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Share Name | Share Symbol | Market | Type |
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Windtree Therapeutics Com | NASDAQ:DSCO | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 3.50 | 0 | 01:00:00 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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94-3171943
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.001 par value
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The Nasdaq Capital Market
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Preferred Stock Purchase Rights
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Large accelerated filer
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Accelerated filer
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x |
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Non-accelerated filer
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Smaller reporting company
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•
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the risk that we will require in the near term, but may be unable to secure, significant additional capital to continue our operations, fund our debt service and support our research and development activities, including expensive and time-consuming clinical trials, until such time, if ever, that our revenues from all sources are sufficient to offset our cash outflows. To the extent that we raise such capital through additional financings, such additional financings could result in equity dilution;
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•
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the risk that the initial and later phase of our AEROSURF
phase 2 clinical program may be interrupted, delayed, or fail, which will harm our business;
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•
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the risk that, if we fail to successfully commercialize SURFAXIN as planned, and if we do not achieve revenues consistent with our expectations, it may be more difficult to secure the additional capital we will require when needed, if at all, whether from strategic alliances or other sources, to continue our commercial and medical affairs activities, as well as our research and development programs and our operations would be impaired, which ultimately could have a material adverse effect on our business, financial condition and results of operations;
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•
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risks relating to the ability of our sales and marketing organization to effectively introduce SURFAXIN in the United States (U.S.) and, if approved, our other product candidates, in a timely manner, if at all; and that we may not succeed in developing sufficient market awareness of our products or that our product candidates may not gain market acceptance by physicians, patients, healthcare payers and others in the medical community;
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•
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risks relating to the transfer of our manufacturing technology to contract manufacturing organizations (CMOs) and assemblers;
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•
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the risk that we may be unable to enter into strategic alliances and/or collaboration agreements that would assist and support us in markets outside the U.S. with the development of our KL
4
surfactant pipeline products, beginning with AEROSURF, including development of our lyophilized KL
4
surfactant, and, if approved, commercialization of AEROSURF in markets outside the U.S.; support the commercialization of SURFAXIN in countries where regulatory approval is facilitated by the information contained in the SURFAXIN new drug application (NDA) approved by the U.S. Food and Drug Administration (FDA); and potentially support the development and, if approved, commercialization, of our other pipeline products;
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•
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risks relating to our plans potentially to secure marketing and distribution capabilities in certain markets through third-party strategic alliances and/or marketing alliances and/or distribution arrangements, that could require us to give up rights to our drug products, drug product candidates and drug delivery technologies;
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•
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risks relating to our ability to manage growth effectively and timely modify our business strategy as needed to respond to developments in our commercial operations and research and development activities, as well as our business, our industry and other factors;
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risks relating generally to our research and development activities, which among other things may involve time-consuming and expensive preclinical studies and potentially multiple clinical trials that may be subject to potentially significant delays or regulatory holds or fail;
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•
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risks related to our efforts to gain regulatory approval, in the U.S. and elsewhere, for our drug products, medical device and combination drug/device product candidates, including AEROSURF, and our lyophilized KL
4
surfactant that we expect will be the drug component of AEROSURF and potentially be developed as a life cycle extension of SURFAXIN under the name SURFAXIN LS™ ;
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•
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risks relating to the rigorous regulatory approval processes, including pre-filing activities, required for approval of any drug, combination drug-device product or medical device that we may develop, whether independently, with strategic development partners or pursuant to collaboration arrangements;
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•
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the risk that the FDA or other regulatory authorities may not accept, or may withhold or delay consideration of, any applications that we may file, or may not approve our applications or may limit approval of our products to particular indications or impose unanticipated label limitations;
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•
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the risk that we and the FDA or other regulatory authorities will not be able to agree on matters raised during the regulatory review process, or that we may be required to conduct significant additional activities to potentially gain approval of our product candidates, if ever;
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•
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risks relating to our and our CMOs' ability to manufacture our KL
4
surfactant, in liquid and lyophilized dosage forms, which must be processed in an aseptic environment and tested using sophisticated and extensive analytical methodologies and quality control release and stability tests, for both commercial and research and development activities;
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•
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risks relating to our and our CMOs’ ability to develop and manufacture combination drug/device products based on our CAG technology, for preclinical and clinical studies of our product candidates and, if approved, for commercialization;
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•
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the risk that we, our CMOs or any of our third-party suppliers, many of which are single-source providers, may encounter problems in manufacturing our KL
4
surfactant drug products and the APIs used in the manufacture of our drug products, CAG devices and other materials on a timely basis or in an amount sufficient to support our needs;
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•
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risks relating to our pledge of substantially all of our assets to secure our obligations under our loan facility (Deerfield Loan) with affiliates of Deerfield Management Company, L.P., which could make it more difficult for us to secure additional capital to satisfy our obligations and require us to dedicate cash flow to payments for debt service, which would reduce the availability of our cash flow to fund working capital, capital expenditures and other investment;
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risks that unfavorable credit and financial markets may adversely affect our ability to fund our activities, through our ATM Program or otherwise, and that our ATM Program may expire unutilized or be exhausted; and that additional equity financings could result in substantial equity dilution or result in a downward adjustment to the exercise price of five-year warrants that we issued in February 2011 (which contain price-based anti-dilution adjustments);
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•
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risks that reimbursement and health care reform may adversely affect us or that our products will not be accepted by physicians and others in the medical community;
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the risk that changes in the national or international political and regulatory environment may make it more difficult to gain FDA or other regulatory approval of our drug products and medical device candidates;
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the risk that if we fail to maintain compliance with continued listing requirements of The Nasdaq Capital Market, our common stock may be delisted and the value of our common stock decrease;
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the risks that we may be unable to maintain and protect the patents and licenses related to our products and that other companies may develop competing therapies and/or technologies;
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the risks that we may become involved in securities, product liability and other litigation and that our insurance may be insufficient to cover costs of damages and defense;
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•
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the risk that we, our strategic partners or collaborators will be unable to attract and retain key employees, including qualified scientific, professional and other personnel, in a competitive market for skilled personnel, which could have a material adverse effect on our commercial and development activities and our operations; and
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other risks and uncertainties detailed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K, and in the documents incorporated by reference in this report.
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PART I
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ITEM 1.
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1 | ||
ITEM 1A.
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25 | ||
ITEM 1B.
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57 | ||
ITEM 2.
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57 | ||
ITEM 3.
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58 | ||
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PART II
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ITEM 5.
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58 | ||
ITEM 6.
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59 | ||
ITEM 7.
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60 | ||
ITEM 7A.
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80 | ||
ITEM 8.
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80 | ||
ITEM 9.
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81 | ||
ITEM 9A.
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81 | ||
ITEM 9B.
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83 | ||
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PART III
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ITEM 10.
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83 | ||
ITEM 11.
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EXECUTIVE COMPENSATION
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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ITEM 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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PART IV
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ITEM 15.
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83 | ||
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84 |
· | With the introduction of SURFAXIN, the first synthetic, peptide-containing surfactant approved by the FDA, we believe that hospitals in the U.S., over time, will replace animal-derived surfactants, which are derived from pig and cow lungs using a chemical extraction process, with SURFAXIN and our other clinically differentiated synthetic KL 4 surfactant products. |
o | To support the commercial introduction of SURFAXIN, we have established our own specialty respiratory critical care commercial and medical affairs organization that has experience in respiratory critical care and is focused on neonatal / pediatric indications, beginning with SURFAXIN and, in the future, AEROSURF and our other KL 4 surfactant products under development, if approved. |
o | We also will seek to identify other synergistic products that may be of benefit in the NICU/PICU and could be marketed through our team. To gain access to synergistic products, we would consider potential transactions focused on securing commercial rights in the U.S., including through product acquisitions or in-licensing, distribution, marketing or co-marketing arrangements. We believe that this strategy provides us direct control over our U.S. sales and marketing activities, permits us to establish a strong presence in NICUs and PICUs nationwide, and potentially optimizes the economics of our business. |
· | To advance our AEROSURF development program in the U.S., we are conducting a phase 2 clinical program, having opened an investigational new drug (IND) application with the FDA in the fourth quarter of 2013. |
o | The first part of our clinical program, phase 2a, is designed to evaluate the safety and tolerability of a single exposure of AEROSURF in an escalating dose study evaluating three doses of increasing amounts of AEROSURF. The comparator is nCPAP only. We anticipate results in the second half of 2014. |
o | The next phase of our clinical program, phase 2b, will have a primary objective to determine the optimal dose and define the expected efficacy margin. The results of this phase will inform the design of a potential phase 3 clinical trial focused on safety and efficacy. We currently plan to initiate phase 2b in the second half of 2014 and expect to complete it in the second half of 2015. |
o | Since June 2012, we have been working with Battelle Memorial Institute (Battelle), which supported us in a multi-phase development program that culminated in the manufacture of clinic-ready CAG devices and disposable AEROSURF Delivery Packs (ADPs) for our phase 2a clinical trial. Battelle has agreed to manufacture a sufficient number of CAG devices and ADPs to support our planned phase 2b clinical trial and other development activities. |
o | We plan to use our lyophilized KL 4 surfactant in our AEROSURF program. Our contract manufacturing organization (CMO), DSM Pharmaceuticals, Inc. (DSM) has manufactured sufficient lyophilized KL 4 surfactant drug product to support our phase 2a clinical trial and we expect DSM will manufacture additional product supply to support our planned phase 2b and, potentially, phase 3 clinical trials. |
o | To advance our AEROSURF program in the European Union (EU) and potentially other markets outside the U.S., we plan to retain regulatory consultants to assist us in engaging international regulatory authorities regarding a potential AEROSURF development plan. |
· | While we currently intend to retain all rights and commercialize our approved products in the U.S., an important priority for us is to secure strategic resources to support the continued development and commercial introduction of our RDS products in markets outside the U.S. |
o | To advance and support our AEROSURF development activities, we seek a significant strategic alliance that potentially could provide development, regulatory and commercial market expertise as well as financial resources for our AEROSURF development program, and, if approved, support the commercial introduction of AEROSURF in the EU and other selected markets outside the U.S. Financial resources provided by such alliances typically could take the form of upfront payments, milestone payments, commercialization royalties and a sharing of research and development expenses. |
o | To potentially advance the introduction of SURFAXIN in markets outside the U.S. where regulatory marketing authorization is facilitated by the information contained in our new drug application (NDA) approved by the FDA, we would consider various financing or collaboration arrangements that could provide regulatory expertise and support the commercial introduction of SURFAXIN, and potentially our other FDA-approved KL 4 surfactant products, in other countries. Such countries could potentially include those in Latin America, North Africa and the Middle East. |
· | An important priority for us is to strengthen our long-term financial position. We will require significant additional capital over time to advance our development programs, support the introduction of our approved products, support our operations and maximize stockholder value. See, “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” |
o | We will require additional capital to fund our operations and development activities until such time as revenues from the sale of SURFAXIN and AEROSURF are sufficient, if ever, to fund our development activities and operations. In February 2013, we entered into a loan agreement (Deerfield Loan) with affiliates of Deerfield Management Company, L.P. (Deerfield) and have received advances totaling $30 million, secured by a security interest in substantially all of our assets. The proceeds of these loans are being used to meet our working capital requirements. We also entered into an At-the-Market Equity Offering Sales Agreement with Stifel, Nicolaus & Company, Incorporated (Stifel), under which Stifel, as our exclusive agent, may sell through an “at-the-market” program (ATM Program), at such times that we may elect in our sole discretion, during a three-year term, up to a maximum of $25,000,000 of shares of our common stock. At December 31, 2013, $23.0 million was available under the ATM Program. We plan to use any proceeds from the ATM Program to meet our working capital requirements. During 2013, we raised aggregate gross proceeds of $75.8 million through public offerings of our common stock, including under our ATM Program. We plan to continue to carefully managing our cash resources and will seek additional capital, including potentially through future debt and equity financings, as we deem necessary to maintain and strengthen our financial position. |
o | In addition, as noted above, we expect that strategic alliances will play an important role in strengthening our financial position as well as our capabilities as we advance our KL 4 surfactant development programs. |
· | We have invested, and will continue to invest, in improving our potential competitive position by protecting our exclusive rights in our KL 4 surfactant technology, pipeline products and drug delivery technologies, including our CAG and aerosol-conducting airway connector, through patents, patent term restoration, trademarks and trade secrets. We believe that our development programs will provide opportunities to extend our exclusivities into the future through new patents and other intellectual property. We also hold, and will continue to seek, regulatory designations that provide post-approval market exclusivity for our pipeline products that would allow us to build our market share. See, “– Licensing, Patents and Other Proprietary Rights and Regulatory Designations.” |
· | We continue to invest in quality systems and manufacturing capabilities. W e are planning for long-term continuity of supply and continued integrity and reliability of our manufacturing and quality assurance processes. We seek to build a foundation to support our anticipated long-term needs, and intend to make appropriate capital investments in the near-term, balancing the use of our available resources while maintaining flexibility in planning our long-term manufacturing activities and goals. |
· | While we are currently focused on RDS, we also believe that our KL 4 surfactant technology could be developed into a broad product pipeline to address a variety of debilitating respiratory conditions and diseases, including pediatric and adult indications that could represent potentially significant market opportunities. From time to time, we have participated in investigator-initiated research programs and government funded research and preclinical development initiatives that explore the use of our KL 4 surfactant in the treatment of a range of respiratory diseases, including CF and ALI. Although there can be no assurance, we may in the future support development activities to establish a proof-of-concept and, if successful, thereafter determine whether to seek strategic alliances or collaboration arrangements or pursue other financial alternatives to fund further development and/or worldwide commercialization of additional indications, if approved. |
· | improved ease of use for healthcare practitioners, including potential elimination of the drug warming process allowing for shortened preparation time; and potential elimination or reduction of continuous cold chain storage and refrigeration requirements; |
· | potential improved product stability and extended shelf life; and |
· | relatively lower viscosity, which may aid and/or improve the distribution of KL 4 surfactant throughout the lung and potentially may reduce the frequency of transient peri-dosing events typically observed during administration of surfactants. |
· | full retention of the surface-tension lowering properties of a functioning surfactant necessary to restore lung function and maintain patency of the conducting airways; |
· | full retention of the surfactant composition upon aerosolization; and |
· | drug particle size believed to be suitable for deposition into the lung. |
· | physicians and scientists with expertise in pediatric and pulmonary medicine and extensive contacts in the neonatal medical community; |
· | expertise in the design and execution of preclinical experiments and studies to support drug development. We conduct certain development-related experiments and bench studies in-house and also engage professional research laboratories as well as academic and education centers to conduct animal studies and experiments requiring specialized equipment and expertise; |
· | expertise in the design, development and management of clinical trials. We have our own scientific, medical, biostatistics, and trial and data management capabilities. For the initial phase of the AEROSURF program, we plan to analyze and report on our clinical trial data, supported by third-party technology systems and independent consultants, and will monitor all activities using our clinical operations capabilities. We rely on scientific advisory committees and other medical and consulting experts to assist in the design and monitoring of clinical trials. We also plan to rely on CROs to support operations of our planned multi-center AEROSURF trials, including potentially for locations outside the U.S.; |
· | regulatory personnel with expertise in FDA regulatory matters. We also consult extensively with independent FDA and international regulatory experts, including former senior scientific staff of the FDA; |
· | engineering expertise to support development of our CAG and aerosol delivery technologies. In addition to our own engineering team, we are engaged in a development program with Battelle to bring its significant expertise in developing and integrating aerosol device technologies to optimize our CAG device and manufacture clinic-ready CAG devices for our phase 2 AEROSURF clinical trials; |
· | quality operations capabilities to assure compliance with applicable regulations; |
·
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manufacturing capabilities to manufacture our KL
4
surfactant for use in preclinical studies. We rely on CMOs to produce our lyophilized KL
4
surfactant and to manufacture and assemble our AFECTAIR devices. We plan to rely on third-party manufacturers to manufacture and assemble our CAG systems and related components; and
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· | our own analytical and testing laboratories, research and medical device development laboratory. We also rely on a number of third-party analytical and testing laboratories to support our research activities and provide certain laboratory services. |
· | The lease for our Totowa Facility currently expires on June 30, 2015. We continue to explore possible alternatives that could enable longer-term utilization of that facility for the manufacture of SURFAXIN and potentially lyophilized KL 4 surfactant. |
· | We completed the technology transfer of our lyophilized KL 4 surfactant manufacturing process to DSM in 2013 and have manufactured a sufficient clinical supply of KL 4 surfactant to support the phase 2a AEROSURF clinical trial. We plan to manufacture additional clinical supply in mid-2014 to support our phase 2b clinical trial. We also have entered into a development agreement with DSM for the potential further development and manufacture of lyophilized KL 4 surfactant for our AEROSURF phase 3 clinical program, as well as other potential pipeline development programs. |
· | To secure an additional source of SURFAXIN commercial drug product, in 2012 we initiated a technology transfer of our liquid KL 4 surfactant manufacturing process to DSM and in August 2013 entered into a supply agreement with DSM that provides for the manufacture of commercial supply of SURFAXIN drug product through December 31, 2015, with such further extensions at that time as the parties may agree. |
· | We also have initiated a project to identify a second CMO that would manufacture clinical and commercial supply and assure a continuous and back up supply of SURFAXIN drug product. We currently are working through potential development plans with a few CMOs and thereafter plan to initiate a technology transfer of our liquid KL 4 manufacturing process. |
• | seek collaborators for one or more of our development programs for territories that we had planned to retain or on terms that are less favorable than might otherwise be available; and/or |
• | relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves. |
• | the number of clinical sites; |
• | the size of the patient population; |
• | the eligibility and enrollment criteria for the study; |
• | the willingness of patients’ parents or guardians to participate in the clinical trial; |
• | the existence of competing clinical trials ; |
• | the existence of alternative available products; and |
• | geographical and geopolitical considerations. |
• | the number of hospitals and critical-care centers that agree to place SURFAXIN drug product on their formulary lists and the length of time required to achieve broad formulary acceptance; |
• | the willingness of hospitals to accept and employ WARMING CRADLE ® dry-block heater, a device that warms drug vials at the same temperature and for the time period designated in the SURFAXIN prescribing information; |
• | the effectiveness of our marketing, sales and medical affairs organizations and their ability to (a) accurately describe SURFAXIN consistent with its approved labeling, and (b) educate and provide critical care providers and hospitals with medical and scientific education and information; |
• | our ability to gain access to the entire market with our commercial organization; |
• | our ability to provide hospitals acceptable evidence of the safety and efficacy of SURFAXIN and the perceived advantages of SURFAXIN, a synthetic peptide-containing surfactant, over alternative animal-derived surfactants; |
• | the pharmacoeconomic benefits (which are determined by comparing, among other things, the cost and effects of a product when compared to different treatment options) and cost-effectiveness of our products; |
• | the impact of adding SURFAXIN and WARMING CRADLE heater to formulary and medical device hospital lists and the availability, cost and potential advantages of alternative treatments, including less expensive generic drugs and other competitive products; |
• | the availability of different size drug vials and medical devices to meet the specific needs of healthcare practitioners; |
• | the claims, limitations, warnings and other information that appear in the package insert and labeling of SURFAXIN drug product; |
• | the willingness of third-party payers, including government payers, to provide coverage and reimbursements to patients, physicians and other providers who wish to prescribe and use our products; |
• | our ability to secure and maintain regulatory marketing approvals from the U.S. and foreign regulatory authorities; |
• | the rate of preterm births; |
• | the number of infants who are diagnosed with RDS and the number treated with SURFAXIN; |
• | the growth of commercial sales; |
• | our ability to meet commercial demand for SURFAXIN, including through maintenance of commercial supplies of our active drug substances and other excipients, and manufacturing capabilities, by ourselves and through contract manufacturing organizations (CMOs); and commercial inventory supplies of our medical device products; and |
• | the sufficiency of coverage or reimbursement by third parties. |
• | the willingness of physicians and hospitals to utilize our products and the willingness of hospitals’ P&T Committees to place our products on formulary or on the list of medical devices the hospital will purchase; |
• | the safety and efficacy of our products, both in fact and as perceived by the medical community, regulatory agencies and insurers and other payers, on both a short and long-term basis; |
• | the potential advantages of our products over alternative treatments; |
• | the relative convenience and ease of use; |
• | the prevalence and severity of any adverse events, including any unexpected adverse events of which we become aware; and |
• | the degree to which the market believes that we are able to manufacture our products and produce supply sufficient to meet market demand. |
• | our distributors or collaborators may require that we transfer to them important rights to our products and/or product candidates; |
• | we may not be able to control the amount and timing of resources that our distributors or collaborators devote to the commercialization of our products; |
• | if our distributors or collaborators fail to perform their obligations under our arrangements to our satisfaction, we may not achieve our projected sales and our revenues would suffer. We also may incur additional expense to terminate such arrangements and to identify and enter into arrangements with replacement distributors or collaborators; |
• | our distributors or collaborators may experience financial difficulties; and |
• | business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to perform its obligations under any arrangement, which would adversely affect our business. |
• | we may be unable to identify manufacturers with whom we might establish appropriate arrangements on acceptable terms, if at all, because the number of potential CMOs is limited and the FDA must approve any replacement CMO. This approval could require one or more pre-approval inspections as well as a potentially lengthy qualification process. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our approved products after receipt of FDA approval. This could take as long as 2 years to qualify and receive regulatory approval; |
• | we may implement a plan to execute a technology transfer of our manufacturing process to a CMO and, after investing significant time and resources, learn that the CMO we chose is unable to successfully complete the technology transfer and thereafter manufacture our products in accordance with our plan; |
• | CMOs might be unable to manufacture our products in the volume and to our specifications to meet our commercial and clinical needs, or we may have difficulty scheduling the production of drug product and devices in a timely manner to meet our timing requirements; |
• | CMOs may not perform as agreed, or may not remain in the CMO business for a lengthy time, or may refuse to renew an expiring agreement as expected, or may fail to produce a sufficient supply to meet our commercial and/or clinical needs; |
• | CMOs are subject to ongoing periodic unannounced inspection by the FDA, international health authorities, registered Notified Body(ies), the Drug Enforcement Administration, and corresponding state agencies to ensure strict compliance with cGMP and/or quality system regulations (QSR) and other government regulations and corresponding foreign standards. We do not have control over a CMO’s compliance with these regulations and standards; |
• | if we desire to make our drug products and/or devices available outside the U.S. for commercial or clinical purposes, our CMOs would become subject to, and may not be able to comply with, corresponding manufacturing and quality system regulations of the various foreign regulators having jurisdiction over our activities abroad. Such failures could restrict our ability to execute our business strategies; and |
• | if any third-party manufacturer makes improvements in the manufacturing process for our products, we may not have rights to, or may have to share, the intellectual property rights to any such innovation. We may be required to pay fees or other costs for access to such improvements. |
• | could impair our liquidity; |
• | could make it more difficult for us to satisfy our other obligations; |
• | require us to dedicate cash flow to payments on our debt obligations, which would reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements; |
• | impose restrictions on our ability to incur other indebtedness, grant liens on our assets, other than permitted indebtedness and permitted liens, and could impede us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes; |
• | impose restrictions on us with respect to the use of our available cash, including in connection with future acquisitions; |
• | could adversely affect our ability to enter into strategic transactions and similar agreements, or require us to obtain the consent of our lenders; |
• | make us more vulnerable in the event of a downturn in our business prospects and could limit our flexibility to plan for, or react to, changes in our licensing markets; and |
• | could place us at a competitive disadvantage when compared to our competitors who are not similarly restricted. |
• | competently execute and complete our preclinical and clinical trials of our KL 4 surfactant product candidates with scientific results that are sufficient to support further development and regulatory approval; |
• | receive the necessary regulatory approvals; |
• | obtain adequate supplies of the active pharmaceutical ingredients, manufactured to our specifications and on commercially reasonable terms; |
• | perform under agreements to supply drug substances, medical devices and related components and related services necessary to manufacture our KL 4 surfactant product candidates; |
• | provide for sufficient manufacturing capabilities, at our manufacturing operations in Totowa and with CMOs, to produce sufficient drug product, including for KL 4 surfactant-related studies, AEROSURF and SURFAXIN LS development activities, and CAG devices and related materials to meet our preclinical and clinical development requirements; and |
• | obtain the capital necessary to fund our research and development efforts, including our business administration, preclinical and clinical organizations, and our quality and manufacturing operations. |
• | slow patient enrollment; |
• | long treatment time required to demonstrate effectiveness; |
• | lack of sufficient clinical supplies and material; |
• | adverse medical events or side effects in treated patients; |
• | lack of compatibility with complementary technologies; |
• | failure of a drug product candidate to demonstrate effectiveness; and |
• | lack of sufficient funds. |
• | We may not successfully develop a CAG device that is acceptable for use in a phase 3 program and commercial environment, if at all, on a timely basis and such inability may delay or prevent initiation of our phase 3 clinical trial. |
• | We will require access to sophisticated engineering capabilities. We have medical device engineering staff and we are currently working with Battelle Memorial Institute (Battelle), which has expertise in medical device development and medical device design and a successful track record in developing aerosolization systems for the medical and pharmaceutical industries. If for any reason we are unable to retain our own engineering capabilities, the agreement with Battelle is terminated, and we are unable to identify design engineers and medical device experts to support our development efforts, including for a clinic-ready CAG system for use in our planned clinical trials and, potentially, for commercial use and later versions of the CAG systems, it would have a material adverse effect on our business strategy and impair our ability to commercialize or develop AEROSURF or other aerosolized KL 4 surfactant products. |
• | We will also require additional capital to advance our development activities and plan to seek a potential strategic partner or third-party collaborator to provide financial support and potentially medical device development and commercialization expertise. There can be no assurance, however, that we will successfully identify or be able to enter into agreements with such potential partners or collaborators on terms and conditions that are favorable to us. If we are unable to secure the necessary medical device development expertise to support our development program, this could impair our ability to commercialize or develop AEROSURF or other aerosolized KL 4 surfactant products. |
• | the need to make necessary modifications to maintain a qualified and facility; |
• | difficulties with production and yields, including manufacturing and completing all required release testing on a timely basis to meet demand; |
• | quality control and assurance problems related to, among other things, in-process monitoring and controls, and release and stability testing of our drug product, or materials and drug substances; |
• | casualty damage to a facility; and |
• | shortages of qualified personnel. |
• | equipment malfunctions or failures; |
• | technology malfunctions; |
• | interruption of material availability; |
• | work stoppages or slowdowns; |
• | damage to or destruction of the facility; |
• | regional power shortages; and |
• | product tampering. |
• | announcements of the results of clinical trials by us or our competitors; |
• | patient adverse reactions to our products; |
• | governmental approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency concerns regarding the safety or effectiveness of our products; |
• | changes in the U.S. or foreign regulatory policy during the period of product development; |
• | changes in the U.S. or foreign political environment and the passage of laws, including tax, environmental or other laws, affecting the product development business; |
• | developments in patent or other proprietary rights, including any third-party challenges of our intellectual property rights; |
• | announcements of technological innovations by us or our competitors; |
• | announcements of new products or new contracts by us or our competitors; |
• | actual or anticipated variations in our operating results due to the level of development expenses and other factors; |
• | changes in financial estimates by securities analysts and whether our earnings meet or exceed the estimates; |
• | conditions and trends in the pharmaceutical and other industries; |
• | new accounting standards; and |
• | the occurrence of any of the risks described in these “Risk Factors” or elsewhere in this Annual Report on Form 10-K or our other public filings. |
• | safe, effective and medically necessary; |
• | appropriate for the specific patient; |
• | cost-effective; and |
• | neither experimental nor investigational. |
• | developing products; |
• | undertaking preclinical testing and human clinical trials; |
• | obtaining FDA and other regulatory approvals or products; and |
• | manufacturing and marketing products. |
• | agreements may be breached; |
• | agreements may not provide adequate remedies for the applicable type of breach; |
• | our trade secrets or proprietary know-how may otherwise become known; |
• | our competitors may independently develop similar technology; or |
• | our competitors may independently discover our proprietary information and trade secrets. |
• | uninsured expenses related to defense or payment of substantial monetary awards to claimants; |
• | a decrease in demand for our drug product candidates; |
• | damage to our reputation; and |
• | an inability to complete clinical trial programs or to commercialize our drug product candidates, if approved. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
|
2013
|
2012
|
||||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||||
Period:
|
|
|
|
|
||||||||||||
First Quarter
|
$
|
2.91
|
$
|
2.11
|
$
|
5.39
|
$
|
1.67
|
||||||||
Second Quarter
|
$
|
2.40
|
$
|
1.50
|
$
|
3.15
|
$
|
2.12
|
||||||||
Third Quarter
|
$
|
2.23
|
$
|
1.54
|
$
|
3.51
|
$
|
2.30
|
||||||||
Fourth Quarter
|
$
|
3.05
|
$
|
1.90
|
$
|
3.29
|
$
|
1.71
|
Consolidated Statement of Operations Data:
(in thousands, except per share data)
|
||||||||||||||||||||
For the year ended December 31,
|
||||||||||||||||||||
2013
|
2012
|
2011
|
2010
|
2009
|
||||||||||||||||
Revenues from grants
|
$
|
388
|
$
|
195
|
$
|
582
|
$
|
–
|
$
|
–
|
||||||||||
Operating expenses:
|
||||||||||||||||||||
Cost of product sales
|
517
|
|||||||||||||||||||
Research and development
|
27,661
|
21,570
|
17,230
|
17,136
|
19,077
|
|||||||||||||||
Selling, general and administrative
|
16,718
|
16,444
|
7,864
|
8,392
|
10,120
|
|||||||||||||||
Total expenses
(1)
|
44,896
|
38,014
|
25,094
|
25,528
|
29,197
|
|||||||||||||||
Operating loss
|
(44,508
|
)
|
(37,819
|
)
|
(24,512
|
)
|
(25,528
|
)
|
(29,197
|
)
|
||||||||||
Change in fair value of common stock warrant liability
|
761
|
555
|
3,560
|
6,422
|
369
|
|||||||||||||||
Other (expense) / income
|
(1468
|
)
|
(51
|
)
|
(13
|
)
|
(69
|
)
|
(1,043
|
)
|
||||||||||
Net loss
|
$
|
(45,215
|
)
|
$
|
(37,315
|
)
|
$
|
(20,965
|
)
|
$
|
(19,175
|
)
|
$
|
(29,871
|
)
|
|||||
Net loss per common share – basic and diluted
|
$
|
(0.82
|
)
|
$
|
(0.95
|
)
|
$
|
(0.93
|
)
|
$
|
(1.65
|
)
|
$
|
(3.89
|
)
|
|||||
Weighted average number of common shares outstanding – basic and diluted
|
55,258
|
39,396
|
22,660
|
11,602
|
7,680
|
(1)
|
Included in the net loss for 2013, 2012, 2011, 2010, and 2009 were non-cash charges for stock-based compensation and depreciation of $2.9 million, $3.3 million, $2.2 million, $2.8 million, and $4.3 million, respectively.
|
Consolidated Balance Sheet Data:
|
|
|||||||||||||||||||
(in thousands)
|
December 31,
|
|||||||||||||||||||
2013
|
2012
|
2011
|
2010
|
2009
|
||||||||||||||||
|
|
|
|
|
||||||||||||||||
Cash and investments
|
$
|
86,283
|
$
|
26,892
|
$
|
10,189
|
$
|
10,211
|
$
|
15,741
|
||||||||||
Working capital
|
75,384
|
16,107
|
(516
|
)
|
2,920
|
176
|
||||||||||||||
Total assets
|
89,317
|
29,943
|
13,324
|
14,537
|
21,403
|
|||||||||||||||
Long-term debt, net of discount of $11,646
|
18,354
|
–
|
–
|
–
|
–
|
|||||||||||||||
Other long-term obligations, less current portion
|
607
|
591
|
913
|
935
|
1,118
|
|||||||||||||||
Total stockholders’ equity
|
$
|
58,501
|
$
|
17,653
|
$
|
1,264
|
$
|
6,026
|
$
|
1,296
|
· | Company Overview and Business Strategy: this section provides a general description of our company and business plans. |
· | Critical Accounting Policies: this section contains a discussion of the accounting policies that we believe are important to our financial condition and results of operations and that require the exercise of judgment and use of estimates on the part of management in their application. In addition, all of our significant accounting policies, including the critical accounting policies and estimates, are discussed in Note 3 to the accompanying consolidated financial statements. |
· | Results of Operations : this section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations, including comparisons of the results for the years ended December 31, 2013, 2012 and 2011. |
· | Liquidity and Capital Resources : this section provides a discussion of our capital resources, future capital requirements, cash flows, committed equity financing facilities, historical financing transactions, outstanding debt arrangements and commitments. |
· | Chargebacks. Chargebacks are discounts that occur when contracted customers purchase directly from our specialty distributor. Contracted customers, which currently consist primarily of member hospitals of Group Purchasing Organizations, generally purchase the product at a discounted price. Our specialty distributor, in turn, charges back the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the customer. The allowance for specialty distributor chargebacks is based on known sales to contracted customers. |
· | Sales discounts : Sales discounts are offered to certain contracted customers based upon a customer’s historical volume of surfactant product purchases. Customers must enter into a Letter of Participation (LOP) with us to receive sales discounts. Sales discounts are calculated on a quarterly basis based upon the customer’s quarterly purchases of SURFAXIN, as provided in the LOP. The allowance for sales discounts is based on known sales to contracted customers. |
· | Specialty distributor deductions. Our specialty distributor is offered various forms of consideration including allowances, service fees and prompt payment discounts. Specialty distributor allowances and service fees are provided in our contractual agreement and are generally a percentage of the purchase price paid by the specialty distributor. The specialty distributor is offered a prompt pay discount for payment within a specified period. |
· | Returns. Sales of our products are not subject to a general right of return; however, we will accept product that is damaged or defective when shipped or for expired product up to 6 months subsequent to its expiry date. Product that has been administered to patients is no longer subject to any right of return. |
(in thousands)
|
Years Ended
December 31,
|
|||||||||||
2013
|
2012
|
2011
|
||||||||||
|
||||||||||||
Cost of product sales
|
$
|
517
|
$
|
–
|
$
|
–
|
|
Years Ended
December 31,
|
|||||||||||
|
2013
|
2012
|
2011
(1)
|
|||||||||
|
(in thousands)
|
|||||||||||
Product development and manufacturing
|
$
|
20,471
|
$
|
15,788
|
$
|
12,359
|
||||||
Medical and regulatory operations
|
5,966
|
4,818
|
3,452
|
|||||||||
Direct preclinical and clinical programs
|
1,224
|
964
|
1,419
|
|||||||||
Total Research and Development Expenses
|
$
|
27,661
|
$
|
21,570
|
$
|
17,230
|
(in thousands)
|
Years Ended
December 31,
|
|||||||||||
2013
|
2012
|
2011
|
||||||||||
Salaries & Benefits
|
$
|
11,213
|
$
|
9,986
|
$
|
8,231
|
||||||
Contracted Services
|
8,248
|
6,332
|
3,317
|
|||||||||
Raw Materials & Supplies
|
3,633
|
1,652
|
1,871
|
|||||||||
Rents & Utilities
|
1,186
|
1,366
|
1,531
|
|||||||||
Depreciation
|
659
|
841
|
1,141
|
|||||||||
Contract Manufacturing
|
1,441
|
15
|
143
|
|||||||||
Travel
|
447
|
316
|
188
|
|||||||||
Stock-Based Compensation
|
784
|
488
|
289
|
|||||||||
All Other
|
50
|
574
|
519
|
|||||||||
Total
|
$
|
27,661
|
$
|
21,570
|
$
|
17,230
|
(in thousands)
|
Years Ended December 31,
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Selling, General and Administrative Expenses
|
$
|
16,718
|
$
|
16,444
|
$
|
7,864
|
(in thousands)
|
Years Ended
December 31,
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
|
|
|||||||||||
Change in fair value of common stock warrant liability
|
$
|
761
|
$
|
555
|
$
|
3,560
|
(in thousands)
|
Years Ended
December 31,
|
|||||||||||
Other Income / (Expense):
|
2013
|
2012
|
2011
|
|||||||||
|
|
|||||||||||
|
|
|
|
|||||||||
Interest income
|
$
|
3
|
$
|
3
|
$
|
13
|
||||||
Interest expense
|
(1,471
|
)
|
(13
|
)
|
(20
|
)
|
||||||
Other income / (expense)
|
–
|
(41
|
)
|
(6
|
)
|
|||||||
Other income / (expense), net
|
$
|
(1,468
|
)
|
$
|
(51
|
)
|
$
|
(13
|
)
|
(in thousands)
|
Years Ended
December 31,
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Cash interest expense
|
$
|
911
|
$
|
–
|
$
|
–
|
||||||
Non-cash amortization of debt discounts
|
534
|
–
|
–
|
|||||||||
Amortization of debt costs
|
18
|
–
|
–
|
|||||||||
Total Deerfield Loan interest expenses
|
$
|
1,463
|
$
|
–
|
$
|
–
|
(in millions)
|
Years Ended
December 31,
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
|
|
|||||||||||
|
|
|
|
|||||||||
Financings pursuant to common stock offerings
|
$
|
69.0
|
$
|
42.1
|
$
|
21.6
|
||||||
Proceeds from issuance of long-term debt, net
|
29.6
|
–
|
–
|
|||||||||
Financings under the 2010 CEFF
|
–
|
–
|
1.3
|
|||||||||
Exercise of common stock warrants and options
|
0.2
|
6.7
|
–
|
|||||||||
Financings under the ATM Programs
|
1.8
|
3.0
|
–
|
|||||||||
Debt service payments
|
(0.1
|
)
|
(0.1
|
)
|
(0.1
|
)
|
||||||
Cash flows from financing activities, net
|
$
|
100.5
|
$
|
50.2
|
$
|
22.8
|
(in thousands) | ||||
Note Payable
|
$
|
30,000
|
||
Unamortized discount
|
(11,646
|
)
|
||
Long-term debt, net of discount
|
$
|
18,354
|
(in thousands)
|
2014
|
2015
|
2016
|
2017
|
2018
|
There-
after
|
Total
|
|||||||||||||||||||||
Operating lease obligations
|
1,087
|
1,024
|
934
|
936
|
158
|
–
|
4,139
|
|||||||||||||||||||||
Equipment loan obligations
(1)
|
79
|
69
|
–
|
–
|
–
|
–
|
148
|
|||||||||||||||||||||
Total
|
$
|
1,166
|
$
|
1,093
|
$
|
934
|
$
|
936
|
$
|
158
|
$
|
–
|
$
|
4,287
|
(c) | Changes in internal controls |
|
DISCOVERY LABORATORIES, INC.
|
|
|
|
|
|
|
Date: March 17, 2014
|
By:
|
/s/ John G. Cooper
|
|
John G. Cooper, President, Chief Executive Officer and Chief Financial Officer
|
Signature
|
Name & Title
|
Date
|
|
|
|
/s/ John G. Cooper
|
John G. Cooper
Director, President, Chief Executive Officer and Chief Financial Officer
|
March 17, 2014
|
|
(Principal Executive and Principal Financial Officer)
|
|
|
|
|
/s/ John Tattory
|
John Tattory
Vice President, Finance, and Chief Accounting Officer
|
March 17, 2014
|
|
(Principal Accounting Officer)
|
|
|
|
|
/s/ John R. Leone
|
John R. Leone
Director (Chairman of the Board)
|
March 17, 2014
|
|
|
|
/s/ Joseph M. Mahady
|
Joseph M. Mahady
Director
|
March 17, 2014
|
|
|
|
/s/ Bruce A. Peacock
|
Bruce A. Peacock
Director
|
March 17, 2014
|
|
|
|
/s/ Marvin E. Rosenthale
|
Marvin E. Rosenthale, Ph.D.
Director
|
March 17, 2014
|
Exhibit No.
|
Description
|
Method of Filing
|
|
|
|
|
|
3.1
|
Amended and Restated Certificate of Incorporation filed as of August 1, 2013, including amendments reflected in a Certificate of Amendment to the Restated Certificate of Incorporation of Discovery filed on December 27, 2010, and in a Certificate of Amendment to the Restated Certificate of Incorporation of Discovery filed on October 3, 2011
|
Incorporated by reference to Exhibit 3.1 to Discovery’s Quarterly Report on Form 10-Q, as filed with the SEC on August 8, 2013.
|
|
|
|
|
|
3.2
|
Certificate of Designations, Preferences and Rights of Series A Junior Participating Cumulative Preferred Stock of Discovery, dated February 6, 2004
|
Incorporated by reference to Exhibit 2.2 to Discovery’s Form 8-A, as filed with the SEC on February 6, 2004.
|
|
|
|
|
|
3.3
|
Amended and Restated By-Laws of Discovery, as amended effective September 3, 2009
|
Incorporated by reference to Exhibit 3.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on September 4, 2009.
|
|
|
|
|
|
4.1
|
Shareholder Rights Agreement, dated as of February 6, 2004, by and between Discovery and Continental Stock Transfer & Trust Company
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on February 6, 2004.
|
|
|
|
|
|
4.2
|
Warrant Agreement dated December 12, 2008 by and between Kingsbridge Capital Limited and Discovery
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on December 15, 2008.
|
|
|
|
|
|
4.3
|
Form of Warrant to Purchase Common Stock issued in May 2009
|
Incorporated by reference to Exhibit 10.3 to Discovery’s Current Report on Form 8-K, as filed with the SEC on May 8, 2009.
|
|
|
|
|
|
4.4
|
Form of Warrant to Purchase Common Stock issued in February 2010
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on February 18, 2010.
|
|
|
|
|
|
4.5
|
Warrant Agreement, dated as of April 30, 2010, by and between Discovery and PharmaBio
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on April 28, 2010.
|
|
|
|
|
|
4.6
|
Warrant Agreement dated June 11, 2010 by and between Kingsbridge Capital Limited and Discovery
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on June 14, 2010.
|
Exhibit No.
|
Description
|
Method of Filing
|
|
4.7
|
Form of Series I Warrant to Purchase Common Stock issued on June 22, 2010 (Five-Year Warrant)
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on June 17, 2010.
|
|
|
|
|
|
4.8
|
Warrant Agreement, dated as of October 12, 2010, by and between Discovery and PharmaBio
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on October 13, 2010.
|
|
|
|
|
|
4.9
|
Form of Series I Warrant to Purchase Common Stock issued on February 22, 2011 (Five-Year Warrant)
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on February 16, 2011.
|
|
|
|
|
|
4.10
|
Form of Warrant dated February 13, 2013, issued to affiliates of Deerfield Management Co., LLP (Deerfield) under a Facility Agreement dated as of February 13, 2012 between Discovery and Deerfield
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on June 14, 2013.
|
|
|
|
|
|
4.11
|
Form of Warrant dated December 3, 2013, issued to affiliates of Deerfield Management Co., LLP (Deerfield) on December 3, 2013 under a Facility Agreement dated as of February 13, 2012 between Discovery and Deerfield
|
Incorporated by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on December 6, 2013.
|
|
|
|
|
|
10.1+
|
Sublicense Agreement, dated as of October 28, 1996, between Johnson & Johnson, Ortho Pharmaceutical Corporation and Acute Therapeutics, Inc.
|
Incorporated by reference to Exhibit 10.6 to Discovery’s Registration Statement on Form SB-2/A, as filed with the SEC on April 18, 1997 (Commission File Number 333-19375).
|
|
|
|
|
|
10.2 +
|
Amended and Restated License Agreement by and between Discovery and Philip Morris USA Inc., d/b/a/ Chrysalis Technologies, dated March 28, 2008
|
Incorporated by reference to Exhibit 10.4 to Discovery’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, as filed with the SEC on May 9, 2008.
|
|
|
|
|
|
10.3 +
|
License Agreement by and between Discovery and Philip Morris Products S.A., dated March 28, 2008
|
Incorporated by reference to Exhibit 10.5 to Discovery’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, as filed with the SEC on May 9, 2008.
|
|
|
|
|
|
10.4+
|
Amended and Restated Sublicense and Collaboration Agreement made as of December 3, 2004, between Discovery and Laboratorios del Dr. Esteve, S.A.
|
Incorporated by reference to Exhibit 10.28 to Discovery’s Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC on March 16, 2005.
|
|
|
|
|
|
10.5+
|
Amended and Restated Supply Agreement, dated as of December 3, 2004, by and between Discovery and Laboratorios del Dr. Esteve, S.A.
|
Incorporated by reference to Exhibit 10.29 to Discovery’s Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC on March 16, 2005.
|
|
10.6*
|
Discovery’s 2007 Long Term Incentive Plan
|
Incorporated by reference to Exhibit 1.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on June 28, 2007.
|
Exhibit No.
|
Description
|
Method of Filing
|
|
10.7*
|
Form of 2007 Long-Term Incentive Plan Stock Option Agreement
|
Incorporated by reference to Exhibit 10.3 to Discovery’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, as filed with the SEC on August 9, 2007.
|
|
|
|
|
|
10.8*
|
Discovery’s 2011 Long-Term Incentive Plan
|
Incorporated by reference to Appendix II to Discovery’s Definitive Proxy Statement on Form DEF 14A, as filed with the SEC on August 15, 2011 (Commission File Number 000-26422).
|
|
|
|
|
|
10.9*
|
Form of Employee Option Agreement under Discovery’s 2011 Long-Term Incentive Plan
|
Incorporated by reference to Exhibit 10.2 to Discovery’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC on May 15, 2012.
|
|
|
|
|
|
10.10*
|
Form on Non-Employee Director Agreement under Discovery’s 2011 Long-Term Incentive Plan
|
Incorporated by reference to Exhibit 10.3 to Discovery’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC on May 15, 2012.
|
|
|
|
|
|
10.11*
|
Employment Agreement dated as of May 4, 2012 between Discovery and John G. Cooper
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on May 10, 2012.
|
|
|
|
|
|
10.12*
|
Employment Agreement dated as of April 1, 2013, between Discovery Laboratories, Inc. and John G. Cooper
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on April 2, 2013.
|
|
|
|
|
|
10.13*
|
Employment Agreement dated as of May 4, 2012 between Discovery and Thomas F. Miller
|
Incorporated by reference to Exhibit 10.3 to Discovery’s Current Report on Form 8-K, as filed with the SEC on May 10, 2012 as amended by Exhibit 10.1 to Discovery’s Current Report on Form 8-K/A, as filed with the SEC on May 11, 2012.
|
|
|
|
|
|
10.14*
|
Employment Agreement dated as of April 1, 2013, between Discovery Laboratories, Inc. and Thomas F. Miller, Ph.D., MBA
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on April 2, 2013.
|
|
|
|
|
|
Employment Agreement dated as of April 1, 2013, between Discovery Laboratories, Inc. and Russell G. Clayton
|
Filed herewith.
|
||
Employment Agreement dated as of April 1, 2013, between Discovery Laboratories, Inc. and Mary B. Templeton
|
Filed herewith.
|
Exhibit No.
|
Description
|
Method of Filing
|
|
10.17
|
Assignment of Lease and Termination and Option Agreement, dated as of December 30, 2005, between Laureate Pharma, Inc. and Discovery
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the SEC on March 16, 2006.
|
|
|
|
|
|
10.18
|
Extension, dated as of July 16, 2013, of Lease dated as of December 3, 2004, between Discovery, as successor-in-interest to Laureate Pharma, Inc., and Norwell Land Company, with respect to property at 710 Union Blvd., Totowa, NJ 07512
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Quarterly Report on Form 10-Q, as filed with the SEC on August 8, 2013.
|
|
|
|
|
|
10.19
|
Lease Agreement dated May 26, 2004, and First Amendment to Lease Agreement, dated April 2, 2007, by and between TR Stone Manor Corp. and Discovery
|
Incorporated by reference to Exhibits 10.1 and 10.2 to Discovery’s Current Report on Form 8-K, as filed with the SEC on April 6, 2007.
|
|
|
|
|
|
10.20
|
Second Amendment to Lease Agreement, dated January 3, 2013 by and between TR Stone Manor Corp. and Discovery
|
Incorporated by reference to Exhibits 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on January 8, 2013.
|
|
|
|
|
|
10.21
|
Supply Agreement dated as of December 22, 2010 between by and between Corden Pharma (formerly Genzyme Pharmaceuticals LLC, now known as Corden Pharma) and Discovery
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on December 29, 2010.
|
|
|
|
|
|
10.22
|
Product Development and Supply Agreement between Discovery and Lacey Manufacturing Company, a Division of Precision Engineered Products, LLC
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC on May 15, 2012.
|
|
|
|
|
|
10.23
|
Research and Development Services Agreement between Discovery and Battelle Memorial Institute, dated June 22, 2012
|
Incorporated by reference to Exhibit 10.4 of Discovery’s Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2012.
|
|
|
|
|
|
10.24
|
Facility Agreement dated as of February 13, 2013, between Discovery and Deerfield
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K/A, as filed with the SEC on March 15, 2013.
|
|
|
|
|
|
10.25
|
Registration Rights Agreement dated as of February 13, 2013, between Discovery and Deerfield
|
Incorporated by reference to Exhibit 10.2 to Discovery’s Current Report on Form 8-K/A, as filed with the SEC on March 15, 2013.
|
Exhibit No.
|
Description
|
Method of Filing
|
|
10.26
|
Security Agreement dated as of February 13, 2013, between Discovery and Deerfield
|
Incorporated by reference to Exhibit 10.3 to Discovery’s Current Report on Form 8-K/A, as filed with the SEC on March 15, 2013.
|
|
|
|
|
|
10.27
|
At-the-Market Equity Offering Sales Agreement dated February 11, 2013 between Discovery and Stifel Nicolaus & Company, Incorporated
|
Incorporated by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as filed with the SEC on February 13, 2013.
|
|
|
|
|
|
10.28
|
Pharmaceutical Manufacturing and Supply Agreement dated August 7, 2013 between Discovery and DSM Pharmaceuticals, Inc.
|
Incorporated by reference to Exhibit 10.2 to Discovery’s Quarterly Report on Form 10-Q, as filed with the SEC on August 8, 2013.
|
|
|
|
|
|
10.29
|
Master Services Agreement dated October 24, 2013 between Discovery and DSM
|
Incorporated by reference to Exhibit 10.2 to Discovery’s Quarterly Report on Form 10-Q, as filed with the SEC on November 12, 2013.
|
|
|
|
|
|
Subsidiaries of Discovery
|
Filed herewith.
|
||
|
|
|
|
Consent of Ernst & Young LLP, independent registered public accounting firm
|
Filed herewith.
|
||
|
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
Filed herewith.
|
||
|
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Filed herewith.
|
||
|
|
|
|
101.1
|
The following consolidated financial statements from the Discovery Laboratories, Inc. Annual Report on Form 10-K for the year ended December 31, 2013, formatted in Extensive Business Reporting Language (“XBRL”): (i) Balance Sheets as of December 31, 2013, December 31, 2012 and December 31, 2011, (ii) Statements of Operations for the years ended December 31, 2013, December 31, 2012, and December 31, 2011, (iii) Statements of Changes in Equity for the years ended December 31, 2013, December 31, 2012, and December 31, 2011, (iv) Statements of Cash Flows for the years ended December 31, 2013, December 31, 2012, and December 31, 2011, and (v) Notes to consolidated financial statements.
|
|
|
|
|
|
|
101.INS
|
Instance Document
|
Filed herewith.
|
|
|
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
Filed herewith.
|
Exhibit No.
|
Description
|
Method of Filing
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
Filed herewith.
|
|
|
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
Filed herewith.
|
|
|
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
Filed herewith.
|
|
|
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
Filed herewith.
|
+
|
Confidential treatment requested as to certain portions of these exhibits. Such portions have been redacted and filed separately with the Commission.
|
*
|
A management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report pursuant to Item 15(b) of Form 10-K.
|
|
|
Consolidated Financial Statements
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Balance Sheets as of December 31, 2013 and December 31, 2012
|
F-3
|
|
|
Statements of Operations for the years ended December 31, 2013, 2012, and 2011
|
F-4
|
|
|
Statements of Changes in Stockholders’ Equity for the years ended December 31, 2013, 2012, and 2011
|
F-5
|
|
|
Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011
|
F-6
|
|
|
Notes to consolidated financial statements
|
F-7
|
|
/s/ Ernst and Young LLP
|
|
December 31,
|
December 31,
|
||||||
|
2013
|
2012
|
||||||
ASSETS
|
|
|
||||||
Current Assets:
|
|
|
||||||
Cash and cash equivalents
|
$
|
86,283
|
$
|
26,892
|
||||
Accounts receivable
|
67
|
–
|
||||||
Inventory, net
|
112
|
195
|
||||||
Prepaid expenses and other current assets
|
777
|
719
|
||||||
Total current assets
|
87,239
|
27,806
|
||||||
|
||||||||
Property and equipment, net
|
1,656
|
1,737
|
||||||
Restricted cash
|
325
|
400
|
||||||
Other assets
|
97
|
–
|
||||||
Total assets
|
89,317
|
29,943
|
||||||
|
||||||||
LIABILITIES & STOCKHOLDERS’ EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable
|
$
|
1,433
|
$
|
1,166
|
||||
Accrued expenses
|
4,785
|
4,159
|
||||||
Deferred revenue
|
139
|
–
|
||||||
Common stock warrant liability
|
5,425
|
6,305
|
||||||
Equipment loans, current portion
|
73
|
69
|
||||||
Total current liabilities
|
11,855
|
11,699
|
||||||
|
||||||||
Long-term debt, net of discount of $11,646 at December 31, 2013 and $0 at December 31, 2012
|
18,354
|
–
|
||||||
Equipment loans, non-current portion
|
69
|
148
|
||||||
Other liabilities
|
538
|
443
|
||||||
Total liabilities
|
$
|
30,816
|
$
|
12,290
|
||||
|
||||||||
Stockholders’ Equity:
|
||||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding
|
–
|
–
|
||||||
Common stock, $0.001 par value; 150,000,000 and 100,000,000 shares authorized at December 31, 2013 and 2012, respectively; 84,659,111 and 43,673,636 shares issued at December 31, 2013 and 2012, respectively; 84,638,219 and 43,652,744 shares outstanding at December 31, 2013 and 2012, respectively
|
85
|
44
|
||||||
Additional paid-in capital
|
541,420
|
455,398
|
||||||
Accumulated deficit
|
(479,950
|
)
|
(434,735
|
)
|
||||
Treasury stock (at cost); 20,892 shares at December 31, 2013 and 2012
|
(3,054
|
)
|
(3,054
|
)
|
||||
Total stockholders’ equity
|
$
|
58,501
|
$
|
17,653
|
||||
Total liabilities & stockholders’ equity
|
$
|
89,317
|
$
|
29,943
|
|
Year Ended December 31,
|
|||||||||||
|
|
|
||||||||||
|
2013
|
2012
|
2011
|
|||||||||
|
|
|
|
|||||||||
Grant revenue
|
$
|
388
|
$
|
195
|
$
|
582
|
||||||
Expenses:
|
||||||||||||
Cost of product sales |
517
|
- | - | |||||||||
Research & development
|
27,661
|
21,570
|
17,230
|
|||||||||
Selling, general & administrative
|
16,718
|
16,444
|
7,864
|
|||||||||
Total expenses
|
44,896
|
38,014
|
25,094
|
|||||||||
Operating loss
|
(44,508
|
)
|
(37,819
|
)
|
(24,512
|
)
|
||||||
|
||||||||||||
Change in fair value of common stock warrant liability
|
761
|
555
|
3,560
|
|||||||||
|
||||||||||||
Other income / (expense):
|
||||||||||||
Interest and other income
|
3
|
6
|
13
|
|||||||||
Interest and other expense
|
(1,471
|
)
|
(57
|
)
|
(26
|
)
|
||||||
Other income / (expense), net
|
(1,468
|
)
|
(51
|
)
|
(13
|
)
|
||||||
|
||||||||||||
Net loss
|
$
|
(45,215
|
)
|
$
|
(37,315
|
)
|
$
|
(20,965
|
)
|
|||
Net loss per common share – basic and diluted
|
$
|
(0.82
|
)
|
$
|
(0.95
|
)
|
$
|
(0.93
|
)
|
|||
Weighted average number of common shares outstanding – basic and diluted
|
55,258
|
39,396
|
22,660
|
(In thousands)
|
Common Stock
|
|
Treasury Stock
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Shares
|
Amount
|
Total
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance – January 1, 2011
|
13,822
|
$
|
14
|
$
|
385,521
|
$
|
(376,455
|
)
|
(21
|
)
|
$
|
(3,054
|
)
|
$
|
6,026
|
|||||||||||||
Net loss
|
–
|
–
|
–
|
(20,965
|
)
|
–
|
–
|
(20,965
|
)
|
|||||||||||||||||||
Issuance of common stock, restricted stock awards
|
1
|
–
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||||||||
Issuance of common stock, 401(k) Plan employer match
|
265
|
–
|
497
|
–
|
–
|
–
|
497
|
|||||||||||||||||||||
Issuance of common stock, February 2011 financing
|
10,000
|
10
|
13,513
|
–
|
–
|
–
|
13,523
|
|||||||||||||||||||||
Issuance of common stock, CEFF financings
|
515
|
1
|
1,315
|
–
|
–
|
–
|
1,316
|
|||||||||||||||||||||
Stock-based compensation expense
|
–
|
–
|
867
|
–
|
–
|
–
|
867
|
|||||||||||||||||||||
Balance – December 31, 2011
|
24,603
|
$
|
25
|
$
|
401,713
|
$
|
(397,420
|
)
|
(21
|
)
|
$
|
(3,054
|
)
|
$
|
1,264
|
|||||||||||||
Net loss
|
–
|
–
|
–
|
(37,315
|
)
|
–
|
–
|
(37,315
|
)
|
|||||||||||||||||||
Issuance of common stock, March 2012 financing
|
16,072
|
16
|
42,074
|
–
|
–
|
–
|
42,090
|
|||||||||||||||||||||
Issuance of common stock, ATM financing
|
350
|
1
|
1,460
|
–
|
–
|
–
|
1,461
|
|||||||||||||||||||||
Issuance of common stock, 401(k) Plan employer match
|
317
|
–
|
763
|
–
|
–
|
–
|
763
|
|||||||||||||||||||||
Exercise of common stock warrants
|
2,289
|
2
|
6,875
|
–
|
–
|
–
|
6,877
|
|||||||||||||||||||||
Exercise of stock options for cash
|
3
|
–
|
6
|
–
|
–
|
–
|
6
|
|||||||||||||||||||||
Issuance of common stock, consultants
|
40
|
–
|
96
|
–
|
–
|
–
|
96
|
|||||||||||||||||||||
Stock-based compensation expense
|
–
|
–
|
2,411
|
–
|
–
|
–
|
2,411
|
|||||||||||||||||||||
Balance – December 31, 2012
|
43,674
|
$
|
44
|
$
|
455,398
|
$
|
(434,735
|
)
|
(21
|
)
|
$
|
(3,054
|
)
|
$
|
17,653
|
|||||||||||||
Net loss
|
–
|
–
|
–
|
(45,215
|
)
|
–
|
–
|
(45,215
|
)
|
|||||||||||||||||||
Issuance of common stock, May 2013 financing
|
10,847
|
11
|
15,102
|
–
|
–
|
–
|
15,113
|
|||||||||||||||||||||
Issuance of common stock, November 2013 financing
|
28,750
|
29
|
53,836
|
–
|
–
|
–
|
53,865
|
|||||||||||||||||||||
Issuance of common stock, ATM financing
|
714
|
1
|
1,795
|
–
|
–
|
–
|
1,796
|
|||||||||||||||||||||
Issuance of common stock warrants, Deerfield
|
–
|
–
|
11,729
|
–
|
–
|
–
|
11,729
|
|||||||||||||||||||||
Issuance of common stock, 401(k) Plan employer match
|
510
|
–
|
959
|
–
|
–
|
–
|
959
|
|||||||||||||||||||||
Exercise of common stock warrants
|
114
|
–
|
290
|
–
|
–
|
–
|
290
|
|||||||||||||||||||||
Exercise of stock options for cash
|
18
|
–
|
34
|
–
|
–
|
–
|
34
|
|||||||||||||||||||||
Issuance of common stock, consultants
|
32
|
–
|
67
|
–
|
–
|
–
|
67
|
|||||||||||||||||||||
Stock-based compensation expense
|
–
|
–
|
2,210
|
–
|
–
|
–
|
2,210
|
|||||||||||||||||||||
Balance – December 31, 2013
|
84,659
|
$
|
85
|
$
|
541,420
|
$
|
(479,950
|
)
|
(21
|
)
|
$
|
(3,054
|
)
|
$
|
58,501
|
|
Year Ended December 31,
|
|||||||||||
|
|
|
|
|||||||||
|
2013
|
2012
|
2011
|
|||||||||
Cash flows from operating activities:
|
|
|
|
|||||||||
Net loss
|
$
|
(45,215
|
)
|
$
|
(37,315
|
)
|
$
|
(20,965
|
)
|
|||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
Depreciation and amortization
|
707
|
1,150
|
1,234
|
|||||||||
Provision for excess inventory
|
514
|
–
|
–
|
|||||||||
Stock–based compensation and 401(k) Plan employer match
|
3,236
|
3,270
|
1,364
|
|||||||||
Fair value adjustment of common stock warrants
|
(761
|
)
|
(555
|
)
|
(3,560
|
)
|
||||||
Amortization of discount of long-term debt
|
534
|
–
|
–
|
|||||||||
Loss on disposal of equipment
|
–
|
42
|
45
|
|||||||||
Reduction in required restricted cash under lease agreement | 75 |
–
|
–
|
|||||||||
Changes in:
|
||||||||||||
Inventory
|
(431
|
)
|
(195
|
)
|
–
|
|||||||
Accounts receivable
|
(67
|
)
|
–
|
–
|
||||||||
Prepaid expenses and other current assets
|
(58
|
) |
(277
|
) |
(157
|
) | ||||||
Accounts payable
|
267
|
55
|
(574
|
)
|
||||||||
Accrued expenses
|
626
|
1,187
|
(314
|
)
|
||||||||
Deferred revenue
|
139
|
–
|
–
|
|||||||||
Other assets
|
(115
|
)
|
–
|
174
|
||||||||
Other liabilities
|
95
|
(246
|
)
|
55
|
||||||||
Net cash used in operating activities
|
(40,454
|
)
|
(32,884
|
)
|
(22,698
|
)
|
||||||
|
||||||||||||
Cash flows from investing activities:
|
||||||||||||
Purchase of property and equipment |
(608
|
)
|
(636
|
)
|
(106
|
)
|
||||||
Net cash used in investing activities
|
(608
|
)
|
(636
|
)
|
(106
|
)
|
||||||
|
||||||||||||
Cash flows from financing activities:
|
||||||||||||
Proceeds from issuance of securities, net of expenses
|
70,774
|
43,551
|
22,927
|
|||||||||
Proceeds from issuance of long-term debt
|
30,000
|
–
|
–
|
|||||||||
Payment of debt issuance costs
|
(450
|
)
|
–
|
–
|
||||||||
Proceeds from exercise of common stock warrants and options
|
204
|
6,747
|
–
|
|||||||||
Principal payments under equipment loans
|
(75
|
)
|
(75
|
)
|
(145
|
)
|
||||||
Net cash provided by financing activities
|
100,453
|
50,223
|
22,782
|
|||||||||
Net increase / (decrease) in cash and cash equivalents
|
59,391
|
16,703
|
(22
|
)
|
||||||||
Cash and cash equivalents – beginning of year
|
26,892
|
10,189
|
10,211
|
|||||||||
Cash and cash equivalents – end of year
|
$
|
86,283
|
$
|
26,892
|
$
|
10,189
|
||||||
|
||||||||||||
Supplementary disclosure of cash flows information:
|
||||||||||||
Interest paid
|
$
|
920
|
$
|
13
|
$
|
20
|
· | Chargebacks. Chargebacks are discounts that occur when contracted customers purchase directly from our specialty distributor. Contracted customers, which currently consist primarily of member hospitals of Group Purchasing Organizations, generally purchase the product at a discounted price. Our specialty distributor, in turn, charges back the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the customer. The allowance for specialty distributor chargebacks is based on known sales to contracted customers. |
· | Sales discounts : Sales discounts are offered to certain contracted customers based upon a customer’s historical volume of surfactant product purchases. Customers must enter into a Letter of Participation (LOP) with us to receive sales discounts. Sales discounts are calculated on a quarterly basis based upon the customer’s quarterly purchases of SURFAXIN, as provided in the LOP. The allowance for sales discounts is based on known sales to contracted customers. |
· | Specialty distributor deductions. Our specialty distributor is offered various forms of consideration including allowances, service fees and prompt payment discounts. Specialty distributor allowances and service fees are provided in our contractual agreement and are generally a percentage of the purchase price paid by the specialty distributor. The specialty distributor is offered a prompt pay discount for payment within a specified period. |
· | Returns. Sales of our products are not subject to a general right of return; however, we will accept product that is damaged or defective when shipped or for expired product up to 6 months subsequent to its expiry date. Product that has been administered to patients is no longer subject to any right of return. |
· | Level 1 – Quoted prices in active markets for identical assets and liabilities. |
· | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
· | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
|
Fair Value
|
Fair value measurement using
|
||||||||||||||
(in thousands)
|
December 31, 2013
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
|
|
|
|
||||||||||||
Assets:
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
$
|
86,283
|
$
|
86,283
|
$
|
–
|
$
|
–
|
||||||||
Certificate of deposit
|
325
|
325
|
–
|
–
|
||||||||||||
Total Assets
|
$
|
86,608
|
$
|
86,608
|
$
|
–
|
$
|
–
|
||||||||
Liabilities:
|
||||||||||||||||
Common stock warrants
|
$
|
5,425
|
$
|
$ –
|
$
|
–
|
$
|
5,425
|
|
Fair Value
|
Fair value measurement using
|
||||||||||||||
(in thousands)
|
December 31, 2012
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Assets:
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
$
|
26,892
|
$
|
26,892
|
$
|
–
|
$
|
–
|
||||||||
Certificate of deposit
|
400
|
400
|
–
|
–
|
||||||||||||
Total Assets
|
$
|
27,292
|
$
|
27,292
|
$
|
–
|
$
|
–
|
||||||||
Liabilities:
|
||||||||||||||||
Common stock warrants
|
$
|
6,305
|
$
|
$ –
|
$
|
–
|
$
|
6,305
|
(1)
|
See,
Note 8 – Common Stock Warrant Liability.
|
December 31,
|
||||||||
Significant Unobservable Input Assumptions of Level 3 Valuations
|
2013
|
2012
|
||||||
|
|
|||||||
Historical volatility
|
62% -76
|
%
|
56% -80
|
%
|
||||
Expected term (in years)
|
0.4 – 2.1
|
1.4 – 3.2
|
||||||
Risk-free interest rate
|
0.08% - 0.44
|
%
|
0.16% - 0.36
|
%
|
December 31,
|
||||||||
(in thousands)
|
2013
|
2012
|
||||||
Raw materials
|
$
|
52
|
$
|
195
|
||||
Finished goods
|
60
|
–
|
||||||
$
|
112
|
$
|
195
|
|
December 31,
|
|||||||
(in thousands)
|
2013
|
2012
|
||||||
|
||||||||
Manufacturing, laboratory & office equipment
|
$
|
8,383
|
$
|
7,775
|
||||
Furniture & fixtures
|
816
|
816
|
||||||
Leasehold improvements
|
2,711
|
2,711
|
||||||
Subtotal
|
11,910
|
11,302
|
||||||
Accumulated depreciation and amortization
|
(10,254
|
)
|
(9,565
|
)
|
||||
Property and equipment, net
|
$
|
1,656
|
$
|
1,737
|
|
December 31,
|
|||||||
(in thousands)
|
2013
|
2012
|
||||||
|
||||||||
Salaries, bonus & benefits
|
$
|
1,849
|
$
|
1,206
|
||||
Manufacturing operations
|
1,707
|
926
|
||||||
Research and development
|
270
|
734
|
||||||
Professional fees
|
393
|
428
|
||||||
Sales and marketing
|
161
|
279
|
||||||
All other
|
405
|
586
|
||||||
Total accrued expenses
|
$
|
4,785
|
$
|
4,159
|
|
|
|
Fair Value of Warrants
(in thousands)
|
||||||||||||||||||
Issuance
Date
|
Number of Warrant Shares Issuable
|
Exercise
Price
|
Warrant
Expiration
Date
|
Value at
Issuance
Date
|
December 31,
|
||||||||||||||||
2013
|
2012
|
||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
5/13/2009
|
466,667
|
$
|
17.25
|
5/13/2014
|
$
|
3,360
|
$
|
–
|
$
|
–
|
|||||||||||
2/23/2010
|
916,669
|
12.75
|
2/23/2015
|
5,701
|
6
|
104
|
|||||||||||||||
2/22/2011
|
4,834,950
|
1.50
|
2/22/2016
|
8,004
|
5,419
|
6,201
|
|||||||||||||||
|
|
$
|
5,425
|
$
|
6,305
|
Note 9 –
|
Deerfield Loan
|
(in thousands) | ||||
Note Payable
|
$
|
30,000
|
||
Unamortized discount
|
(11,646
|
)
|
||
Long-term debt, net of discount
|
$
|
18,354
|
Significant Unobservable Input
Assumptions of Level 3 Valuations
|
||||
Historical volatility
|
101
|
%
|
||
Expected term (in years)
|
5.2 – 6.0
|
|||
Risk-free interest rate
|
1.2% – 1.5
|
%
|
(in thousands)
|
December 31,
|
|||||||||||
2013
|
2012
|
2011
|
||||||||||
Cash interest expense
|
$
|
911
|
$
|
–
|
$
|
–
|
||||||
Non-cash amortization of debt discounts
|
534
|
–
|
–
|
|||||||||
Amortization of debt costs
|
18
|
–
|
–
|
|||||||||
Total Deerfield Loan interest expenses
|
$
|
1,463
|
$
|
–
|
$
|
–
|
(in thousands)
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
Short-term
|
73
|
69
|
||||||
Long-term
|
69
|
148
|
||||||
|
$
|
142
|
$
|
217
|
(in thousands, except price per share data)
|
December 31,
|
Exercise
|
Expiration
|
||||||||||
|
2013
|
2012
|
Price
|
Date
|
|||||||||
|
|||||||||||||
Deerfield – 2013 loan
|
7,000
|
–
|
$
|
2.81
|
2/13/2019
|
||||||||
Former employee
|
30
|
30
|
$
|
3.20
|
3/18/2016
|
||||||||
Investors – February 2011 financing
|
4,835
|
4,949
|
$
|
1.50
|
2/22/2016
|
||||||||
PharmaBio – October 2010 financing
|
79
|
79
|
$
|
4.10
|
10/13/2015
|
||||||||
Investors – June 2010 financing
|
1,190
|
1,190
|
$
|
6.00
|
6/22/2015
|
||||||||
Kingsbridge – June 2010 CEFF
|
83
|
83
|
$
|
6.69
|
12/11/2015
|
||||||||
PharmaBio – April 2010 financing
|
135
|
135
|
$
|
10.59
|
4/30/2015
|
||||||||
Investors – February 2010 financing
|
917
|
917
|
$
|
12.75
|
2/23/2015
|
||||||||
Investors – May 2009 financing
|
467
|
467
|
$
|
17.25
|
5/13/2014
|
||||||||
Kingsbridge – December 2008 CEFF
|
45
|
45
|
$
|
22.70
|
6/12/2014
|
||||||||
Kingsbridge – May 2008 CEFF
|
-
|
55
|
$
|
37.59
|
11/22/2013
|
||||||||
Total
|
14,781
|
7,950
|
As of December 31,
|
||||||||
2013
|
2012
|
|||||||
Stock Options Outstanding
|
||||||||
2011 Plan
(1)
|
4,919
|
3,365
|
||||||
2007 Plan
|
258
|
277
|
||||||
1998 Plan
|
251
|
355
|
||||||
Total Outstanding
|
5,428
|
3,997
|
||||||
Available for Future Grants under 2011 Plan
|
2,894
|
2,966
|
||||||
Total
|
8,322
|
6,963
|
(in thousands, except for weighted-average data)
|
|||||||||
Stock Options
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
(In Yrs)
|
||||||
Outstanding at December 31, 2010
|
943
|
$
|
56.06
|
|
|||||
Granted
|
1,771
|
1.84
|
|
||||||
Forfeited or expired
|
(276
|
)
|
44.95
|
|
|||||
Outstanding at December 31, 2011
|
2,438
|
$
|
17.97
|
|
|||||
Granted
|
1,724
|
2.63
|
|
||||||
Exercised
|
(3
|
)
|
1.83
|
|
|||||
Forfeited or expired
|
(162
|
)
|
24.39
|
|
|||||
Outstanding at December 31, 2012
|
3,997
|
$
|
11.11
|
|
|||||
Granted
|
1,928
|
2.30
|
|
||||||
Exercised
|
(18
|
)
|
1.85
|
|
|||||
Forfeited or expired
|
(479
|
)
|
28.09
|
|
|||||
Outstanding at December 31, 2013
|
5,428
|
$
|
6.51
|
8.0
|
|||||
|
|
||||||||
Exercisable at December 31, 2013
|
2,346
|
$
|
12.01
|
6.9
|
(in thousands, except for weighted-average data)
|
||||||||||||
Restricted Stock Units
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
(In Yrs)
|
|||||||||
Outstanding at December 31, 2012
|
–
|
$
|
–
|
|
||||||||
Awarded
|
19
|
–
|
|
|||||||||
Outstanding at December 31, 2013
|
19
|
$
|
–
|
0.4
|
||||||||
|
||||||||||||
Exercisable at December 31, 2013
|
–
|
$
|
–
|
0.0
|
(shares in thousands)
|
Outstanding
|
Vested and Exercisable
|
||||||||||||||||||
Price per share
|
Shares
|
Weighted-
Average Price
per Share
|
Weighted-
Average
Remaining
Contractual Life
|
Shares
|
Weighted-
Average Price
per Share
|
Weighted-
Average
Remaining
Contractual Life
|
||||||||||||||
$
|
1.58 - $156.45
|
5,428
|
$
|
6.51
|
8.0 Years
|
2,346
|
$
|
12.01
|
6.9 Years
|
December 31,
|
||||||||||||
(in thousands)
|
2013
|
2012
|
2011
|
|||||||||
Research and development
|
$
|
784
|
$
|
487
|
$
|
289
|
||||||
Selling, general and administrative
|
1,426
|
1,924
|
578
|
|||||||||
Total
|
$
|
2,210
|
$
|
2,411
|
$
|
867
|
December 31,
|
||||||||||||
2013
|
2012
|
2011
|
||||||||||
Weighted average expected volatility
|
109
|
%
|
111
|
%
|
113
|
%
|
||||||
Weighted average expected term
|
4.7 years
|
4.6 years
|
4.8 years
|
|||||||||
Weighted average risk-free interest rate
|
0.73
|
%
|
0.74
|
%
|
1.08
|
%
|
||||||
Expected dividends
|
–
|
–
|
–
|
(in thousands)
|
2014
|
2015
|
2016
|
2017
|
2018
|
There-
after
|
Total
|
|||||||||||||||||||||
Operating lease obligations
|
1,087
|
1,024
|
934
|
936
|
158
|
–
|
4,139
|
|||||||||||||||||||||
Equipment loan obligations
(1)
|
79
|
69
|
–
|
–
|
–
|
–
|
148
|
|||||||||||||||||||||
Total
|
$
|
1,166
|
$
|
1,093
|
$
|
934
|
$
|
936
|
$
|
158
|
$
|
–
|
$
|
4,287
|
(1)
|
See,
Note 10 – Equipment Loan
|
(in thousands)
|
December 31,
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Income tax benefit, statutory rates
|
$
|
15,373
|
$
|
12,687
|
$
|
7,128
|
||||||
State taxes on income, net of Federal benefit
|
2,922
|
2,288
|
1,633
|
|||||||||
Research and development tax credit
|
517
|
332
|
662
|
|||||||||
Employee related
|
(766
|
)
|
(988
|
)
|
(1,758
|
)
|
||||||
Warrant valuation related
|
259
|
189
|
1,210
|
|||||||||
Income tax benefit
|
18,305
|
14,508
|
8,875
|
|||||||||
Valuation allowance
|
(18,305
|
)
|
(14,508
|
)
|
(8,875
|
)
|
||||||
Income tax benefit
|
$
|
–
|
$
|
–
|
$
|
–
|
(in thousands)
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Long-term deferred tax assets:
|
|
|
||||||
Net operating loss carryforwards (Federal and state)
|
$
|
175,258
|
$
|
160,522
|
||||
Research and development tax credits
|
10,604
|
9,412
|
||||||
Compensation expense on stock
|
3,276
|
3,154
|
||||||
Charitable contribution carryforward
|
7
|
7
|
||||||
Inventory reserve
|
198
|
–
|
||||||
Deferred revenue
|
53
|
–
|
||||||
Other accrued
|
1,024
|
524
|
||||||
Depreciation
|
2,714
|
2,665
|
||||||
Capitalized research and development
|
1,326
|
1,516
|
||||||
Total long-term deferred tax assets
|
194,460
|
177,800
|
||||||
Less: valuation allowance
|
(194,460
|
)
|
(177,800
|
)
|
||||
Deferred tax assets, net of valuation allowance
|
$
|
–
|
$
|
–
|
2013 Quarters Ended:
|
||||||||||||||||||||
(in thousands, except per share data)
|
Mar. 31
|
June 30
|
Sept. 30
|
Dec. 31
|
Total Year
|
|||||||||||||||
Grant revenues
|
$
|
72
|
$
|
182
|
$
|
60
|
$
|
74
|
$
|
388
|
||||||||||
Expenses:
|
||||||||||||||||||||
Cost of sales
|
–
|
–
|
–
|
517
|
517
|
|||||||||||||||
Research and development
|
8,472
|
6,863
|
6,574
|
5,752
|
27,661
|
|||||||||||||||
Selling, General and administrative
|
4,220
|
4,129
|
4,299
|
4,070
|
16,718
|
|||||||||||||||
Total expenses
|
12,692
|
10,992
|
10,873
|
10,339
|
44,896
|
|||||||||||||||
Operating loss
|
(12,620
|
)
|
(10,810
|
)
|
(10,813
|
)
|
(10,265
|
)
|
(44,508
|
)
|
||||||||||
Change in fair value of common stock warrant liability
|
162
|
2,525
|
(1,059
|
)
|
(867
|
)
|
761
|
|||||||||||||
Other expense, net
|
(177
|
)
|
(342
|
)
|
(352
|
)
|
(597
|
)
|
(1,468
|
)
|
||||||||||
Net loss
|
$
|
(12,635
|
)
|
$
|
(8,627
|
)
|
$
|
(12,224
|
)
|
$
|
(11,729
|
)
|
$
|
(45,215
|
)
|
|||||
Net loss per common share - basic
|
$
|
(0.29
|
)
|
$
|
(0.18
|
)
|
$
|
(0.22
|
)
|
$
|
(0.16
|
)
|
$
|
(0.82
|
)
|
|||||
Net loss per common share - diluted
|
(0.29
|
)
|
(0.22
|
)
|
(0.22
|
)
|
(0.16
|
)
|
(0.82
|
)
|
||||||||||
Weighted average number of common shares outstanding - basic
|
43,657
|
49,135
|
54,792
|
73,129
|
55,258
|
|||||||||||||||
Weighted average number of common shares outstanding - diluted
|
43,657
|
49,866
|
54,792
|
73,129
|
55,258
|
2012 Quarters Ended:
|
|
|||||||||||||||||||
(in thousands, except per share data)
|
Mar. 31
|
June 30
|
Sept. 30
|
Dec. 31
|
Total Year
|
|||||||||||||||
Grant Revenues
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
195
|
$
|
195
|
||||||||||
Expenses:
|
||||||||||||||||||||
Research and development
|
4,533
|
5,206
|
5,743
|
6,088
|
21,570
|
|||||||||||||||
General and administrative
|
2,047
|
3,610
|
4,255
|
6,532
|
16,444
|
|||||||||||||||
Total expenses
|
6,580
|
8,816
|
9,998
|
12,620
|
38,014
|
|||||||||||||||
Operating loss
|
(6,580
|
)
|
(8,816
|
)
|
(9,998
|
)
|
(12,425
|
)
|
(37,819
|
)
|
||||||||||
Change in fair value of common stock warrant liability
|
(3,434
|
)
|
1,680
|
(3,309
|
)
|
5,618
|
555
|
|||||||||||||
Other expense, net
|
(2
|
)
|
(2
|
)
|
(39
|
)
|
(8
|
)
|
(51
|
)
|
||||||||||
Net loss
|
$
|
(10,016
|
)
|
$
|
(7,138
|
)
|
$
|
(13,346
|
)
|
$
|
(6,815
|
)
|
$
|
( 37,315
|
)
|
|||||
Net loss per common share - basic and diluted
|
$
|
(0.37
|
)
|
$
|
(0.16
|
)
|
$
|
(0.31
|
)
|
$
|
(0.16
|
)
|
$
|
(0.95
|
)
|
|||||
Weighted average number of common shares outstanding
|
27,162
|
43,369
|
43,444
|
43,521
|
39,396
|
1 Year Discovery labs Chart |
1 Month Discovery labs Chart |
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