys license rights to pSividas proprietary delivery device could revert to
pSivida if the Company were to (i) fail twice to cure its breach of an obligation to make
certain payments to pSivida following receipt of written notice thereof; (ii) fail to cure
other breaches of material terms of its agreement with pSivida within 30 days after notice
of such breaches or such longer period (up to 90 days) as may be reasonably necessary if the
breach cannot be cured within such 30-day period; (iii) file for protection under the
bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer
appointment of a receiver or trustee over its property, file a petition under any bankruptcy
or insolvency act or have any such petition filed against it and such proceeding remains
undismissed or unstayed for a period of more than 60 days; or (iv) notify pSivida in writing
of its decision to abandon its license with respect to a certain product using pSividas
proprietary delivery device. The Company was not in breach of its agreement with pSivida as
of June 30, 2011.
Upon commercialization of ILUVIEN, the Company must share 20% of net profits of
ILUVIEN, as defined by the agreement, with pSivida. In connection with this arrangement the
Company is entitled to recover 20% of commercialization costs of ILUVIEN, as defined in the
agreement, incurred prior to product profitability out of pSividas share of net profits. As
of June 30, 2011 and December 31, 2010 the Company was owed $2,972,000 and $2,224,000,
respectively, in commercialization costs. Due to the uncertainty of FDA approval of the NDA
for ILUVIEN, the Company has fully reserved these amounts in the accompanying financial
statements.
8
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Term Loan and Working Capital Revolver
Term Loan
On October 14, 2010 (Effective Date), the Company entered into a Loan and Security
Agreement (Term Loan Agreement) with Silicon Valley Bank and MidCap Financial LLP
(Lenders). Pursuant to the original terms of the Term Loan Agreement, the Company was
entitled to borrow up to $12.5 million, of which $6.25 million (Term Loan A) was advanced
to the Company on the Effective Date. The Company was entitled to draw down the remaining
$6.25 million under the Term Loan (Term Loan B and together with Term Loan A, the Term
Loan) if the FDA approved the Companys NDA for ILUVIEN prior to or on July 31, 2011. On
May 16, 2011, the Company and the Lenders amended the Term Loan Agreement (Term Loan Modification)
to, among other things, extend until December 31, 2011 the date by which the FDA must approve the NDA in
order for the Company to draw down Term Loan B and increase the
amount of Term Loan B by $4.75 million to $11.0 million. In addition, the
maturity date of the Term Loan was extended from October 31, 2013 to April 30, 2014 (
Term Loan Maturity Date).
The Company is required to pay interest on Term Loan A at a rate of 11.5% on a monthly
basis through July 31, 2011, and then is required to repay the principal in 33 equal monthly
installments, beginning August 2011, plus interest at a rate of 11.5%. The Company is
required to pay interest at a rate of 12.5% on the amount borrowed, if any, under Term Loan
B through April 30, 2012, and thereafter will be required to repay the principal in equal
monthly installments through the Term Loan Maturity Date, plus interest at a rate of 12.5%.
If the Company repays Term Loan A prior to maturity, the Company must pay to
the Lenders a prepayment fee equal to 5.0% of the total amount of principal then outstanding
if the prepayment occurs within one year after the funding date of Term Loan A (Term
Loan A Funding Date), 3.0% of such amount if the prepayment occurs between one year and
two years after the Term Loan A Funding Date and 1.0% of such amount if the prepayment
occurs thereafter (subject to a 50% reduction in the event that the prepayment occurs in
connection with an acquisition of the Company). If Term Loan B is advanced to the Company,
then the amount of the prepayment fee on both Term Loan A and Term Loan B will be reset to
5.0% and the time-based reduction of the prepayment fee will be measured from the funding
date of Term Loan B (subject to the same 50% reduction in the event of an acquisition of the
Company), rather than from the Term Loan A Funding Date.
To secure the repayment of any amounts borrowed under the Term Loan Agreement, the
Company granted to the Lenders a first priority security interest in all of its assets,
including its intellectual property,
however, the lien on the Companys intellectual property will be released if the Company meets certain financial conditions.
The occurrence of an event of default could result in the acceleration of the Companys obligations under the Term Loan
Agreement and an increase to the applicable interest rate, and would permit the Lenders to exercise remedies with respect to the collateral under the
Term Loan Agreement.
The Company also agreed not to pledge or otherwise encumber its intellectual property assets.
Additionally, the Company must seek the Lenders approval prior to the payment of any cash
dividends.
9
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
On the Effective Date, the Company issued to the Lenders warrants to purchase an
aggregate of up to 39,773 shares of the Companys common stock. Each of the warrants is
exercisable immediately, has a per-share exercise price of $11.00 and has a term of 10
years. The Company estimated the
fair value of warrants granted using the Black-Scholes option pricing model. The aggregate
fair value of the warrants was estimated to be $389,000. The Company allocated a portion of
the proceeds from the Term Loan Agreement to the warrants in accordance with Accounting
Standards
Codification (ASC) 470-20-25-2, Debt Instruments with Detachable Warrants. As a result,
the Company recorded a discount of $366,000 which is being amortized to interest expense
using the effective interest method. The Lenders also hold warrants to purchase an aggregate of up to 69,999 shares of the Companys common stock, which are exercisable only if Term
Loan B is advanced to the Company. Each of these warrants has a per share exercise price of $11.00 and a term of 10 years. In addition,
the Lenders will have certain registration rights with respect to the shares of common stock
issuable upon exercise of all of their warrants. The Company paid to the Lenders an upfront
fee of $62,500 on the Effective Date and an additional fee of $50,000 in connection with the
Term Loan Modification. In accordance with ASC 470-50-40-17, Debt
Modifications and Extinguishments, the Company is amortizing the unamortized discount on
Term Loan A and the $50,000 modification fee over the remaining term of Term Loan A, as
modified.
The Company is required to maintain its primary operating and other deposit accounts
and securities accounts with Silicon Valley Bank, which accounts must represent at least 50%
of the dollar value of the Companys accounts at all financial institutions.
Working Capital Revolver
Also on the Effective Date, the Company and Silicon Valley Bank entered into a Loan and
Security Agreement, pursuant to which the Company obtained a secured revolving line of
credit (Working Capital Revolver) from Silicon Valley Bank with borrowing availability up
to $20,000,000 (Revolving Loan Agreement). On May 16, 2011, the Company and the Lenders amended the Revolving Loan Agreement
to extend the maturity date of the Working Capital Revolver from October 31, 2013 to April 30,
2014.
The Working Capital Revolver is a working capital-based revolving line of
credit in an aggregate amount of up to the lesser of (i) $20,000,000, or (ii) 85% of
eligible domestic accounts receivable. As of June 30, 2011, no amounts under the Working
Capital Revolver were available to the Company.
Amounts advanced under the Working Capital Revolver will bear interest at an annual rate
equal to Silicon Valley Banks prime rate plus 2.50% (with a rate floor of 6.50%). Interest
on the Working Capital Revolver will be due monthly, with the balance due at the maturity date.
On the Effective Date, the Company paid to Silicon Valley Bank an upfront fee of $100,000.
In addition, if the Company terminates the Working Capital Revolver prior to maturity, it
will pay to Silicon Valley Bank a fee of $400,000 if the termination occurs within one year
after the Effective Date and a fee of $200,000 if the termination occurs more than one year
after the Effective Date (each a Termination Fee), provided in each case that such
Termination Fee will be reduced by 50% in the event of an acquisition of the Company.
To secure the repayment of any amounts borrowed under the Revolving Loan Agreement, the
Company granted to Silicon Valley Bank a first priority security interest in all of its
assets, including its intellectual property, however, the lien on the
Companys intellectual property will be released
if the Company meets certain financial conditions. The
occurrence of an event of default could result in the acceleration of the Companys
obligations under the Revolving Loan Agreement and an increase to the applicable interest
rate, and would permit Silicon Valley Bank to exercise remedies with respect to the
collateral under the Revolving Loan Agreement. The Company also agreed not to pledge or
otherwise encumber its intellectual property assets. Additionally, the Company must seek
Silicon Valley Banks approval prior to the payment of any cash dividends.
10
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Earnings (Loss) Per Share (EPS)
Basic EPS is calculated in accordance with ASC 260, Earnings per Share, by dividing net
income or loss attributable to common stockholders by the weighted average common stock
outstanding. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted
average common shares outstanding for the dilutive effect of common stock options, warrants,
convertible preferred stock and accrued but unpaid convertible preferred stock dividends. In
periods where a net loss from continuing operations is recorded, no effect is given to
potentially dilutive securities, since the effect would be anti-dilutive. Total securities
that could potentially dilute basic EPS in the future that were not included in the
computation of diluted EPS because to do so would have been anti-dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock and
convertible accrued dividends |
|
|
|
|
|
|
2,078,449 |
|
|
|
|
|
|
|
4,528,187 |
|
Series B preferred stock |
|
|
|
|
|
|
2,120,803 |
|
|
|
|
|
|
|
4,620,461 |
|
Series C preferred stock |
|
|
|
|
|
|
1,722,989 |
|
|
|
|
|
|
|
3,753,768 |
|
Series C-1 preferred stock |
|
|
|
|
|
|
861,491 |
|
|
|
|
|
|
|
1,876,877 |
|
Common stock warrants |
|
|
29,393 |
|
|
|
127,689 |
|
|
|
30,009 |
|
|
|
132,058 |
|
Stock options |
|
|
1,539,230 |
|
|
|
1,703,118 |
|
|
|
1,599,046 |
|
|
|
1,681,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,568,623 |
|
|
|
8,614,539 |
|
|
|
1,629,055 |
|
|
|
16,593,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Preferred Stock
Prior to the Companys IPO, the Company had four series of preferred stock. On April
27, 2010 and in connection with the IPO, all outstanding shares of the Companys preferred
stock were converted into 22,863,696 shares of common stock and all preferred stock
dividends were eliminated. Significant terms of all series of the preferred stock were as
follows:
|
|
|
Dividends were cumulative and accrued on a daily basis at
the rate of 8% per annum beginning on the date of issuance
and based on the original issue price, as adjusted for any
stock dividend, stock split, combination, or other event
involving the preferred stock. Dividends accrued, whether
or not declared, annually and were due and payable when and
if declared by the Board of Directors, upon a liquidating
event upon redemption of the preferred stock or on the date
that the preferred stock was otherwise acquired by the
Company. |
|
|
|
|
Upon any liquidation, dissolution, or winding up of the
Company, the preferred stockholders were entitled to a
liquidation preference payment equal to (i) the sum of the
liquidation value plus all accumulated, accrued, and unpaid
dividends and (ii) the pro rata share of any remaining
amounts such holder would have been entitled to receive had
such holders shares been converted into common stock
immediately prior to the liquidation, dissolution, or
winding up. |
|
|
|
|
At any time subsequent to March 17, 2013, the holders of a
majority of the preferred stock could have required the
Company to redeem all or any portion of the preferred
stock. If the preferred stock was redeemed, the redemption
would have occurred in equal installments over a three-year
period. The price paid by the Company to redeem the shares
would have been the greater of (i) the original issue
price, plus all accumulated, accrued, and unpaid dividends,
and (ii) the fair market value of the preferred stock being
redeemed at the time of the redemption. |
Because the preferred stock provided the holders the right to require the Company to
redeem such shares for cash after March 17, 2013 at the greater of (i) the original issue
price plus any accrued but unpaid dividends and (ii) the fair market value of the preferred
stock being redeemed, the embedded conversion feature required separate accounting.
Consequently, the conversion feature had to be
bifurcated from the preferred stock and accounted for separately at each issuance date.
The carrying value of the embedded derivative was adjusted to fair value at the end of each
reporting period and the change in fair value was recognized in the statement of operations.
11
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
On January 8, 2010 warrants to purchase shares of the Companys Series C-1 preferred
stock were exercised resulting in $10,000,000 in cash proceeds and the issuance of 1,935,700
additional shares of Series C-1 preferred stock. The Company recorded a derivative liability
of $3,471,000 upon the exercise of the warrants and the issuance of 1,935,700 shares of
Series C-1 preferred stock in January 2010.
At each reporting date, the Company adjusted the carrying value of the embedded
derivatives to estimated fair value and recognized the change in such estimated value in its
statement of operations. The estimated fair value of the derivatives at April 27, 2010 was
$36,528,000. The Company recognized a gain of $3,644,000 associated with the change in fair
value for the six months ended June 30, 2010. In connection with the IPO, the embedded
derivatives were eliminated.
In connection with the Companys IPO in April 2010, the Company authorized 10,000,000
shares of $0.01 par value preferred stock. No shares of preferred stock were issued or
outstanding at June 30, 2011 and December 31, 2010, respectively.
10. Stock Options
During the three months ended June 30, 2011 and 2010, the Company recorded compensation
expense related to stock options of approximately $584,000 and $151,000, respectively.
During the six months ended June 30, 2011 and 2010, the Company recorded stock compensation
expense of approximately $999,000 and $258,000, respectively. As of June 30, 2011, the
total unrecognized compensation cost related to non-vested stock options granted was
$4,114,000 and is expected to be recognized over a weighted average period of 3.0 years. The
following table presents a summary of stock option transactions for the three and six months
ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at beginning of period |
|
|
2,664,455 |
|
|
$ |
3.87 |
|
|
|
2,225,778 |
|
|
$ |
2.14 |
|
|
|
2,741,985 |
|
|
$ |
3.81 |
|
|
|
2,225,778 |
|
|
$ |
2.14 |
|
Grants |
|
|
65,000 |
|
|
|
7.67 |
|
|
|
65,000 |
|
|
|
11.00 |
|
|
|
65,000 |
|
|
|
7.67 |
|
|
|
65,000 |
|
|
|
11.00 |
|
Forfeitures |
|
|
(7,500 |
) |
|
|
11.00 |
|
|
|
(736 |
) |
|
|
3.52 |
|
|
|
(7,500 |
) |
|
|
11.00 |
|
|
|
(736 |
) |
|
|
3.52 |
|
Exercises |
|
|
(44,481 |
) |
|
|
1.73 |
|
|
|
(8,731 |
) |
|
|
2.31 |
|
|
|
(122,011 |
) |
|
|
1.55 |
|
|
|
(8,731 |
) |
|
|
2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at end of period |
|
|
2,677,474 |
|
|
|
|
|
|
|
2,281,311 |
|
|
|
|
|
|
|
2,677,474 |
|
|
|
|
|
|
|
2,281,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average per share
fair value of options granted
during the period |
|
$ |
5.47 |
|
|
|
|
|
|
$ |
9.05 |
|
|
|
|
|
|
$ |
5.47 |
|
|
|
|
|
|
$ |
9.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides additional information related to outstanding stock
options, fully vested stock options, and stock options expected to vest as of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
2,677,474 |
|
|
$ |
3.98 |
|
|
6.65 years |
|
$ |
12,460 |
|
Exercisable |
|
|
1,843,928 |
|
|
|
2.37 |
|
|
5.77 years |
|
|
10,839 |
|
Expected to vest |
|
|
756,496 |
|
|
|
7.57 |
|
|
8.61 years |
|
|
1,459 |
|
12
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The following table provides additional information related to outstanding stock
options, fully vested stock options, and stock options expected to vest as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
2,741,985 |
|
|
$ |
3.81 |
|
|
6.99 years |
|
$ |
18,338 |
|
Exercisable |
|
|
1,722,281 |
|
|
|
1.88 |
|
|
5.88 years |
|
|
14,638 |
|
Expected to vest |
|
|
963,754 |
|
|
|
7.24 |
|
|
8.92 years |
|
|
3,334 |
|
11. Income Taxes
In accordance with ASC 740 the Company recognizes deferred tax assets and liabilities
for temporary differences between the financial reporting basis and the tax basis of its
assets and liabilities. The Company records a valuation allowance against its net deferred
tax asset to reduce the net carrying value to an amount that is more likely than not to be
realized.
Income tax positions are considered for uncertainty in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
ASC 740-10. The Company believes that its income tax filing positions and deductions will be
sustained on audit and does not anticipate any adjustments that will result in a material
change to its financial position; therefore, no ASC 740-10 liabilities have been recorded.
Significant management judgment is involved in determining the provision for income
taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net
deferred tax assets. Due to uncertainties with respect to the realization of deferred tax
assets due to the history of operating losses, a valuation allowance has been established
against the entire net deferred tax asset balance. The valuation allowance is based on
managements estimates of taxable income in the jurisdictions in which the Company operates
and the period over which deferred tax assets will be recoverable. In the event that actual
results differ from these estimates or the Company adjusts these estimates in future
periods, a change in the valuation allowance may be needed, which could materially impact
the Companys financial position and results of operations.
At June 30, 2011 and December 31, 2010, the Company had federal net operating loss
(NOL) carry-forwards of approximately $106,612,000 and $97,813,000 and state NOL
carry-forwards of approximately $89,795,000 and $80,995,000, respectively, that are
available to reduce future income unless otherwise taxable. If not utilized, the federal NOL
carry-forwards will expire at various dates between 2023 and 2030, and the state NOL
carry-forwards will expire at various dates between 2020 and 2030.
NOL carry-forwards may be subject to annual limitations under Internal Revenue Code
Section 382 (or comparable provisions of state law) in the event that certain changes in
ownership of the Company were to occur. The Company has not yet completed a formal
evaluation of the impact of its IPO (Note 1) on the Companys NOL carry-forwards and whether
certain changes in ownership have occurred that would limit the Companys ability to utilize
a portion of its NOL carry-forwards.
13
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
12. Fair Value
The Company adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (ASC 820), effective January 1, 2008. Under this standard, fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability
(i.e., the exit price) in an orderly transaction between market participants at the
measurement date.
In determining fair value, the Company uses various valuation approaches. The hierarchy
of those valuation approaches is broken down into three levels based on the reliability of
inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement
date. An active market for the asset or liability is a market in which transactions
for the asset or liability occur with sufficient frequency and volume to provide
pricing information on an ongoing basis. The valuation under this approach does not
entail a significant degree of judgment.
Level 2 inputs are inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. Level 2
inputs include: quoted prices for similar assets or liabilities in active markets,
inputs other than quoted prices that are observable for the asset or liability,
(e.g., interest rates and yield curves observable at commonly quoted intervals or
current market) and contractual prices for the underlying financial instrument, as
well as other relevant economic measures.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable
inputs shall be used to measure fair value to the extent that observable inputs are
not available, thereby allowing for situations in which there is little, if any,
market activity for the asset or liability at the measurement date.
The following table presents information about the Companys assets measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In thousands) |
|
|
Cash equivalents(1) |
|
$ |
41,934 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
41,934 |
|
Investments in marketable debt securities(2) |
|
|
|
|
|
|
502 |
|
|
|
|
|
|
|
502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value |
|
$ |
41,934 |
|
|
$ |
502 |
|
|
$ |
|
|
|
$ |
42,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In thousands) |
|
|
Cash equivalents(1) |
|
$ |
27,393 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27,393 |
|
Investments in marketable debt securities(2) |
|
|
|
|
|
|
26,330 |
|
|
|
|
|
|
|
26,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value |
|
$ |
27,393 |
|
|
$ |
26,330 |
|
|
$ |
|
|
|
$ |
53,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The carrying amounts approximate fair value due to the short-term maturities of the cash equivalents. |
|
(2) |
|
Valuations are based on quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly. These prices include broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency. Pricing sources include industry standard data
providers, security master files from large financial institutions, and other third party sources which are
input into a distribution-curve-based algorithm to determine a daily market value. This creates a consensus
price or a weighted average price for each security. |
14
PART I. FINANCIAL INFORMATION
|
|
|
ITEM 2 |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Various statements in this report are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve
substantial risks and uncertainties. All statements, other than statements of historical
facts, included in this report regarding our strategy, future
operations, future financial position, future revenues, projected costs, prospects, plans
and objectives of management are forward-looking statements. These statements are subject to
risks and uncertainties and are based on information currently available to our management.
Words such as, but not limited to, anticipate, believe, estimate, expect, intend,
may, plan, contemplates, predict, project, targets, likely, potential,
continue, will, would, should, could, or the negative of these terms and similar
expressions or words, identify forward-looking statements. The events and circumstances
reflected in the Companys forward-looking statements may not occur and actual results could
differ materially from those projected in the Companys forward-looking statements.
Meaningful factors which could cause actual results to differ include, but are not limited
to:
|
|
|
delay in or failure to obtain regulatory approval of the Companys product
candidates; |
|
|
|
|
uncertainty as to the Companys ability to commercialize, and market acceptance
of, the Companys product candidates; |
|
|
|
|
the extent of government regulations; |
|
|
|
|
uncertainty as to the relationship between the benefits of the Companys product
candidates and the risks of their side-effect profiles; |
|
|
|
|
dependence on third-party manufacturers to manufacture the Companys product
candidates in sufficient quantities and quality; |
|
|
|
|
uncertainty of clinical trial results; |
|
|
|
|
limited sales and marketing infrastructure; |
|
|
|
|
inability of the Companys outside sales force to successfully sell and market
ILUVIEN in the U.S. following regulatory approval; and |
|
|
|
|
the Companys ability to operate its business in compliance with the covenants and
restrictions that it is subject to under its credit facility. |
All written and verbal forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to in this section. We caution investors not to rely too heavily on
the forward-looking statements we make or that are made on our behalf. We undertake no
obligation, and specifically decline any obligation, to update or revise publicly any
forward-looking statements, whether as a result of new information, future events or
otherwise.
We encourage you to read the discussion and analysis of our financial condition and our
financial statements contained in this report. We also encourage you
to read Item 1A of Part II of this report entitled Risk Factors and
Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31,
2010, which contain a more complete discussion of the risks and uncertainties associated with
our business. In addition to the risks described above and in Item 1A of Part II of this
report and Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, other unknown or unpredictable factors also could affect our results.
Therefore, the information in this report should be read together with other reports and
documents that we file with the SEC from time to time, including Forms 10-Q, 8-K and 10-K,
which may supplement, modify, supersede or update those risk factors.
There can be no assurance that the actual result or developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected consequences to, or effects on, us. Therefore, no assurance
can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.
15
Overview
We are a biopharmaceutical company that specializes in the research, development and
commercialization of prescription ophthalmic pharmaceuticals. We are presently focused on
diseases affecting the back of the eye, or retina, because we believe these diseases are not
well treated with current therapies and represent a significant market opportunity.
Our most advanced product candidate is ILUVIEN, which we are developing for the
treatment of diabetic macular edema (DME). DME is a disease of the retina that affects
individuals with diabetes and can lead to severe vision loss and blindness. In September
2010, we completed two Phase 3 pivotal clinical trials (collectively, our FAME Study) for
ILUVIEN involving 956 patients in sites across the U.S., Canada, Europe and India to assess
the efficacy and safety of ILUVIEN in the treatment of DME.
In
June 2010, we submitted a New Drug Application (NDA) for ILUVIEN to the FDA that included data
through month 24 of the FAME Study. In December 2010, the FDA issued a Complete Response Letter (CRL) in response to
our NDA. In the CRL, the FDA communicated its decision that the NDA could not be approved in its then present
form. No new clinical studies were requested in the CRL. However, the FDA asked for analyses of the safety and efficacy
data through month 36 of the FAME Study, including exploratory analyses in addition to those previously submitted in
the NDA, to further assess the relative benefits and risks of ILUVIEN. The FDA also sought additional information
regarding controls and specifications concerning the manufacturing, packaging and sterilization of ILUVIEN. In May
2011, we submitted to the FDA a complete response to the CRL. The FDA classified the response as a Class 2
resubmission with a Prescription Drug User Fee Act (PDUFA) date of November 12, 2011. The PDUFA date is the date by
which we can reasonably expect to have received the FDAs
response. In July 2011 the FDA notified us
that it will not call an advisory committee during this review.
In
July 2010, using the Decentralized Procedure, we submitted a Marketing Authorization Application for
ILUVIEN to the Medicines and Healthcare products Regulatory Agency (MHRA) in the United Kingdom, which serves as the
Reference Member State, and to regulatory authorities in Austria, France, Germany, Italy, Portugal and Spain. In
November 2010, we received the Preliminary Assessment Report from the MHRA followed by additional comments
from the other health authorities in December 2010. In
July 2011, we submitted its draft responses to the
clinical, non-clinical, and quality questions to the MHRA. The submission included the additional safety and efficacy
data through the final readout at the end of the FAME Study. The MHRA
will provide comments to our draft
responses and we anticipate submitting the final response to the MHRA and other health authorities by
December 31, 2011.
If our NDA for ILUVIEN is approved by the FDA, we plan to commercialize ILUVIEN in the U.S. by marketing
and selling it to retinal specialists as early as early 2012. In addition to treating DME,
ILUVIEN is being studied in three Phase 2 clinical trials for the treatment of the dry form
of age-related macular degeneration (AMD), the wet form of AMD and retinal vein occlusion
(RVO).
We intend to seek a collaboration partner for sales and marketing
activities outside North America. We currently contract with development partners or outside
firms for various operational aspects of our development activities, including the
preparation of clinical supplies and have no plans to establish in-house manufacturing
capabilities.
We commenced operations in June 2003. Since our inception we have incurred significant
losses. As of June 30, 2011, we have accumulated a deficit of $198.8 million. We expect to
incur substantial losses through the projected commercialization of ILUVIEN as we:
|
|
|
complete the clinical development and registration of ILUVIEN; |
|
|
|
|
build our sales and marketing capabilities for the anticipated commercial launch of ILUVIEN in early 2012; |
|
|
|
|
add the necessary infrastructure to support our growth; |
|
|
|
|
evaluate the use of ILUVIEN for the treatment of other diseases; and |
|
|
|
|
advance the clinical development of other new product candidates
either currently in our pipeline, or that we may license or acquire in
the future. |
Prior to our initial public offering (IPO), we funded our operations through the
private placement of common stock, preferred stock, warrants and convertible debt, as well
as by the sale of certain assets of the non-prescription business in which we were
previously engaged. On April 21, 2010, our Registration Statement on Form S-1 (as amended)
was declared effective by the Securities and Exchange Commission (SEC) for our IPO,
pursuant to which we sold 6,550,000 shares of our common stock at a public offering price of
$11.00 per share. We received net proceeds of approximately $66.1 million from this
transaction, after deducting underwriting discounts, commissions and other offering costs.
As of June 30, 2011, we had approximately $44.4 million in cash, cash equivalents, and
investments in marketable securities. In addition to our net IPO proceeds, our cash and cash
equivalents include the January 2010 receipt of $10.0 million in proceeds from the exercise
of outstanding Series C-1 warrants, and a $4.0 million option payment from Bausch & Lomb
Incorporated (Bausch & Lomb) upon the exercise by Bausch & Lomb of its option to extend by
two years the period during which it may continue to develop an allergy product acquired
from us in 2006.
16
In October 2010, we obtained a $32.5 million senior secured credit facility (Credit
Facility) to help fund our working capital requirements. The Credit Facility consisted of a
$20.0 million working capital revolver and a $12.5 million term loan. The lenders advanced
$6.25 million under the term loan and the remaining $6.25 million was available for funding
following FDA approval of ILUVIEN, but no later than July 31, 2011.
In May 2011, the lenders and we amended the terms of the Credit Facility to,
among other things, extend the FDA approval deadline for the second
advance under the term loan to December 31, 2011, and to increase
the amount available under the second advance of the term loan from $6.25 million to $11.0 million.
In addition, the maturity date of the Credit Facility was extended
from October 31, 2013 to April 30, 2014.
We may draw on the working capital revolver against eligible,
domestic accounts receivable. As of June 30, 2011, no amounts under
the working capital revolver were available.
We do not expect to generate revenues from our product, ILUVIEN, until early 2012, if at
all, and therefore we do not expect to have positive cash flow from operations before that
time. We believe our cash, cash equivalents, investments in marketable securities and Credit Facility are sufficient
to fund our operations through the projected launch of ILUVIEN and the expected
generation of revenue in early 2012. The commercialization of ILUVIEN is dependent upon
approval by the FDA, however, and we cannot be sure that ILUVIEN will be approved by the FDA
or that, if approved, future sales of ILUVIEN will generate enough revenue to fund our
operations beyond its launch. Due to the uncertainty around FDA approval, our
management cannot be certain that we will not need additional funds for the
launch of ILUVIEN. If ILUVIEN is not approved, or if approved, does not generate
sufficient revenue, we may adjust our commercial plans so that we can continue to operate
with our existing cash resources or seek to raise additional financing.
Our Agreement with pSivida US, Inc.
In February 2005, we entered into an agreement with pSivida US, Inc. (pSivida) for
the use of fluocinolone acetonide (FAc) in pSividas proprietary delivery device. pSivida
is a global drug delivery company committed to the biomedical sector and the development of
drug delivery products. Our agreement with pSivida provides us with a worldwide exclusive
license to develop and sell ILUVIEN, which consists of a tiny polyimide tube with membrane
caps that is filled with FAc in a polyvinyl alcohol matrix for delivery to the back of the
eye for the treatment and prevention of eye diseases in humans (other than uveitis). This
agreement also provided us with a worldwide non-exclusive license to develop and sell
pSividas proprietary delivery device to deliver other corticosteroids to the back of the
eye for the treatment and prevention of eye diseases in humans (other than uveitis) or to
treat DME by delivering a compound to the back of the eye through a direct delivery method
through an incision required for a 25-gauge or larger needle. We do not have the right to
develop and sell pSividas proprietary delivery device for indications for diseases outside
of the eye or for the treatment of uveitis. Further, our agreement with pSivida permits
pSivida to grant to any other party the right to use its intellectual property (i) to treat
DME through an incision smaller than that required for a 25-gauge needle, unless using a
corticosteroid delivered to the back of the eye, (ii) to deliver any compound outside the
back of the eye unless it is to treat DME through an incision required for a 25-gauge or
larger needle, or (iii) to deliver non-corticosteroids to the back of the eye, unless it is
to treat DME through an incision required for a 25-gauge or larger needle.
Under the February 2005 agreement, we and pSivida agreed to collaborate on the
development of ILUVIEN for DME, and share financial responsibility for the development
expenses equally. The February 2005 agreement provided that after
commercialization of ILUVIEN, profits, as defined in the agreement, would be shared equally.
In March 2008, we and pSivida amended and restated the agreement to provide us with 80%
of the net profits and pSivida with 20% of the net profits. Total consideration to pSivida
in connection with the execution of the March 2008 agreement was $33.8 million, which
consisted of a cash payment of $12.0 million, the issuance of a $15.0 million note payable,
and the forgiveness of $6.8 million in outstanding receivables. The $15.0 million promissory
note accrued interest at 8% per annum, payable quarterly and was payable in full to pSivida
upon the earliest of a liquidity event as defined in the agreement, the occurrence of an
event of default under our agreement with pSivida, or September 30, 2012. If the note was
not paid in full by March 31, 2010, the interest rate was to increase to 20% effective as of
April 1, 2010, and we were required to begin making principal payments of $500,000 per
month.
On April 27, 2010, we paid pSivida approximately $15.2 million in principal and
interest to satisfy the note payable with the proceeds from our IPO.
We will owe pSivida an additional milestone payment of $25.0 million upon FDA approval
of ILUVIEN.
17
Our Credit Facility
Term Loan
On October 14, 2010 (Effective Date), we entered into a Loan and Security Agreement
(Term Loan Agreement) with Silicon Valley Bank and MidCap Financial LLP (Lenders).
Pursuant to the original terms of the Term Loan Agreement, we were entitled to borrow up to
$12.5 million, of which $6.25 million (Term Loan A) was advanced to us on the Effective
Date. We were entitled to draw down the remaining $6.25 million under the Term Loan (Term
Loan B and together with Term Loan A, the Term Loan) if the FDA approved our NDA for
ILUVIEN prior to or on July 31, 2011. On May 16, 2011, the
Lenders and we amended the Term Loan Agreement (Term Loan
Modification) to, among other things, extend until
December 31,
2011 the date by which the FDA
must approve the NDA in order for us to draw down Term Loan B and increase the amount of Term Loan B by $4.75 million to $11.0 million. In
addition, the maturity date of the Term Loan was extended from October 31, 2013 to April 30,
2014 (the Term Loan Maturity Date).
We are required to pay interest on Term Loan A at a rate of 11.5% on a monthly basis
through July 31, 2011, and then we are required to repay the principal in 33 equal monthly
installments, beginning August 2011, plus interest at a rate of 11.5%. We are required to
pay interest at a rate of 12.5% on the amount borrowed, if any, under Term Loan B through
April 30, 2012, and thereafter we will be required to repay the principal in equal monthly
installments through the Term Loan Maturity Date, plus interest at a rate of 12.5%.
If we repay Term Loan A prior to maturity, we must pay to the Lenders a
prepayment fee equal to 5.0% of the total amount of principal then outstanding if the
prepayment occurs within one year after the funding date of Term Loan A (Term Loan A
Funding Date), 3.0% of such amount if the prepayment occurs between one year and two
years after the Term Loan A Funding Date and 1.0% of such amount if the prepayment occurs
thereafter (subject to a 50% reduction in the event that the
prepayment occurs in
connection with an acquisition of us). If Term Loan B is advanced to us, then the amount of
the prepayment fee on both Term Loan A and Term Loan B will be reset to 5.0% and the
time-based reduction of the prepayment fee will be measured from the funding date of Term
Loan B (subject to the same 50% reduction in the event of an acquisition of us), rather than
from the Term Loan A Funding Date.
To secure the repayment of any amounts borrowed under the Term Loan Agreement, we
granted to the Lenders a first priority security interest in all of
our assets, including
our intellectual property, however, the lien on our intellectual
property will be released if we meet certain financial conditions.
The occurrence of an event of default could result in the
acceleration of our obligations under the Term Loan Agreement and an
increase to the applicable interest rate, and would permit the
Lenders to exercise remedies with respect to the collateral under
the Term Loan Agreement. We also agreed not to pledge or otherwise encumber our
intellectual property assets. Additionally, we must seek the Lenders approval prior to the
payment of any cash dividends.
On the Effective Date, we issued to the Lenders warrants to purchase an aggregate of up
to 39,773 shares of our common stock. Each of the warrants is exercisable immediately, has a
per-share exercise price of $11.00 and has a term of 10 years. We estimated the fair value of warrants granted using the
Black-Scholes option pricing model. The aggregate fair value of the warrants was estimated
to be $389,000. We allocated a portion of the proceeds from the Term Loan Agreement to the
warrants in accordance with Accounting Standards Codification
(ASC) 470-20-25-2, Debt
Instruments with Detachable Warrants. As a result, we recorded a discount of $366,000 which
is being amortized to interest expense using the effective interest method. The Lenders also hold
warrants to purchase an aggregate of up to 69,999 shares of our common stock, which are exercisable
only if Term Loan B is advanced to us. Each of these warrants has a per share exercise price
of $11.00 and a term of 10 years. We paid to the
Lenders an upfront fee of $62,500 on the Effective Date and an additional fee of $50,000 in
connection with the Term Loan Modification. In accordance with ASC 470-50-40-17,
Debt Modifications and Extinguishments, we are amortizing the unamortized discount on
Term Loan A and the $50,000 modification fee over the remaining term of Term Loan A, as
modified.
18
We
are required to maintain our primary operating and other deposit accounts and
securities accounts with Silicon Valley Bank, which accounts must represent at least 50% of
the dollar value of our accounts at all financial institutions.
Working Capital Revolver
Also on the Effective Date, we entered into a Loan and Security Agreement with Silicon
Valley Bank, pursuant to which we obtained a secured revolving line of credit (Working
Capital Revolver) from Silicon Valley Bank with borrowing
availability up to $20,000,000 (Revolving Loan Agreement).
On May 16, 2011, the Lenders and we amended the Revolving Loan
Agreement to
extend the maturity date of the Working Capital Revolver from October 31, 2013 to April 30, 2014.
The Working Capital Revolver is a working capital-based revolving line of
credit in an aggregate amount of up to the lesser of (i) $20,000,000, or (ii) 85% of
eligible domestic accounts receivable. As of June 30, 2011, no amounts under the Working
Capital Revolver were available to us.
Amounts advanced under the Working Capital Revolver will bear interest at an annual rate
equal to Silicon Valley Banks prime rate plus 2.50% (with a rate floor of 6.50%). Interest
on the Working Capital Revolver will be due monthly, with the balance due at the maturity date.
On the Effective Date, we paid to Silicon Valley Bank an upfront fee of $100,000. In
addition, if we terminate the Working Capital Revolver prior to maturity, we will pay to
Silicon Valley Bank a fee of $400,000 if the termination occurs within one year after the
Effective Date and a fee of $200,000 if the termination occurs more than one year after the
Effective Date (each a Termination Fee), provided in each case that such Termination Fee
will be reduced by 50% in the event we are acquired.
To secure the repayment of any amounts borrowed under the Revolving
Loan Agreement, we
granted to Silicon Valley Bank a first priority security interest in all of our assets,
including our intellectual property, however, the lien on our
intellectual property will be released if we meet certain financial
conditions. The occurrence of an event of default could result in the
acceleration of our obligations under the Revolving Loan Agreement and an increase to the
applicable interest rate, and would permit Silicon Valley Bank to exercise remedies with
respect to the collateral under the Revolving Loan Agreement. We also agreed not to pledge
or otherwise encumber our intellectual property assets. Additionally, we must seek Silicon
Valley Banks approval prior to the payment of any cash dividends.
Our Discontinued Non-Prescription
Business
At the inception of
our company, we were focused primarily on the development and commercialization
of non-prescription over-the-counter ophthalmic products. In October 2006,
due to the progress and resource requirements related to the development of
ILUVIEN, we decided to discontinue our non-prescription business. As a result,
we received proceeds of $10.0 million from the sale of our allergy
products in December 2006 and $6.7 million from the sale of our dry
eye product in July 2007, both to Bausch & Lomb. If one of the allergy
products receives FDA approval, we were entitled to an additional
$8.0 million payment from Bausch & Lomb under the sales agreement. In
January 2010 we received a $4.0 million option payment from Bausch
& Lomb upon the exercise by Bausch & Lomb of its option to extend the
period during which it may continue to develop this allergy product by two
years. However, in July 2011 Bausch & Lomb notified us that it will discontinue
the development of this allergy product and not seek FDA approval. As a result of the
discontinuation of our non-prescription business, all revenues and expenses
associated with our over-the-counter portfolio are included in the loss from
discontinued operations in the accompanying statements of operations.
19
Financial Operations Overview
Revenue
To date we have only generated revenue from our dry eye non-prescription product. From
the launch of that product in September 2004 to its sale in July 2007, we generated $4.4
million in net revenues. We do not expect to generate any significant additional revenue
unless or until we obtain regulatory approval of, and commercialize, our product candidates
or in-license additional products that generate revenue. In addition to generating revenue
from product sales, we intend to seek to generate revenue from other sources such as upfront
fees, milestone payments in connection with collaborative or strategic relationships, and
royalties resulting from the licensing of our product candidates and other intellectual
property. We expect any revenue we generate will fluctuate from quarter to quarter as a
result of the nature, timing and amount of any milestone payments we may receive from
potential collaborative and strategic relationships, as well as revenue we may receive upon
the sale of our products to the extent any are successfully commercialized.
Research and Development Expenses
Substantially all of our research and development expenses incurred to date related to
our continuing operations have been related to the development of ILUVIEN. In the event the
FDA approves our NDA for ILUVIEN, we will owe an additional milestone payment of $25.0
million to pSivida. We anticipate that we will incur additional research and development
expenses in the future as we evaluate and possibly pursue the development of ILUVIEN for
additional indications, or develop additional product candidates. We recognize research and
development expenses as they are incurred. Our research and development expenses consist
primarily of:
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|
salaries and related expenses for personnel; |
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|
|
fees paid to consultants and contract research organizations (CRO)
in conjunction with independently monitoring clinical trials and
acquiring and evaluating data in conjunction with clinical trials,
including all related fees such as investigator grants, patient
screening, lab work and data compilation and statistical analysis; |
|
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|
|
costs incurred with third parties related to the establishment of a
commercially viable manufacturing process for our product candidates; |
|
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|
costs related to production of clinical materials, including fees paid to contract manufacturers; |
|
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|
|
costs related to upfront and milestone payments under in-licensing agreements; |
|
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|
|
costs related to compliance with FDA regulatory requirements; |
|
|
|
|
consulting fees paid to third-parties involved in research and development activities; and |
|
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|
costs related to stock options or other stock-based compensation granted to personnel in development functions. |
We expense both internal and external development costs as they are incurred.
We expect that a large percentage of our research and development expenses in the
future will be incurred in support of our current and future technical, preclinical and
clinical development programs. These expenditures are subject to numerous uncertainties in
terms of both their timing and total cost to completion. We expect to continue to develop
stable formulations of our product candidates, test such formulations in preclinical studies
for toxicology, safety and efficacy and to conduct clinical trials for each product
candidate. We anticipate funding clinical trials ourselves, but we may engage collaboration
partners at certain stages of clinical development. As we obtain results from clinical
trials, we may elect to discontinue or delay clinical trials for certain product candidates
or programs in order to focus our resources on more promising product candidates or
programs. Completion of clinical trials by us or our future collaborators may take several
years or more, the length of time generally varying with the type, complexity, novelty and
intended use of a product candidate. The costs of clinical trials may vary significantly
over the life of a project owing to but not limited to the following:
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the number of sites included in the trials; |
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|
the length of time required to enroll eligible patients; |
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|
|
the number of patients that participate in the trials; |
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|
|
the number of doses that patients receive; |
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|
the drop-out or discontinuation rates of patients; |
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|
|
the duration of patient follow-up; |
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|
the phase of development the product candidate is in; and |
|
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|
|
the efficacy and safety profile of the product candidate. |
20
Our expenses related to clinical trials are based on estimates of the services received
and efforts expended pursuant to contracts with multiple research institutions and contract
research organizations that conduct and manage clinical trials on our behalf. The financial
terms of these agreements are subject to negotiation and vary from contract to contract and
may result in uneven payment flows. Generally, these agreements set forth the scope of work
to be performed at a fixed fee or unit price. Payments under the contracts depend on factors
such as the successful enrollment of patients or the completion of clinical trial
milestones. Expenses related to clinical trials generally are accrued based on contracted
amounts applied to the level of patient enrollment and activity according to the protocol.
If timelines or contracts are modified based upon changes in the clinical trial protocol or
scope of work to be performed, we modify our estimates of accrued expenses accordingly on a
prospective basis.
None of our product candidates has received FDA or foreign regulatory marketing
approval. In order to grant marketing approval, a health authority such as the FDA or
foreign regulatory agencies must conclude that clinical and preclinical data establish the
safety and efficacy of our product candidates with an appropriate benefit to risk profile
relevant to a particular indication, and that the product can be manufactured under current
Good Manufacturing Practice (cGMP) in a reproducible manner to deliver the products
intended performance in terms of its stability, quality, purity and potency. Until our
submissions are reviewed by health authorities, there is no way to predict the outcome of
their review. Even if the clinical studies meet their predetermined primary endpoints, and a
registration dossier is accepted for filing, a health authority could still determine that
an appropriate benefit to risk relationship does not exist for the indication that we are
seeking. We cannot forecast with any degree of certainty which of our product candidates
will be subject to future collaborations or how such arrangements would affect our
development plan or capital requirements. As a result of the uncertainties discussed above,
we are unable to determine the duration and completion costs of our development projects or
when and to what extent we will receive cash inflows from the commercialization and sale of
an approved product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in
executive and administrative functions, including finance, accounting and human resources.
Other significant costs include facilities costs and professional fees for accounting and
legal services, including legal services associated with obtaining and maintaining patents.
We anticipate incurring a significant increase in general and administrative expenses, as we
add additional employees and continue to operate as a public company. These increases will
include increased costs for insurance, costs related to the hiring of additional personnel
and payments to outside consultants, lawyers and accountants. We also expect to continue to
incur significant costs to comply with the corporate governance, internal control and
similar requirements applicable to public companies.
Marketing Expenses
Marketing expenses consist of compensation for employees responsible for assessing the
commercial opportunity of and developing market awareness and launch plans for our product
candidates. Professional fees associated with developing brands for our product candidates
and maintaining public relations. We expect significant increases in our marketing and
selling expenses as we hire additional personnel and establish our sales and marketing
capabilities in anticipation of the commercialization of our product candidates. We intend
to capitalize on our managements past experience and expertise with eye-care products by
marketing and selling ILUVIEN to the approximately 1,600 retinal specialists practicing in
the approximately 900 retina centers across the U.S.
Our plan is to develop our own specialized domestic sales and marketing infrastructure,
comprised of approximately 40 people, to market ILUVIEN and other ophthalmic products that
we may acquire or develop in the future. We hired regional managers with extensive
ophthalmic-based sales experience in the third quarter of 2010 and plan to begin adding
sales representatives in the fourth quarter of 2011. We entered into a relationship with
OnCall LLC, a contract sales force company, that will utilize its employees to act as our
sales representatives if we receive approval of the ILUVIEN NDA from the FDA. We expect that
following FDA approval, the OnCall sales force will be able to access and form relationships
with retinal specialists in approximately 900 retina centers for the commercial launch of
ILUVIEN. In connection with the commercial launch of ILUVIEN, we expect to hire additional
personnel to support the activities of customer service, post-marketing pharmacovigilance,
medical affairs, and regulatory compliance.
Interest and Other Income
Interest income consists primarily of interest earned on our cash, cash equivalents and
investments.
21
Interest Expense
Beginning in March 2008, we began recognizing interest on our $15.0 million note
payable to pSivida at an effective interest rate of 12.64% per annum (this note accrued
interest at the rate of 8% per annum from inception through March 31, 2010 and at the rate
of 20% per annum effective as of April 1, 2010). On April 27, 2010, we paid pSivida
approximately $15.2 million in principal and interest to satisfy the note payable. In
October 2010, we received the initial advance of
$6.25 million under our Term Loan from Silicon
Valley Bank and MidCap Financial LLP and began recognizing interest at an effective interest
rate of 13.0% per annum (interest on this term loan is payable monthly at the rate of 11.5%
per annum and included a termination payment of 3.0% of the amount advanced). On May 16,
2011, the Lenders and we amended the Term Loan Agreement to, among other things, extend
until December 31, 2011 the date by which the FDA must approve the
NDA in order for us to receive the second advance under the Term Loan
and to increase the amount of the second advance by $4.75 million to
$11.0 million. In addition, the maturity date of the Term Loan was
extended from October 31, 2013 until April 30, 2014. In connection with the modification of our Term Loan,
the termination payment was increased from 3.0% to 4.0% of the amount advanced and the
effective interest rate on the initial advance increased to 13.4%.
Change in Fair Value of Preferred Stock Conversion Feature
Prior to being converted into common stock in connection with our IPO, our preferred
stock contained certain conversion features which were considered embedded derivatives. We
accounted for such embedded derivative financial instruments in
accordance with ASC 815. We recorded derivative financial instruments as assets or
liabilities in our balance sheet measured at their fair value. We recorded the changes in
fair value of such instruments as non-cash gains or losses in the statement of operations.
The preferred stock conversion feature was eliminated upon the conversion of our preferred
stock to common stock in connection with our IPO in April 2010.
Preferred Stock Accretion
Prior to our IPO, our preferred stock was recorded at issuance at the proceeds received
net of any issuance discounts, issuance costs and the fair value of the conversion features
at issuance. The difference between the amount recorded at issuance and the original issue
price was accreted on a straight-line basis over a period extending from the date of
issuance to the date at which the preferred stock would have become redeemable at the option
of the holder. Accretion of the difference ceased upon the conversion of our preferred stock
to common stock in connection with our IPO in April 2010.
Preferred Stock Dividends
Prior to our IPO, our preferred stock accrued dividends at 8% per annum which were
recorded as an increase in the carrying amount of the respective preferred stock. At the
time our preferred stock was converted into common stock in connection with our IPO, $1.5
million of dividends accrued on our Series A preferred stock prior to November 17, 2005 were
converted into 380,301 shares of our common stock. All other preferred stock dividends were
eliminated upon conversion of the underlying preferred stock in April 2010.
Basic and Diluted Net (Loss) Income Applicable to Common Stockholders per Common Share
We calculated net loss per share in accordance with ASC 260. We have determined that
our previously outstanding Series A, Series B, Series C and Series C-1 preferred stock
represent participating securities in accordance with ASC 260. However, since we operate at
a loss, and losses are not allocated to the preferred stock, the two class method does not
affect our calculation of earnings per share. We had a net loss from continuing operations
for all periods presented; accordingly, the inclusion of common stock options and warrants
would be anti-dilutive. Dilutive common stock equivalents would include the dilutive effect
of convertible securities, common stock options, warrants for convertible securities and
warrants for common stock equivalents. Potentially dilutive weighted average common stock
equivalents totaled approximately 1,629,055 and 16,593,226 for the six months ended June 30,
2011 and 2010, respectively, and 1,568,623 and 8,614,539 for the three months ended June 30,
2011 and 2010, respectively. Potentially dilutive common stock equivalents were excluded
from the diluted earnings per share denominator for all periods of net loss from continuing
operations because of their anti-dilutive effect. Therefore, for the six months ended June
30, 2011 and 2010, respectively, the weighted average shares used to calculate both basic
and diluted loss per share are the same.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are
based on our financial statements which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and
judgments, including those described below. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual
results and experiences may differ materially from these estimates. We believe that the
following accounting policies are the most critical to aid you in fully understanding and
evaluating our reported financial results and affect the more significant judgments and
estimates that we use in the preparation of our financial statements.
22
Clinical Trial Prepaid and Accrued Expenses
We record prepaid assets and accrued liabilities related to clinical trials associated
with contract research organizations, clinical trial investigators and other vendors based
upon amounts paid and the estimated amount of work completed on each clinical trial. The
financial terms of agreements vary from vendor to vendor and may result in uneven payment
flows. As such, if we have advanced funds exceeding our estimate of the work completed, we
record a prepaid asset. If our estimate of the work completed exceeds the amount paid, an
accrued liability is recorded. All such costs are charged to research and development
expenses based on these estimates. Our estimates may or may not match the actual services
performed by the organizations as determined by patient enrollment levels and related
activities. We monitor patient enrollment levels and related activities to the extent
possible through internal reviews, correspondence and discussions with our contract research
organization and review of contractual terms. However, if we have incomplete or inaccurate
information, we may underestimate or overestimate activity levels associated with various
clinical trials at a given point in time. In this event, we could record significant
research and development expenses in future periods when the actual level of activities
becomes known. To date, we have not experienced material changes in these estimates.
Additionally, we do not expect material adjustments to research and development expenses to
result from changes in the nature and level of clinical trial activity and related expenses
that are currently subject to estimation. In the future, as we expand our clinical trial
activities, we expect to have increased levels of research and development costs that will
be subject to estimation.
Research and Development Costs
Research and development expenditures are expensed as incurred, pursuant to ASC 730.
Costs to license technology to be used in our research and development that have not reached
technological feasibility, defined as FDA approval for our current product candidates, and
have no alternative future use are expensed when incurred. Payments to licensors that relate
to the achievement of preapproval development milestones are recorded as research and
development expense when incurred.
Stock-Based Compensation
Effective January 1, 2005, we adopted the fair value recognition provisions of ASC 718
using the modified prospective application method. We recognize the grant date fair value as
compensation cost of employee stock-based awards using the straight-line method over the
actual vesting period, adjusted for our estimates of forfeiture. Typically, we grant stock
options with a requisite service period of four years from the grant date. We have elected
to use the Black-Scholes option pricing model to determine the fair value of stock-based
awards.
We concluded that this was the most appropriate method by which to value our
share-based payment arrangements, but if any share-based payment instruments should be
granted for which the Black-Scholes method does not meet the measurement objective as stated
within ASC 718, we will utilize a more appropriate method for valuing that instrument.
However, we do not believe that any instruments granted to date and accounted for under ASC
718 would require a method other than the Black-Scholes method.
Our determination of the fair market value of share-based payment awards on the grant
date using option valuation models requires the input of highly subjective assumptions,
including the expected price volatility and option life. For the calculation of expected
volatility, because we lack significant company-specific historical and implied volatility
information, we estimate our volatility by utilizing an average of volatilities of publicly
traded companies, including our own, deemed similar to us in terms of product composition,
stage of lifecycle, capitalization and scope of operations. We intend to continue to
consistently apply this process using this same index until a sufficient amount of
historical information regarding the volatility of our own share price becomes available.
To estimate the expected term, we utilize the simplified method for plain vanilla
options as discussed within the Securities and Exchange Commissions (SEC) Statement of
Accounting Bulletin (SAB) 107. We believe that all factors listed within SAB 107 as
pre-requisites for utilizing the simplified method are true for us and for our share-based
payment arrangements. We intend to utilize the simplified method for the foreseeable future
until more detailed information about exercise behavior will be more widely available.
Total stock-based compensation expense related to all our stock option awards for the
three and six months ended June 30, 2011 and 2010, respectively, was comprised of the
following:
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
$ |
71 |
|
|
$ |
11 |
|
|
$ |
168 |
|
|
$ |
22 |
|
Research and development |
|
|
85 |
|
|
|
42 |
|
|
|
187 |
|
|
|
80 |
|
General and administrative |
|
|
428 |
|
|
|
98 |
|
|
|
644 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee stock-based compensation expense |
|
$ |
584 |
|
|
$ |
151 |
|
|
$ |
999 |
|
|
$ |
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of its assets and liabilities in accordance with
ASC 740. We evaluate the positive and negative evidence bearing upon the realizability of
our deferred tax assets on an annual basis. Significant management judgment is involved in
determining the provision for income taxes, deferred tax assets and liabilities, and any
valuation allowance recorded against net deferred tax assets. Due to uncertainties with
respect to the realization of our deferred tax assets due to our history of operating
losses, a valuation allowance has been established against our deferred tax asset balances
to reduce the net carrying value to an amount that is more likely than not to be realized.
As a result we have fully reserved against the deferred tax asset balances. The valuation
allowances are based on our estimates of taxable income in the jurisdictions in which we
operate and the period over which deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these estimates in future periods, a
change in the valuation allowance may be needed, which could materially impact our financial
position and results of operations. Our deferred tax assets primarily consist of net
operating loss (NOL) carry-forwards. At June 30, 2011 we had federal NOL carry-forwards of
approximately $106.6 million and state NOL carry-forwards of approximately $89.8 million,
respectively, that are available to reduce future income otherwise taxable. If not utilized,
the federal NOL carry-forwards will expire at various dates between 2023 and 2030 and the
state NOL carry-forwards will expire at various dates between 2020 and 2030. If it is
determined that significant ownership changes have occurred since these NOLs were generated,
we may be subject to annual limitations on the use of these NOLs under Internal Revenue Code
Section 382 (or comparable provisions of state law). We have not yet completed a formal
evaluation of whether our IPO resulted in certain changes in ownership that would limit our
ability to utilize a portion of our NOL carry-forwards.
In the event that we were to determine that we are able to realize any of our net
deferred tax assets in the future, an adjustment to the valuation allowance would increase
net income in the period such determination was made. We believe that the most significant
uncertainty that will impact the determination of our valuation allowance will be our
estimation of the extent and timing of future net income, if any.
We considered our income tax positions for uncertainty in accordance with ASC 740. We
believe our income tax filing positions and deductions are more likely than not of being
sustained on audit and do not anticipate any adjustments that will result in a material
change to our financial position; therefore, we have not recorded ASC 740 liabilities. We
recognize accrued interest and penalties related to unrecognized tax benefits as interest
expense and income tax expense, respectively, in our statements of operations. Our tax years
since 2003 remain subject to examination in Georgia, Tennessee, and on the federal level. We
do not anticipate any material changes to our uncertain tax positions within the next 12
months.
24
Results of Operations
The following selected unaudited financial and operating data are derived from our
financial statements and should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and our financial statements.
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|
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|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT EXPENSES |
|
$ |
1,751 |
|
|
$ |
4,140 |
|
|
$ |
3,508 |
|
|
$ |
7,205 |
|
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
1,866 |
|
|
|
1,174 |
|
|
|
3,406 |
|
|
|
2,078 |
|
MARKETING EXPENSES |
|
|
1,309 |
|
|
|
379 |
|
|
|
2,426 |
|
|
|
626 |
|
TOTAL OPERATING EXPENSES |
|
|
4,926 |
|
|
|
5,693 |
|
|
|
9,340 |
|
|
|
9,909 |
|
INTEREST INCOME |
|
|
2 |
|
|
|
14 |
|
|
|
14 |
|
|
|
16 |
|
INTEREST EXPENSE |
|
|
(284 |
) |
|
|
(144 |
) |
|
|
(579 |
) |
|
|
(618 |
) |
GAIN ON EARLY EXTINGUISHMENT OF DEBT |
|
|
|
|
|
|
1,343 |
|
|
|
|
|
|
|
1,343 |
|
DECREASE (INCREASE) IN FAIR VALUE OF DERIVATIVE |
|
|
|
|
|
|
379 |
|
|
|
|
|
|
|
3,644 |
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(5,208 |
) |
|
|
(4,101 |
) |
|
|
(9,905 |
) |
|
|
(5,524 |
) |
Three months ended June 30, 2011 compared to the three months ended June 30, 2010
Research and development expenses. Research and development expenses decreased by
approximately $2.3 million, or 56.1%, to approximately $1.8 million for the three months
ended June 30, 2011 compared to approximately $4.1 million for the three months ended June
30, 2010. The decrease was primarily attributable to decreases of approximately $1.6 million
in costs to file our NDA in the United States with the FDA in May of 2010 and $1.2 million
in costs associated with our FAME Study, offset by increases of approximately $280,000 in
costs for consultants engaged to assist with preparing for future FDA meetings and $220,000
in costs associated with contracting with medical science liaisons to engage with retina
specialists in the study of ILUVIEN. The decrease in costs for our FAME Study was primarily
due to decreases of $520,000 for our CROs, $290,000 for clinical trial site costs, and
$120,000 for our third party reading center for the analysis of retinal images as the FAME
Study was completed in 2010.
General and administrative expenses. General and administrative expenses increased by
approximately $700,000, or 58.3%, to approximately $1.9 million for the three months ended
June 30, 2011 compared to approximately $1.2 million for the three months ended June 30,
2010. The increase was primarily attributable to increases of approximately $330,000 in
stock compensation expense and $290,000 in costs incurred after our IPO in April 2010
associated with operating as a public company including additional audit, tax and legal
fees, increased directors and officers insurance costs, and board of directors
compensation.
Marketing expenses. Marketing expenses increased by approximately $900,000, or 225.0%,
to approximately $1.3 million for the three months ended June 30, 2011 compared to
approximately $400,000 for the three months ended June 30, 2010. This increase was primarily
attributable to increases of approximately $530,000 in compensation costs related to the
hiring of additional personnel in the second half of 2010 in advance of the launch of
ILUVIEN previously anticipated to occur in the first half of 2011, $300,000 in costs related
to our advertising agencys development of a detailed advertising and promotional plan for
the commercial launch of ILUVIEN, and $140,000 in additional medical marketing activity as
we expand our presence at key industry events and prepare for entry into the European
market.
Interest expense. Interest expense increased by approximately $140,000, or 100.0%, to
approximately $280,000 for the three months ended June 30, 2011 compared to approximately
$140,000 for the three months ended June 30, 2010. Interest expense for the three months
ended June 30, 2011 was incurred in connection with our Credit Facility with Silicon Valley
Bank and MidCap Financial LLP, secured in the fourth quarter of 2010. Interest expense for
the three months ended June 30, 2010 was incurred in connection with our $15.0 million
dollar promissory note payable to pSivida, which was repaid in April 2010.
Decrease in fair value of preferred stock conversion feature. For the three months
ended June 30, 2010, we recognized a gain of approximately $380,000 related to the decrease
of the fair value of the conversion feature of our preferred stock. The conversion feature
of our preferred stock was eliminated in connection with our IPO in April 2010.
Income from discontinued operations
We did not have any income or
loss from discontinued operations for either the three
months ended June 30, 2011 or the three months ended June 30, 2010.
25
Six months ended
June 30, 2011 compared to the six months ended June 30, 2010
Research and development expenses. Research and development expenses decreased by
approximately $3.7 million, or 51.4%, to approximately $3.5 million for the six months ended
June 30, 2011 compared to approximately $7.2 million for the six months ended June 30, 2010.
The decrease was primarily attributable to decreases of approximately $2.6 million in
costs associated with our FAME Study, $1.5 million in costs to file our NDA in the United
States with the FDA in June of 2010 and $370,000 in costs for the preparation of retinal images
for our NDA, offset by an increase of approximately $440,000 in costs associated with
contracting with medical science liaisons to engage with retina specialists in the study of
ILUVIEN. The decrease in costs for our FAME Study was primarily due to decreases of $980,000
for our CROs, $810,000 for clinical trial site costs, and $260,000 for our third party
reading center for the analysis of retinal images as the FAME Study was completed in 2010.
General and administrative expenses. General and administrative expenses increased by
approximately $1.3 million, or 61.9%, to approximately $3.4 million for the six months ended
June 30, 2011 compared to approximately $2.1 for the six months ended June 30, 2010. The
increase was primarily attributable to increases of approximately $490,000 in costs incurred
after our IPO in April 2010 associated with operating as a public company including
additional audit, tax and legal fees, increased directors and officers insurance costs,
and board of directors compensation, $490,000 in stock compensation expense, and $160,000
in personnel costs.
Marketing expenses. Marketing expenses increased by
approximately $1.8 million, or
300.0%, to approximately $2.4 million for the six months ended June 30, 2011 compared to
approximately $600,000 for the six months ended June 30, 2010. The increase was primarily
attributable to increases of approximately $1.0 million in compensation costs related to the
hiring of additional key personnel in the second half of 2010 in advance of the launch of
ILUVIEN previously anticipated to occur in the first half of 2011, $580,000 in costs related
to our advertising agencys development of a detailed advertising and promotional plan for
the commercial launch of ILUVIEN, and $170,000 in costs associated with medical marketing
activity as we expand our presence at key industry events.
Interest expense. Interest expense decreased by approximately $40,000, or 6.9%, to
approximately $580,000 for the six months ended June 30, 2011 compared to approximately
$620,000 for the six months ended June 30, 2010. Interest expense for the six months ended
June 30, 2011 was incurred in connection with our Credit Facility with Silicon Valley Bank
and MidCap Financial LLP, secured in the fourth quarter of 2010. Interest expense for the
six months ended June 30, 2010 was incurred in connection with our $15.0 million dollar
promissory note payable to pSivida, which was repaid in April 2010.
Decrease in fair value of preferred stock conversion feature. For the six months ended
June 30, 2010, we recognized a gain of approximately $3.6 million related to the decrease of
the fair value of the conversion feature of our preferred stock. The conversion feature of
our preferred stock was eliminated in connection with our IPO in April 2010.
Income from discontinued operations
We recognized income from discontinued operations during the six months ended June 30,
2010 of $4.0 million for a payment we received from Bausch & Lomb. This payment was related
to the exercise by Bausch & Lomb of its option to extend by two years the period during
which it may continue to develop an allergy product acquired from us in 2006. We did not
have any income or loss from discontinued operations for the six months ended June 30, 2011.
Liquidity and Capital Resources
To date we have incurred recurring losses, negative cash flow from operations, and have
accumulated a deficit of $198.8 million from our inception through June 30, 2011. Prior to
our IPO in April 2010, we funded our operations through the private placement of common
stock, preferred stock, preferred stock warrants and convertible debt, as well as by the
sale of certain assets of the non-prescription business in which we were previously engaged.
26
On April 21, 2010, our Registration Statement on Form S-1 (as amended) was declared
effective by the SEC for our IPO, pursuant to which we sold 6,550,000 shares of our common
stock at a public offering price of $11.00 per share. We received net proceeds of
approximately $68.4 million from this transaction, after deducting underwriting discounts
and commissions. In October 2010, we obtained a $32.5 million senior secured credit facility
to help fund our working capital requirements. The Credit Facility consisted of a $20.0
million Working Capital Revolver and a $12.5 million Term Loan. The Lenders advanced $6.25
million under the Term Loan and the remaining $6.25 million was available for funding
following FDA approval of ILUVIEN, but no later than July 31, 2011.
On May 16, 2011, we and the Lenders amended the terms of the
Credit Facility to among other things, extend the FDA
approval deadline for the second advance under the Term Loan
to December
31, 2011, and to increase the amount available under the second
advance by $4.75 million to $11.0 million.
In addition, the maturity date of the Term Loan was extended from
October 31, 2013 to April 30, 2014. We may draw on the Working Capital Revolver against
eligible, domestic accounts receivable, but as of June 30, 2011, no
amounts under the Working Capital Revolver were available to us. As of June
30, 2011, we had approximately $44.4 million in cash, cash
equivalents and investments in marketable securities. We
believe that we have sufficient funds available to fund our operations through the projected
launch of ILUVIEN and the expected generation of revenue in early 2012. The
commercialization of ILUVIEN is dependent upon approval by the FDA, however, and we cannot
be sure that ILUVIEN will be approved by the FDA or that, if approved, future sales of
ILUVIEN will generate enough revenue to fund the Companys operations beyond its
launch. Due to the uncertainty around FDA approval, management cannot be certain
that we will not need additional funds for the launch of ILUVIEN. If ILUVIEN is
not approved, or if approved, does not generate sufficient revenue, we may adjust our
commercial plans so that we can continue to operate with our existing cash resources or seek
to raise additional financing.
In the event additional financing is needed or desired, we may seek to fund our
operations through the sale of equity securities, strategic collaboration agreements and
debt financing. We cannot be sure that additional financing from any of these sources will
be available when needed or that, if available, the additional financing will be obtained on
terms favorable to us or our stockholders especially in light of the current difficult
financial environment. If we raise additional funds by issuing equity securities,
substantial dilution to existing stockholders would likely result and the terms of any new
equity securities may have a preference over our common stock. If we attempt to raise
additional funds through strategic collaboration agreements and debt financing, we may not
be successful in obtaining collaboration agreements, or in receiving milestone or royalty
payments under those agreements, or the terms of the debt may involve significant cash
payment obligations as well as covenants and specific financial ratios that may restrict our
ability to commercialize our product candidates or operate our business.
As of June 30, 2011, we had $44.4 million in cash, cash equivalents and investments in marketable securities. We have invested a substantial portion of our available cash
in money market funds placed with a reputable financial institution for which credit loss is
not anticipated. We have established guidelines relating to diversification and maturities
of our investments to preserve principal and maintain liquidity.
For the six months ended June 30, 2011, cash used in our continuing operations of $10.6
million was primarily due to our net loss from continuing operations of $9.9 million offset
by non-cash stock-based compensation and other expense of $1.3 million. Further increasing
our cash used in continuing operations was a decrease in accounts payable, accrued expenses
and other current liabilities of $2.1 million, offset by a net decrease in prepaid expenses
and other current assets of $130,000. The change in accounts payable, accrued expenses and
other current liabilities was primarily due to decreases of approximately $1.4 million in
amounts due to our clinical sites for the FAME trial and $500,000 in amounts due to our CROs.
27
For the six months ended June 30, 2010, cash used in our continuing operations of $10.8
million was primarily due to our net loss from continuing operations of $5.5 million
increased by non-cash gains of $3.6 million related to the decrease in fair value of our
preferred stock conversion feature and $1.3 million associated with the repayment of our
$15.0 million promissory note to pSivda in April 2010, offset by non-cash charges for stock
compensation expense of $380,000 and depreciation and amortization expense of $100,000.
Further increasing our net cash used in continuing operations were an increase in prepaid
and other current assets of $600,000 and a decrease in accounts payable and accrued expenses
and other current liabilities of $160,000. The increase in prepaid and other current assets
was primarily due to the prepayment of $330,000 of fees to register ILUVIEN in Europe, the
payment of $230,000 for annual directors and officers insurance premiums and an advance of
$100,000 made to the third party manufacturer of ILUVIEN to prepare
for the commercial launch of ILUVIEN. The decrease in accounts payable and accrued expenses and other current liabilities was
primarily due to a decrease of $1.0 million payable to the investigators in our FAME Study
offset by increases of $140,000 payable to consultants for services associated with the
filing of our NDA in the United States for ILUVIEN and registration of ILUVIEN in Europe,
$120,000 of accrued employee bonuses, $110,000 payable to the third party manufacturer of
ILUVIEN to prepare for the commercial launch of ILUVIEN, $80,000 payable to our CROs as our FAME Study
continued, and $80,000 of accrued legal fees.
For
the six months ended June 30, 2011, net cash provided by our investing activities
was $25.7 million, which was primarily due to the maturities of investments. For the six
months ended June 30, 2010, net cash used in our investing activities was $10.6 million,
which was primarily due to the purchase of $14.6 million of
investments, offset by the
receipt of $4.0 million from Bausch & Lomb upon the exercise by Bausch & Lomb of its option
to extend by two years the period during which it may continue to develop an allergy product
acquired from us in 2006.
For
the six months ended June 30, 2011, cash provided by financing activities was
$250,000, which was primarily due to proceeds from the exercises of stock options and stock
purchases made by employees through our employee stock purchase plan. For the six months
ended June 30, 2010 net cash provided by our financing activities was $62.2 million, which
was due primarily to the receipt of net proceeds of $68.4 million, after underwriting
discounts and commissions, from our IPO, net proceeds of $10.0 million from the exercise of
warrants to purchase shares of our Series C-1 preferred stock, and $460,000 from the
exercise of options and warrants to purchase shares of our stock, offset by the payment of
$1.7 million of costs related to our IPO and by the repayment of our $15.0 million
promissory note to pSivida.
Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and
commitments outside the ordinary course of business from those disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 25,
2011.
Our Credit Facility
Term Loan
On October 14, 2010 (Effective Date), we entered into a Loan and Security Agreement
(Term Loan Agreement) with Silicon Valley Bank and MidCap Financial LLP (Lenders).
Pursuant to the original terms of the Term Loan Agreement, we were entitled to borrow up to
$12.5 million, of which $6.25 million (Term Loan A) was advanced to us on the Effective
Date. We were entitled to draw down the remaining $6.25 million under the Term Loan (Term
Loan B and together with Term Loan A, the Term Loan) if the FDA approved our NDA for
ILUVIEN prior to or on July 31, 2011. On May 16, 2011, the
Lenders and we amended the Term Loan Agreement (Term Loan
Modification) to, among other things, extend until
December 31, 2011 the date by which the FDA
must approve the NDA in order for us to draw down Term Loan B and increase
the amount of Term Loan B by $4.75 million to $11.0 million. In
addition, the maturity date of the Term Loan was extended from October 31, 2013 to April 30,
2014 (the Term Loan Maturity Date).
We are required to pay interest on Term Loan A at a rate of 11.5% on a monthly basis
through July 31, 2011, and then we are required to repay the principal in 33 equal monthly
installments, beginning August 2011, plus interest at a rate of 11.5%. We are required to
pay interest at a rate of 12.5% on the amount borrowed, if any, under Term Loan B through
April 30, 2012, and thereafter we will be required to repay the principal in equal monthly
installments through the Term Loan Maturity Date, plus interest at a rate of 12.5%.
28
If we repay Term Loan A prior to maturity, we must pay to the Lenders a
prepayment fee equal to 5.0% of the total amount of principal then outstanding if the
prepayment occurs within one year after the funding date of Term Loan A (Term Loan A
Funding Date), 3.0% of such amount if the prepayment occurs between one year and two
years after the Term Loan A Funding Date and 1.0% of such amount if the prepayment occurs
thereafter (subject to a 50% reduction in the event that the
prepayment occurs in
connection with an acquisition of us). If Term Loan B is advanced to us, then the amount of
the prepayment fee on both Term Loan A and Term Loan B will be reset to 5.0% and the
time-based reduction of the prepayment fee will be measured from the funding date of Term
Loan B (subject to the same 50% reduction in the event of an acquisition of us), rather than
from the Term Loan A Funding Date.
To secure the repayment of any amounts borrowed under the Term Loan Agreement, we
granted to the Lenders a first priority security interest in all of
our assets, including
our intellectual property, however, the lien on our intellectual
property will be released if we meet certain financial conditions.
The occurrence of an event of default could result in the
acceleration of our obligations under the Term Loan Agreement and an
increase to the applicable interest rate, and would permit the
Lenders to exercise remedies with respect to the collateral under
the Term Loan Agreement. We also agreed not to pledge or otherwise encumber our
intellectual property assets. Additionally, we must seek the Lenders approval prior to the
payment of any cash dividends.
On the Effective Date, we issued to the Lenders warrants to purchase an aggregate of up
to 39,773 shares of our common stock. Each of the warrants is exercisable immediately, has a
per-share exercise price of $11.00 and has a term of 10 years. We estimated the fair value of warrants granted using the
Black-Scholes option pricing model. The aggregate fair value of the warrants was estimated
to be $389,000. We allocated a portion of the proceeds from the Term Loan Agreement to the
warrants in accordance with ASC 470-20-25-2, Debt
Instruments with Detachable Warrants. As a result, we recorded a discount of $366,000 which
is being amortized to interest expense using the effective interest method. The Lenders also hold warrants to purchase an aggregate of up to 69,999 shares of our common stock. Each of these warrants is exercisable only if Term Loan B is advanced to us, has a per share exercise price of $11.00 and has a term of 10 years. In addition, the Lenders will have certain registration rights with respect to
the shares of common stock issuable upon exercise of all of their
warrants. We paid to the
Lenders an upfront fee of $62,500 on the Effective Date and an additional fee of $50,000 in
connection with the Term Loan Modification. In accordance with ASC 470-50-40-17,
Debt Modifications and Extinguishments, we are amortizing the unamortized discount on
Term Loan A and the $50,000 modification fee over the remaining term of Term Loan A, as
modified.
We are required to maintain its primary operating and other deposit accounts and
securities accounts with Silicon Valley Bank, which accounts must represent at least 50% of
the dollar value of our accounts at all financial institutions.
Working Capital Revolver
Also on the Effective Date, we entered into a Loan and Security Agreement with Silicon
Valley Bank, pursuant to which we obtained a secured revolving line of credit (Working
Capital Revolver) from Silicon Valley Bank with borrowing
availability up to $20,000,000 (the Revolving Loan Agreement).
On May 16, 2011, the Lenders and we amended the Revolving Loan
Agreement to
extend the maturity date of the Working Capital Revolver from October 31, 2013 to April 30, 2014.
The Working Capital Revolver is a working capital-based revolving line of
credit in an aggregate amount of up to the lesser of (i) $20,000,000, or (ii) 85% of
eligible domestic accounts receivable. As of June 30, 2011, no amounts under the Working
Capital Revolver were available to us.
Amounts advanced under the Working Capital Revolver will bear interest at an annual rate
equal to Silicon Valley Banks prime rate plus 2.50% (with a rate floor of 6.50%). Interest
on the Working Capital Revolver will be due monthly, with the balance due at the maturity date.
On the Effective Date, we paid to Silicon Valley Bank an upfront fee of $100,000. In
addition, if we terminate the Working Capital Revolver prior to maturity, we will pay to
Silicon Valley Bank a fee of $400,000 if the termination occurs within one year after the
Effective Date and a fee of $200,000 if the termination occurs more than one year after the
Effective Date (each a Termination Fee), provided in each case that such Termination Fee
will be reduced by 50% in the event we are acquired.
29
To secure the repayment of any amounts borrowed under the Revolving
Loan Agreement, we
granted to Silicon Valley Bank a first priority security interest in all of our assets,
including our intellectual property, however, the lien on our
intellectual property will be released if we meet certain financial
conditions. The occurrence of an event of default could result in the
acceleration of our obligations under the Revolving Loan Agreement and an increase to the
applicable interest rate, and would permit Silicon Valley Bank to exercise remedies with
respect to the collateral under the Revolving Loan Agreement. We also agreed not to pledge
or otherwise encumber our intellectual property assets. Additionally, we must seek Silicon
Valley Banks approval prior to the payment of any cash dividends.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose
entities, that would have been established for the purpose of facilitating off-balance sheet
arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other
contractually narrow or limited purposes. As such, we are not exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in those types of
relationships. We enter into guarantees in the ordinary course of business related to the
guarantee of our own performance.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board, or FASB, or other standard setting bodies that are adopted by us as of the
specified effective date. Unless otherwise discussed, we believe that the impact of recently
issued standards that are not yet effective will not have a material impact on our financial
position or results of operations upon adoption.
30
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ITEM 3 |
|
Qualitative and Quantitative Disclosures about Market Risk |
We are exposed to market risk related to changes in interest rates. As of June 30,
2011, we had approximately $44.4 million in cash, cash
equivalents and investments in marketable securities. Our
primary exposure to market risk is interest income sensitivity, which is affected by changes
in the general level of U.S. interest rates, particularly because our investments are in
short-term securities. Due to the short-term duration of our investment portfolio and the
low risk profile of our investments, an immediate 10% change in interest rates would not
have a material effect on the fair market value of our portfolio. Accordingly, we would not
expect our operating results or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on our securities portfolio.
We contract for the conduct of some of our clinical trials and other research and
development activities with contract research organizations and investigational sites in the
U.S., Europe and India. We may be exposed to fluctuations in foreign exchange
rates in connection with these agreements. We do not hedge our foreign currency exposures.
We have not used derivative financial instruments for speculation or trading purposes.
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ITEM 4 |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic reports filed with the SEC is recorded,
processed and summarized and reported within the time periods specified in the rules and
forms of the SEC and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and no evaluation of
controls and procedures can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Our management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Under the
supervision and with the participation of the our management, including the Chief Executive
Officer and Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of June 30, 2011. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective as of June 30, 2011, the end of the period covered by this
Quarterly Report on Form 10-Q, to ensure that the information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30,
2011 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
31
PART II. OTHER INFORMATION
In our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed
with the SEC on March 25, 2011, we identify under Item 1A important factors which could
affect our business, financial condition, results of operations and future operations and
could cause our actual results for future periods to differ materially from our anticipated
results or other expectations, including those expressed in any forward-looking statements
made in this Form 10-Q. There have been no material changes in our risk factors subsequent
to the filing of our Form 10-K for the fiscal year ended December 31, 2010. However, the
risks described in our Form 10-K are not the only risks we face. Additional risks and
uncertainties that we currently deem to be immaterial or not currently known to us, as well
as other risks reported from time to time in our reports to the SEC, also could cause our
actual results to differ materially from our anticipated results or other expectations.
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ITEM 2 |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
On April 21, 2010, our Registration Statement on Form S-1 (File No. 333-162782) was
declared effective by the SEC for our IPO, pursuant to which we sold 6,550,000 shares of our
common stock at a public offering price of $11.00 per share. We received net proceeds of
approximately $66.1 million from this transaction, after deducting underwriting discounts,
commissions and other offering costs. On April 27, 2010 we paid $15.2 million to pSivida to
satisfy our $15.0 million note payable and accrued but unpaid interest thereon.
There have been no material changes in our use or planned use of proceeds from the IPO
from that described in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2010, filed with the SEC on June 7, 2010.
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Exhibit |
|
|
Number |
|
Description |
|
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|
|
|
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4.1 |
|
|
Warrant to Purchase Stock dated May 16, 2011 issued to Midcap Funding III,
LLC (filed as Exhibit 4.1 to Current Report on Form 8-K (File No. 001-34703) as filed
on May 17, 2011 and incorporated herein by reference).
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4.2 |
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Warrant to Purchase Stock dated May 16, 2011 issued to Silicon Valley Bank
(filed as Exhibit 4.2 to Current Report on Form 8-K (File No. 001-34703) as filed on
May 17, 2011 and incorporated herein by reference).
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10.1 |
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First Loan Modification Agreement (Term Loan) dated May 16, 2011 between Alimera Sciences, Inc.,
Midcap Funding III, LLC and Silicon Valley Bank (filed as Exhibit 10.1 to Current Report on Form 8-K
(File No. 001-34703) as filed on May 17, 2011 and incorporated herein
by reference).
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10.2 |
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First Loan Modification Agreement (Working Capital Line of Credit)
dated May 16, 2011 between Alimera Sciences, Inc. and Silicon Valley Bank (filed as
Exhibit 10.2 to Current Report on Form 8-K (File No. 001-34703) as filed on May 17, 2011 and
incorporated herein by reference).
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*10.3 |
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Amendment to Manufacturing Agreement dated April 29, 2011 between Alimera Sciences, Inc.
and Alliance Medical Products, Inc.
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31.1 |
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Certification of the Principal Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of the Principal Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification of the Chief Executive Officer and Chief
Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
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* |
|
Application has been made to the Securities and Exchange Commission
to seek confidential treatment of certain provisions of this exhibit. |
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on
Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Quarterly Report on Form 10-Q, irrespective of any general
incorporation language contained in such filing.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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Alimera Sciences, Inc.
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/s/ C. Daniel Myers
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C. Daniel Myers |
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Chief Executive Officer and President
(Principal executive officer) |
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August 5, 2011 |
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/s/ Richard S. Eiswirth, Jr.
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Richard S. Eiswirth, Jr. |
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Chief Operating Officer and Chief Financial Officer
(Principal financial and accounting officer) |
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August 5, 2011
33
ALIMERA SCIENCES, INC.
EXHIBIT INDEX
|
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|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
4.1 |
|
|
Warrant to Purchase Stock dated May 16, 2011 issued to Midcap Funding III,
LLC (filed as Exhibit 4.1 to Current Report on Form 8-K (File No. 001-34703) as filed
on May 17, 2011 and incorporated herein by reference).
|
|
4.2 |
|
|
Warrant to Purchase Stock dated May 16, 2011 issued to Silicon Valley Bank
(filed as Exhibit 4.2 to Current Report on Form 8-K (File No. 001-34703) as filed on
May 17, 2011 and incorporated herein by reference).
|
|
10.1 |
|
|
First Loan Modification Agreement (Term Loan) dated May 16, 2011 between Alimera Sciences, Inc.,
Midcap Funding III, LLC and Silicon Valley Bank (filed as Exhibit 10.1 to Current Report on Form 8-K
(File No. 001-34703) as filed on May 17, 2011 and incorporated herein
by reference).
|
|
10.2 |
|
|
First Loan Modification Agreement (Working Capital Line of Credit)
dated May 16, 2011 between Alimera Sciences, Inc. and Silicon Valley Bank (filed as
Exhibit 10.2 to Current Report on Form 8-K (File No. 001-34703) as filed on May 17, 2011 and
incorporated herein by reference).
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|
*10.3 |
|
|
Amendment to Manufacturing Agreement dated April 29, 2011 between Alimera Sciences, Inc.
and Alliance Medical Products, Inc.
|
|
31.1 |
|
|
Certification of the Principal Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of the Principal Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Certification of the Chief Executive Officer and Acting
Chief Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Application has been made to the Securities and Exchange Commission
to seek confidential treatment of certain provisions of this exhibit. |
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on
Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Quarterly Report on Form 10-Q, irrespective of any general
incorporation language contained in such filing.
34