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Share Name | Share Symbol | Market | Type |
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(MM) | NASDAQ:NPSP | NASDAQ | Ordinary Share |
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% | 45.99 | 0.00 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2014
OR
o 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 0-23272
NPS PHARMACEUTICALS, INC.
Delaware |
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87-0439579 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
550 Hills Drive, Bedminster, New Jersey |
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07921 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(908) 450-5300
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 at least the past 90 days. YES
x NO oIndicate 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
x NO oIndicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," and large "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
x |
Accelerated filer |
o |
Non-accelerated filer |
o |
Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
o NO xThe number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date is as follows:
Class |
|
Outstanding at November 3, 2014 |
Common Stock $.001 par value |
|
106,839,708 |
TABLE OF CONTENTS
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Page No. |
PART I FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements (unaudited) |
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Condensed Consolidated Balance Sheets |
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3 |
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Condensed Consolidated Statements of Operations |
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4 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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5 |
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Condensed Consolidated Statements of Cash Flows |
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6 |
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Notes to Condensed Consolidated Financial Statements |
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7 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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15 |
Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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26 |
Item 4. |
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Controls and Procedures |
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26 |
PART II OTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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27 |
Item 1A. |
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Risk Factors |
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27 |
Item 6. |
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Exhibits |
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27 |
SIGNATURES |
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2
PART I. Item 1. Financial Statements.
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets See accompanying notes to condensed consolidated financial statements. 3
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations See accompanying notes to condensed consolidated financial statements. 4
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Loss) See accompanying notes to condensed consolidated financial statements. 5
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows See accompanying notes to condensed consolidated financial statements. 6
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements included herein have been prepared by NPS Pharmaceuticals, Inc. (NPS Pharma or the Company) in
accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC). The condensed consolidated financial statements are comprised of the
financial statements of NPS Pharma and its subsidiaries collectively referred to as the Company. In management's opinion, the interim financial data presented includes all adjustments
(consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S.
generally accepted accounting principles has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three or nine months ended
September 30, 2014 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2014. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the year
ended December 31, 2013, included in NPS Pharma's 2013 Annual Report on Form 10-K filed with the SEC. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions relating to reporting of the assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period
in conformity with U.S. generally accepted accounting principles. Actual results could differ from these estimates. The financial statements of the Company's subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets
and liabilities, historical exchange rates for stockholders' equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other
comprehensive income (loss), net of tax, in stockholders' equity. Foreign currency transaction gains and losses are included in the results of operations in other income and expense. Subsequent Events The Company has evaluated all events and transactions since September 30, 2014. The Company did not have any material recognized or non-recognized subsequent
events. (2) Income (Loss) Per Common Share Basic net income (loss) per common share is the amount of income (loss) for the period divided by the weighted average shares of common stock outstanding during the reporting
period. Diluted income (loss) per common share is the amount of income (loss) for the period plus interest expense on convertible debt divided by the sum of weighted average shares of
common stock outstanding during the reporting period and weighted average shares that would have been outstanding assuming the issuance of common shares for all dilutive potential
common shares. Potential common shares of approximately 4.8 million and 5.9 million during the three and nine months ended September 30, 2014, respectively, and 7.4 million and 6.7 million during
the three and nine months ended September 30, 2013, respectively, that could potentially dilute basic income per share in the future were not included in the computation of diluted income
(loss) per share because to do so would have been anti-dilutive for the periods presented. Potential dilutive common shares related to convertible debt were approximately 0 and 1.1 million
during the three and nine months ended September 30, 2014, respectively, and 3.0 million for the three and nine months ended September 30, 2013, respectively. Additionally, potential
dilutive common shares related to stock options, restricted stock and restricted stock units were 4.8 million for the three and nine months ended September 30, 2014, respectively, and 4.4
million and 3.6 million for the three and nine months ended September 30, 2013, respectively. 7
(3) Fair Value Measurement The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows: Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2- Inputs are 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 and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for
the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market
corroborated inputs). Level 3- Inputs are unobservable and reflect the Company's assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based
on the best information available. Summary of Assets Recorded at Fair Value In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets (only marketable investment securities) that are
required to be measured at fair value as of September 30, 2014 and December 31, 2013 (in thousands): As of September 30, 2014 and December 31, 2013, the fair values of the Company's Level 2 securities were $116.0 million and $132.0 million, respectively. These securities are
certificates of deposit, commercial paper, corporate or government agency debt issued by domestic companies or agencies with an original maturity of less than 18 months. These
securities are currently rated A-1 or higher. The Company's cash equivalents are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market
prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third-party pricing providers or other
market observable data. Data used in the analysis include reportable trades, broker/dealer quotes, bids and offers, benchmark yields and credit spreads. The Company validates the prices
provided by its third-party pricing providers by reviewing their pricing methods, analyzing pricing inputs and confirming that the securities have traded in normally functioning markets. The
Company did not adjust or override any fair value measurements provided by its pricing providers as of September 30, 2014 or December 31, 2013. 8
As of September 30, 2014 and December 31, 2013, the Company did not have any investments in Level 3 securities. There were no transfers of assets or liabilities between Level 1 and Level 2 during the three or nine months ended September 30, 2014 and 2013. The carrying amounts reflected in the condensed consolidated balance sheets for certain short-term financial instruments including accounts receivable, accounts payable, accrued
expenses, and other liabilities approximate fair value due to their short-term nature, except that the estimated fair value and carrying value of a royalty liability to the Brigham and Women's
Hospital related to sales of cinacalcet HCl using a discounted cash flow model is approximately $3.6 million and $4.6 million, respectively, at September 30, 2014 and $4.3 million and $5.6
million, respectively, at December 31, 2013. Summary of Liabilities Recorded at Carrying Value The fair and carrying value of our debt instruments are detailed as follows (in thousands): The fair values of the Company's convertible notes were estimated using the (i) terms of the convertible notes; (ii) rights, preferences, privileges, and restrictions of the underlying
security; (iii) time until any restriction(s) are released; (iv) fundamental financial and other characteristics of the Company; (v) trading characteristics of the underlying security (exchange,
volume, price, and volatility); and (vi) precedent sale transactions. The fair values of the Company's non-recourse Sensipar notes, recombinant human parathyroid hormone [1-84]
("rhPTH 1-84")-secured debt and Regpara-secured debt were estimated using a discounted cash flow model. Within the hierarchy of fair value measurements, these are Level 3 fair values. (4) Financial Instruments Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable investment securities. The majority of the
Company's accounts receivable are payable by pharmaceutical companies and specialty pharmacies and collateral is generally not required from these companies. Substantially all of the
Company's royalty revenues for the three and nine months ended September 30, 2014 and 2013 were from three licensees and substantially all of the Company's accounts receivable
balances at September 30, 2014 and December 31, 2013 were from three licensees. Substantially all of the Company's product sales revenues for the three and nine months ended
September 30, 2014 and 2013 and substantially all of the Company's trade accounts receivable balances at September 30, 2014 and December 31, 2013, were from six specialty
pharmacies. The Company's portfolio of marketable investment securities is subject to concentration limits set within the Company's investment policy that help to mitigate its credit
exposure. 9
The following is a summary of the Company's marketable investment securities (in thousands): Marketable investment securities available for sale in an unrealized loss position as of September 30, 2014 and December 31, 2013 are summarized as follows (in thousands): 10
Summary of Contractual Maturities Maturities of marketable investment securities are as follows at September 30, 2014 and December 31, 2013 (in thousands): Impairments No impairment losses were recognized through earnings related to available for sale securities during the three and nine months ended September 30, 2014 and 2013. Proceeds from Available for Sale Securities The proceeds from maturities and sales of available for sale securities and resulting realized gains and losses, were as follows (in thousands): (5) Inventory Inventories are stated at the lower of cost or market. Inventory is as follows at September 30, 2014 and December 31, 2013 (in thousands): Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as research and development as incurred. The Company begins to capitalize the costs
associated with the production of the inventory upon marketing approval of a product candidate. 11
(6) Long-term Debt The following table reflects the carrying value of the Company's long-term debt under various financing arrangements as of September 30, 2014 and December 31, 2013 (in thousands): (a) Convertible Notes On April 8, 2014, the holders of the 5.75% Convertible Notes ("5.75% Convertible Notes") converted the remaining outstanding notes at a conversion price of $5.44 per
share. The Company issued 3.0 million shares pursuant to this conversion and retired the remaining $16.5 million of the outstanding 5.75% Convertible Notes. (b) Non-recourse Debt Sensipar- and Mimpara-Secured Non-recourse Debt As of September 30, 2014 and December 31, 2013, the outstanding principal balances on Sensipar- and Mimpara-secured non-recourse debt were $33.5 million and $54.4 million,
respectively. The Sensipar- and Mimpara-secured debt is non-recourse to the Company and solely secured and serviced by Sensipar and Mimpara (cinacalcet HCl) royalties. The
Company amended its agreement with Amgen effective September 30, 2011 whereby Amgen advanced $145.0 million of Sensipar and Mimpara royalties to the Company (the
"Sensipar Notes"). The Sensipar Notes accrue interest at an annual rate of 9%, compounded quarterly and payable 45 days after the close of each quarter. The payment of the
royalty advance and discount shall be satisfied solely by Amgen's withholding of royalties and except in the event of a breach of certain customary representations and warranties under the
agreement, the Company will have no obligation to repay any unsettled amount. The Company further amended the agreement with Amgen effective June 29, 2012, limiting the royalty
offset of the royalty advance up to $8.0 million per quarter with royalties in excess of $8.0 million paid to the Company for the respective quarter, thereby extending the royalty advance
repayment period. After the payment of the royalty advance and a 9% per annum discount on the balance of the advance, Amgen will resume paying NPS Pharma all royalties earned
through December 31, 2018. As of September 30, 2014 and December 31, 2013, the Company classified $7.3 million and $6.7 million, respectively, of the Sensipar Notes as current based
on royalty payments accrued as of September 30, 2014 and December 31, 2013. Accrued interest on the Sensipar Notes was approximately $365,000 and $592,000 as of September 30,
2014 and December 31, 2013, respectively. The Company incurred debt issuance costs of $96,000, in September 2011, which are being amortized using the effective interest method. The
effective interest rate on the Sensipar Notes, including debt issuance costs, is approximately 9%. rhPTH 1-84-Secured Non-recourse Debt As of each of September 30, 2014 and December 31, 2013, the outstanding principal balances on rhPTH 1-84-secured debt were $42.8 million. In July 2007, the Company entered into
an agreement (the "2007 DRI Agreement") with DRI Capital ("DRI"), formerly Drug Royalty L.P.3, in which the Company sold to DRI its right to receive future royalty
payments arising from sales of recombinant human parathyroid hormone 1-84 [rDNA origin] ("PTH") under its license agreement with Takeda (the "Takeda License
Agreement"). Under the 2007 DRI Agreement, DRI paid the Company an up-front purchase price of $50.0 million. If and when DRI receives two and a half times the amount paid to
the Company, the 2007 DRI Agreement will terminate and the remainder of the royalties, if any, will revert back to the Company. In connection with the Company's 2007 DRI Agreement,
the Company granted DRI a security interest in its Takeda License Agreement for Preotact and certain of its patents and other intellectual property underlying the Takeda License
Agreement. In the event of a default by the Company under the 2007 DRI Agreement, DRI would be entitled to enforce its security interest against the property described above. 12
In December 2013, the Company entered into an amendment and restatement (the "Amendment and Restatement") to the 2007 DRI Agreement. Pursuant to the March 18,
2013 Termination and Transition Agreement between the Company and Takeda (the "Termination and Transition Agreement"), the Takeda License Agreement was terminated
and the Company re-acquired exclusive rights worldwide, excluding Israel, to develop and commercialize rhPTH 1-84. Preotact is the brand name that Takeda had used to market rhPTH 1-84
for the treatment of osteoporosis in certain of its licensed territories. The Company is developing rhPTH 1-84 in the U.S. under the trade name Natpara® for the treatment of
hypoparathyroidism. The Company filed a Biologic License Application ("BLA") for Natpara with the U.S. Food and Drug Administration (the "FDA") in
October 2013. The Prescription Drug User Fee Act ("PDUFA") date for completion of the review is January 24, 2015. Pursuant to the Amendment and Restatement, (i) DRI has consented to the commercialization of rhPTH 1-84 by the Company, (ii) the terms of the 2007 DRI Agreement
are tolled, and (iii) the parties' rights and obligations regarding PTH and related technology are governed by the Amendment and Restatement. The Company will be required to pay royalties in the mid-single digits to DRI based upon sales of rhPTH 1-84 by the Company and its licensees (if any) worldwide, excluding Israel. The
Company has agreed to undertake certain efforts to commercialize rhPTH 1-84. If the Company does not submit a Marketing Authorization Application to the European Medicines Agency
for rhPTH 1-84 in the European Union by an agreed upon date, DRI will have the right to revoke the consent granted in the Amendment and Restatement, reinstate the 2007 DRI
Agreement, and either cause the Company to enter into a new license agreement with a third party with respect to rhPTH 1-84 on terms that are substantially similar and no more extensive
(when taken as a whole) than the terms contained in the terminated Takeda License Agreement, or negotiate such an agreement on the Company's behalf. The Company's obligation to pay royalties to DRI under the Amendment and Restatement shall expire on a country-by-country basis upon the later of (i) the last to expire patent
controlled by the Company with claims covering rhPTH 1-84 in such country or (ii) the expiration of any period of regulatory exclusivity applicable to rhPTH 1-84 in such country. The
Company's obligation to pay royalties to DRI under the Amendment and Restatement shall terminate in its entirety once cumulative royalty payments made to DRI by Takeda and the
Company total $125.0 million. As of September 30, 2014, $45.5 million in royalties had been paid to DRI. DRI continues to maintain a security interest in the Company's patents that contain claims covering rhPTH 1-84 and certain other NPS Pharma intellectual property related to rhPTH 1-84.
In the event of a default by the Company under the Amendment and Restatement, DRI would be entitled to enforce its security interest against the Company and such intellectual
property. The Company determined the initial up-front purchase price is debt and is being amortized into earnings using the effective interest method over the estimated life. Accrued interest
under the Amendment and Restatement was $4.8 million and $0 as of September 30, 2014 and December 31, 2013, respectively and is included as a component of other liabilities. The
repayment of the remaining $42.8 million principal is secured solely by future royalty payments arising from sales of rhPTH 1-84 by the Company. The rhPTH 1-84-secured debt is non-
recourse to the Company. REGPARA-Secured Non-recourse Debt As of September 30, 2014 and December 31, 2013, the outstanding principal balances on REGPARA-secured debt were $31.0 million and $35.2 million, respectively. In February
2010, the Company entered into an agreement with an affiliate of DRI (the "2010 DRI Agreement"), in which the Company sold to DRI its right to receive future royalty payments
arising from sales of REGPARA® (cinacalcet HC1) under its license agreement with Kyowa Hakko Kirin. Under the 2010 DRI Agreement, DRI paid the Company an
upfront purchase price of $38.4 million. If and when DRI receives two and a half times the amount paid to the Company, the 2010 DRI Agreement will terminate and the remainder of the
royalties, if any, will revert back to the Company. In connection with the 2010 DRI Agreement, the Company granted DRI a security interest in its license agreement with Kyowa Hakko Kirin
for REGPARA and certain of its patents and other intellectual property underlying that agreement. In the event of a default by NPS Pharma under the 2010 DRI Agreement, DRI would be
entitled to enforce its security interest against NPS Pharma and the property described above. The Company classified the initial upfront purchase price as debt which is being amortized
using the effective interest method over the estimated life of approximately 11 years. As of September 30, 2014 and December 31, 2013, the Company classified $0 and $0, respectively, of
the REGPARA-secured debt as current based on royalty payments accrued as of September 30, 2014 and December 31,
13
2013. Accrued interest under the 2010 DRI Agreement was $0
and $1.1 million as of September 30, 2014 and December 31, 2013, respectively. Through September 30, 2014, $36.2 million has been paid to DRI. The repayment of the remaining $31.0
million principal as of September 30, 2014, is secured solely by future royalty payments arising from sales of REGPARA by Kyowa Hakko Kirin. The effective interest rate under the 2010
DRI Agreement, including issuance costs, is approximately 15.4%. The REGPARA-secured debt is non-recourse to the Company. (7) Income Taxes The Company files income tax returns in various jurisdictions with varying statutes of limitations. The statute of limitations for income tax audits in the U.S. will commence upon
utilization of net operating losses and will expire three years from the filing of the tax return. In August 2012, the IRS completed its examination of the Company's U.S. federal income tax
returns for the year ended December 31, 2009. In May 2013, the State of New Jersey completed its examination of the Company's New Jersey income tax returns through the year
ended December 31, 2010. There were no adjustments as a result of these examinations. The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes. Due to the Company's net operating loss carryforwards,
any adjustment related to a liability would not be expected to result in a cash tax liability. Accordingly, the Company has not accrued for penalties or interest for the U.S. (both federal and
state) as of September 30, 2014 and December 31, 2013. Assuming the continued existence of a full valuation allowance on the Company's net deferred tax assets, future recognition of
any of the Company's unrecognized tax benefits would not impact the effective tax rate. (8) Commitments and Contingencies The Company has agreed to indemnify, under certain circumstances, certain manufacturers and service providers from and against any and all losses, claims, damages or liabilities
arising from services provided by such manufacturers and service providers or from any use, including clinical trials, or sale by the Company or any Company agent of any product supplied
by the manufacturers. The Company has entered into long-term agreements with various third-party contract manufacturers for the production and packaging of the active pharmaceutical
ingredient and drug product. Under the terms of these various agreements, the Company may be required to purchase certain minimum quantities of product each year. (9) Stock Options The Company recognized $3.6 million and $11.2 million of compensation expense during the three and nine months ended September 30, 2014, respectively, and $2.2 million and $7.3
million during the three and nine months ended September 30, 2013, respectively, related to all stock based compensation. As of September 30, 2014, there was $32.8 million of total
unrecognized compensation cost related to all unvested share-based compensation arrangements that is expected to be recognized over a weighted-average period of 2.77 years. 14
A summary of activity related to aggregate stock options under all plans is indicated in the following table: (10) Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by
the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a
material impact on its financial position, results of operations or disclosures upon adoption. In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with
Customers," which requires entities to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers. The ASU
will replace most of the existing revenue recognition requirements in U.S. GAAP when it becomes effective. This pronouncement is effective for
annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not
permitted. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures. Management's Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Statement Regarding Forward-Looking Statements The following discussion and analysis is provided to further the reader's understanding of our condensed consolidated financial statements, financial condition and results of operations
in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes included in our filings
with the SEC, including our 2013 Annual Report on Form 10-K. This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements represent our management's judgment regarding future events. In many cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "plan," "expect," "anticipate," "estimate," "predict," "intend," "potential"
or "continue" or the negative of these terms or other words of similar import, although some forward-looking statements are expressed differently. All statements other than
statements of historical fact included in this Quarterly Report on Form 10-Q and the documents incorporated by reference into this report regarding our financial position, business strategy
and plans or objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above, we specifically note that
statements regarding potential drug candidates, their potential therapeutic effect, the possibility of obtaining regulatory approval, any anticipated timelines for making FDA or other regulatory
filings or submissions, or with respect to completion of milestones or targets with respect to regulatory filings, clinical studies, preclinical work and related matters, our ability or the ability of
our collaborators to manufacture and sell any products, market acceptance, or our ability to earn a profit from sales or licenses of any drug candidate or to discover new drugs in the future
are all forward-looking in nature. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware
15
that results and events could differ materially and adversely from those described in the forward-looking statements due to a number of factors, including: You should also consider carefully the statements set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 entitled "Risk Factors,"
which address these and additional factors that could cause results or events to differ from those set forth in the forward-looking statements. All subsequent written and oral forward-looking
statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. In addition, new risks emerge from time to
time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Given these risks and uncertainties, you should not
place undue reliance on these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to all such reports are available, free of charge, on our Internet
website under "Investors-SEC Filings," as soon as reasonably practicable after we file electronically such reports with, or furnish such reports to, the SEC. Our Internet website
address is http://www.npsp.com. Information contained in or linked to through our website does not constitute a part of this Quarterly Report on Form 10-Q. 16
Overview We are a global biopharmaceutical company pioneering and delivering first-in- or best-in disease therapies that transform the lives of patients with rare diseases. Our vision is creating a
world where every person living with a rare disease has a treatment option. Our current therapeutic areas of focus are rare gastrointestinal and endocrine disorders. These include Short
Bowel Syndrome, a potentially fatal gastrointestinal disorder in which patients may have to rely on parenteral support for their survival; Hypoparathyroidism, a complex endocrine disorder in
which the parathyroid glands are either absent or damaged and the body produces insufficient or no parathyroid hormone; and Autosomal Dominant Hypocalcemia (ADH), an ultra-rare
genetic disorder of calcium homeostasis caused by mutations of the calcium-sensing receptor gene. Our marketed product, Gattex® 0.05 mg/kg/d (teduglutide [rDNA origin]) for injection, for subcutaneous use was approved by the U.S. Food and Drug Administration
("FDA") in December 2012 for the treatment of adult patients with Short Bowel Syndrome ("SBS") who are dependent on parenteral support. SBS is an ultra-rare
potentially fatal disorder in which the body is unable to absorb enough nutrients and fluids through the gastrointestinal tract. In the European Union ("EU"), teduglutide (trade
name: Revestive®) is approved for the treatment of adult patients with SBS; patients should be stable following a period of intestinal adaptation after surgery. We launched Revestive in
Germany in September 2014 and plan to launch in other EU countries in late 2014 and early 2015. We are also implementing our regulatory strategy for Japan,
which included filing for orphan drug status. In addition, a global development program in pediatric SBS is advancing and we expect reporting top-line results from the first study in early
2015. Our second product, Natpara® (rhPTH[1-84]) for injection, has been developed for hypoparathyroidism, a rare multidimensional disorder characterized by deficient or absent
parathyroid hormone ("PTH"). The Endocrinologic and Metabolic Drugs Advisory Committee of the U.S. Food and Drug Administration ("FDA") met on September 12,
2014 to review our Biologic License Application ("BLA"), and voted 8 to 5 that the available data supports the approval of Natpara for the long-term treatment of
hypoparathyroidism. In October 2014, the FDA extended our Prescription Drug User Fee Act ("PDUFA") goal date by three months from October 24, 2014 to January 24, 2015 to
provide the FDA time for a full review of a major amendment to our BLA. Under current PDUFA regulations, the FDA can extend the review period for a major amendment with such
extensions typically limited to those occasions where review of the new information could lead to an approval in the current review cycle. In addition, the FDA requested that we submit a
Risk Evaluation and Mitigation Strategy ("REMS") for Natpara and we are working to finalize the REMS in advance of the revised PDUFA goal date. To date, the FDA has not
requested that additional clinical studies be completed prior to the approval of Natpara; however, we expect that the FDA will require a commitment from us to conduct a post-approval study
for Natpara. In the EU, we expect to file our Marketing Authorization Application for Natpar®, which is the European brand name for Natpara, in hypoparathyroidism
with the European Medicines Agency in 2014. We are also developing NPSP795 for ADH and we recently launched a Phase 2a proof-of-concept study. ADH is caused by mutations of the calcium-sensing receptor (CaSR) gene that
increase the sensitivity of the receptor to serum calcium. NPSP795 is a selective calcium receptor antagonist (termed calcilytic), which binds to the CaSR and decreases its sensitivity to
serum calcium. NPSP795's mechanism of action is believed to restore the normal physiological action of the CaSR and address the underlying molecular defect in ADH to return normal
calcium homeostasis. We expect to report preliminary top-line data from our Phase 2a study in early 2015. While SBS, Hypoparathyroidsim, and ADH are relatively rare disorders, we believe these indications represent a substantial commercial opportunity to us due to the significant unmet
need and lack of effective therapies, as well as the serious complications involved with and the chronic nature of these diseases. Our strategy also includes pursuing in-licensing opportunities that align with our focus on first-in-rare disease or best-in-rare disease therapeutics. We have incurred cumulative losses from inception through September 30, 2014 of approximately $1.0 billion. We may continue to record losses as we incur sales and
marketing costs related to the commercialization of Gattex and Revestive, pre-launch costs for Natpara, and our expansion into the international market. 17
Before marketing approval of our product candidates, we expense manufacturing costs as research and development expenses. Upon marketing approval, we capitalize the associated
manufacturing costs as inventory as they are incurred. We currently do not incur the fully loaded cost of sales associated with the sale of Gattex as we are currently selling the inventory that
we produced in advance of the FDA's approval of Gattex. This will result in current gross margins to be higher than those we will achieve once we begin selling product that was
manufactured after the date of marketing approval. Based on our current plans and assumptions, we believe that by the end of 2015 for Gattex, we will have sold off these supplies of
product on hand at the time of the FDA's approval. We expect that the higher gross margins for Gattex will be partially offset by the full cost of sales for Revestive, which did not have any
inventory expensed prior to approval. We also expect to record increased sales and incur additional marketing costs related to the commercialization of Gattex and Revestive, pre-launch
costs for Natpara, and our expansion into international markets. Results of Operations Three Months Ended September 30, 2014 and 2013 The following table summarizes selected operating statement data for the three months ended September 30, 2014 and 2013 (amounts in thousands): Revenues. Our revenues were $57.2 million for the quarter ended September 30, 2014 compared to $39.2 million for the quarter ended September 30, 2013. Total
revenues for the three months ended September 30, 2014 were comprised of product sales of Gattex, which was launched in the U.S. in February 2013, Revestive, which was launched in
Germany in September 2014; distributions under a named-patient program, and royalties from our licensees and collaborators. Royalty revenues fluctuate from quarter to quarter. We
recognized product sales and royalty revenue under our research and license agreements during the three months ended September 30, 2014 and 2013, respectively, as follows (amounts
in thousands): 18
Product Sales, net. During the three months ended September 30, 2014 and 2013, we recognized net product sales of $28.1 million and $11.0 million, respectively, for
Gattex and Revestive. We received approval from the FDA in December 2012 and subsequently launched Gattex in February 2013. Also, pursuant to the Termination and Transition
Agreement with Takeda, we received back the rights to market Revestive in certain territories outside of the U.S. Revestive was approved in the EU in 2012 and was launched in Germany
in September 2014. Product sales for the three months ended September 30, 2014 are not necessarily indicative of the results that may be expected for any future period or for the year
ending December 31, 2014. We expect that product sales of Gattex and Revestive will vary from period to period given the size of the patient population. We record product sales net of allowances and accruals for prompt pay discounts, rebates and chargebacks under U.S. governmental programs (including Medicaid), product returns,
and distribution-related fees. These allowances and accruals will continue to grow in relation to an increase in the sales of Gattex. The following table summarizes the provisions, and
credits/payments, for government rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions (in thousands): Royalties. The increase in royalty revenue earned from Amgen's sales of Sensipar and Mimpara (cinacalcet HCl) for the three months ended September 30, 2014 was
primarily due to increased unit demand. Pursuant to our agreement, Amgen is withholding royalties on sales of Sensipar and Mimpara up to $8.0 million per quarter and credited such
withheld royalties, net of a 9% discount, to the Sensipar Notes issued pursuant to the amended agreement. After the repayment of the royalty advance and a 9% per annum discount factor
on the outstanding balance, Amgen will resume paying us all royalties earned through December 31, 2018. During the three months ended September 30, 2014 and 2013, we recognized royalty revenue of $2.1 million and $2.0 million, respectively, from Kyowa Hakko Kirin for sales of
REGPARA. The increase was primarily due to increased demand which was partially offset by fluctuations in foreign currencies. In February 2010, we sold our rights to receive certain
future royalty payments from Kyowa Hakko Kirin's sale of REGPARA to an affiliate of DRI. The agreement provides DRI with the right to receive payments related to sales of REGPARA
occurring on or after July 1, 2009 and we therefore do not receive any such royalty payments until the REGPARA-secured debt is repaid. During the three months ended September 30, 2014 and 2013, we recognized royalty revenue of $557,000 and $706,000, respectively, from Janssen Pharmaceuticals, Inc. for sales of
Nucynta. The decrease in royalty revenue earned from Nucynta for the three months ended September 30, 2014 was primarily due to higher deductions from gross sales. Cost of Sales. Upon marketing approval from the FDA in December 2012, we began capitalizing inventory costs
associated with commercial supplies of Gattex. Costs for manufacturing supplies of Gattex prior to receipt of FDA approval were recognized as research and development expenses in the
period that the costs were incurred. Therefore, these costs are not being included in cost of sales when revenue is recognized from the sale of those supplies of Gattex. Cost of sales for
the three months ended September 30, 2014 and 2013 were $3.2 million and $1.1 million, respectively, and consisted primarily of royalty costs related to Gattex commercial supplies.
Accordingly, we expect our current product gross margins to decrease from approximately 90% to the 80% to 85% range as we begin sales of product that has been capitalized to inventory.
Based on our current plans and assumptions, we believe that by the end of 2015, we will have sold off this supply of product on hand at the time of the FDA's approval of the NDA for
Gattex. 19
Research and Development. Our research and development expenses are categorized into three areas: clinical development costs, product development costs, and other
research and development costs. Clinical development costs were $6.8 million and $4.7 million for the three months ended September 30, 2014 and 2013, respectively. Clinical development costs are primarily
comprised of costs paid to outside parties to conduct and manage clinical trials related to Gattex, Natpara and NPSP795 as well as costs associated with regulatory functions. Product development costs were $7.6 million and $6.2 million for the three months ended September 30, 2014 and 2013, respectively. Product development costs are costs related to
the drug needed for our clinical studies and pre-approval inventory. Other research and development costs were $10.1 million and $7.9 million for the three months ended September 30, 2014 and 2013, respectively. Other research and development
costs consist primarily of personnel, personnel-related costs and overhead costs that relate to clinical and product development activities. For the three months ended September 30, 2014, our research and development expenses increased to $24.5 million from $18.8 million for the three months ended September 30,
2013. The increase in research and development for the three months ended September 30, 2014 is primarily due to a $2.2 million increase in personnel and personnel-related costs, a
$2.1 million increase in clinical development costs and a $1.4 million increase related to pre-approval Natpara production. Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of compensation for employees in executive, finance, legal and
sales and marketing functions as well as facility costs and professional fees for accounting and legal services. Our selling, general and administrative expenses increased to $28.1 million
for the three months ended September 30, 2014 from $17.6 million for the three months ended September 30, 2013. The increase in selling, general and administrative expenses primarily
relates to an increase in personnel and external costs related to launch activities for Gattex, Revestive and pre-launch activities for Natpara.
We expect that these costs would continue to increase as we prepare for the commercialization of Natpara, if approved and continue to develop our international
infrastructure to support the Revestive launch . Interest Income. Interest income decreased to $97,000 for the three months ended September 30, 2014 from $108,000 from the comparative period in 2013. Interest Expense. Our interest expense for the three months ended September 30, 2014 increased to $3.4 million compared to $3.0 million for the three months ended
September 30, 2013. Our long-term sales forecast for Natpara and royalty forecast for REGPARA are used to calculate the implicit interest rate and the related interest expense for our non-recourse
debt. Interest expense increased due primarily to a higher effective interest rate due to an increase in the forecast of Natpara sales related to the non-recourse debt ($1.6 million).
This increase was partially offset by decreases in interest expense for (i) the lower principal balance on our Sensipar Notes ($596,000), (ii) a lower effective interest rate due to a decrease in
the forecast of REGPARA royalties related to the non-recourse debt associated with the sale of certain of our REGPARA royalty rights ($396,000) and (iii) lower interest expense due to the
conversion of our remaining outstanding convertible notes during the three months ended June 30, 2014 ($247,000). Income Taxes. Income taxes for the three months ended September 30, 2014 increased to $221,000 compared to $0 for the three months ended September 30, 2013. The
increase in income tax expense relates to certain state and foreign income taxes. 20
Nine Months Ended September 30, 2014 and 2013 The following table summarizes selected operating statement data for the nine months ended September 30, 2014 and 2013 (amounts in thousands): Revenues. Our revenues were $157.4 million for the nine months ended September 30, 2014 compared to $101.1 million for the nine months ended September 30,
2013. We recognized product sales and royalty revenue under our research and license agreements during the nine months ended September 30, 2014 and 2013, respectively, as follows
(amounts in thousands): Product Sales, net. During the nine months ended September 30, 2014 and 2013, we recognized net product sales revenue of $67.9 million and $16.5 million,
respectively, for Gattex and Revestive. We received approval from the FDA in December 2012 and subsequently launched Gattex in February 2013. Also, pursuant to the Termination and
Transition Agreement with Takeda, we received back the rights to market Revestive in certain territories outside of the U.S. Revestive was approved in the EU in 2012 and was launched in
Germany in September 2014. Product sales for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for any future period or for the
year ending December 31, 2014. We expect that product sales of Gattex and Revestive will vary from period to period given the size of the patient population. 21
We record product sales net of allowances and accruals for prompt pay discounts, rebates and chargebacks under U.S. governmental programs (including Medicaid), product returns,
and distribution-related fees. These allowances and accruals will continue to grow in relation to an increase in the sales of Gattex. The following table summarizes the provisions, and
credits/payments, for government rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions (in thousands): Royalties. The increase in royalty revenue earned from Amgen's sales of Sensipar and Mimpara (cinacalcet HCl) for the nine months ended September 30, 2014 was
primarily due to increased unit demand, which was partially offset by a non-recurring favorable adjustment which was recorded in the nine months ended September 30, 2013. Pursuant to
our agreement, Amgen is withholding royalties on sales of Sensipar and Mimpara up to $8.0 million per quarter and credited such withheld royalties, net of a 9% discount, to the Sensipar
Notes issued pursuant to the amended agreement. After the repayment of the royalty advance and a 9% per annum discount factor on the outstanding balance, Amgen will resume paying
us all royalties earned through December 31, 2018. During the nine months ended September 30, 2014 and 2013, we recognized royalty revenue of $6.4 million and $5.9 million, respectively, from Kyowa Hakko Kirin for sales of
REGPARA. The increase was primarily due to increased demand which was partially offset by fluctuations in foreign currencies. In February 2010, we sold our rights to receive certain
future royalty payments from Kyowa Hakko Kirin's sale of REGPARA to an affiliate of DRI. The agreement provides DRI with the right to receive payments related to sales of REGPARA
occurring on or after July 1, 2009 and we therefore do not receive any such royalty payments until the REGPARA-secured debt is repaid. During the nine months ended September 30, 2014 and 2013, we recognized royalty revenue of $1.9 million and $2.2 million, respectively, from Janssen Pharmaceuticals, Inc. for sales
of Nucynta. The decrease in royalty revenue earned from Nucynta for the nine months ended September 30, 2014 was primarily due to higher deductions from gross sales. Cost of Sales. Upon marketing approval from the FDA in December 2012, we began capitalizing inventory costs associated with commercial supplies of Gattex. Costs
for manufacturing supplies of Gattex prior to receipt of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, these
costs are not being included in cost of sales when revenue is recognized from the sale of those supplies of Gattex. Cost of sales for the nine months ended September 30, 2014 and 2013
were $7.8 million and $1.6 million, respectively, and consisted primarily of royalty costs related to Gattex commercial supplies. Accordingly, we expect our current product gross margins to
decrease from approximately 90% to the 80% to 85% range as we begin sales of product that has been capitalized to inventory. Based on our current plans and assumptions, we believe
that by the end of 2015, we will have sold off this supply of product on hand at the time of the FDA's approval of the NDA for Gattex. Research and Development. Our research and development expenses are categorized into three areas: clinical development costs, product development costs and other
research and development costs. Clinical development costs were $17.6 million and $10.5 million for the nine months ended September 30, 2014 and 2013, respectively. Clinical development costs are primarily
comprised of costs paid to outside parties to conduct and manage clinical trials related to Gattex, Natpara and NPSP795 as well as costs associated with regulatory functions. 22
Product development costs were $18.6 million and $33.1 million for the nine months ended September 30, 2014 and 2013, respectively. Product development costs are costs related to
the drug needed for our clinical studies and pre-approval inventory. Other research and development costs were $30.0 million and $21.8 million for the nine months ended September 30, 2014 and 2013, respectively. Other research and development
costs consist primarily of personnel, personnel-related costs and overhead costs that relate to clinical and product development activities. For the nine months ended September 30, 2014, our research and development expenses increased to $66.2 million from $65.4 million for the nine months ended September 30, 2013.
The increase in research and development for the nine months ended September 30, 2014 is primarily due to an increase of $8.2 million in personnel and personnel-related costs and a
$7.1 million increase clinical and regulatory costs for Gattex/Revestive and Natpara/Natpar. This increase was partially offset by a $14.5 million decrease in the costs related to the
production of pre-approval Natpara inventory. Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of compensation for employees in executive, finance, legal and
sales and marketing functions as well as facility costs and professional fees for accounting and legal services. Our selling, general and administrative expenses increased to $79.1 million
for the nine months ended September 30, 2014 from $46.2 million for the nine months ended September 30, 2013. The increase in selling, general and administrative expenses primarily
relate to an increase in personnel and external costs related to launch activities for Gattex, Revestive and pre-launch activities for Natpara. We expect that these costs would continue to
increase as we continue to prepare for the commercialization of Natpara, if approved and develop our international infrastructure to support the Revestive launch. Interest Income. Interest income increased to $321,000 for the nine months ended September 30, 2014 from $221,000 from the comparative period in 2013. Interest Expense. Our interest expense for the nine months ended September 30, 2014 increased to $11.0 million compared to $9.4 million for the nine months ended
September 30, 2013. Our long-term sales forecast for Natpara and royalty forecast for REGPARA are used to calculate the implicit interest rate and the related interest expense for our non-recourse debt.
Interest expense increased due primarily to a higher effective interest rate due to an increase in the forecast of Natpara sales related to the non-recourse debt ($4.8 million).
This increase was partially offset by decreases in interest expense for (i) the lower principal balance on our Sensipar Notes ($1.7 million), (ii) a lower effective interest rate due to a decrease
in the forecast of REGPARA royalties related to the non-recourse debt associated with the sale of certain of our REGPARA royalty rights ($882,000) and (iii) lower interest expense due to
the conversion of our remaining outstanding convertible notes during the nine months ended September 30, 2014 ($471,000). Income Taxes. Income taxes for the nine months ended September 30, 2014 increased to $495,000 compared to $4,000 for the nine months ended September 30, 2013.
The increase in income tax expense relates to certain state and foreign income taxes. Liquidity and Capital Resources The following table summarizes selected financial data (amounts in thousands): 23
Historically, we have not been a self-sustaining business and certain economic, operational and strategic factors may require us to secure additional funds. If we are unable to generate
sufficient cash flows from operations or obtain sufficient funding at any time in the future, we may not be able to develop or commercialize our products, take advantage of business
opportunities or respond to competitive pressures. Our current and anticipated operations require substantial capital. Our actual needs will depend on numerous factors, including, without
limitation, the progress and scope of our internally funded commercialization and development activities related to the launch of Gattex and Revestive and the commercial readiness
activities for Natpara; the success of our collaborators in developing and marketing products under their respective collaborations with us; our success in producing commercial and clinical
supplies of our products and product candidates generally, and on a timely basis sufficient to meet the needs of our commercial activities and clinical trials; our ability to successfully execute
our strategic plans, including international expansion; the costs we incur in obtaining and enforcing patent and other proprietary rights or gaining the freedom to operate under the patents of
others; and our success in acquiring and integrating complementary products, technologies or businesses. Our commercial activities may not be successful for many reasons, including,
without limitation, our inability to effectively market and distribute our products in the United States and other territories; our patients' ability to obtain sufficient coverage or reimbursement by
third-party payors for our products at the prices we set, if at all; the risk that safety concerns may develop with respect to our products; the risk that our manufacturers may not be able to
supply sufficient quantities of our products to support our commercialization activities or that other manufacturing problems may occur; and the risk that our products may face competition
from new products or technologies that may be developed. Our clinical trials may be modified, disrupted or terminated and our commercial activities and clinical filings could be delayed for
several reasons including the risk that our product candidates will demonstrate safety concerns; the risk that regulatory authorities may not approve our product candidates for further
development or may require additional or expanded clinical trials to be performed; and the risk that our manufacturers may not be able to supply sufficient quantities of our drug candidates
to support our clinical trials, our regulatory filings or commercial launches, or that other manufacturing problems may occur. We may also be required to conduct unanticipated preclinical or
clinical trials to obtain or maintain regulatory approval of our product candidates, Natpara and NPSP795. If any of the events that pose these risks comes to fruition, our actual capital needs
may substantially exceed our anticipated capital needs and we may have to substantially modify or terminate current and planned clinical trials or postpone conducting future clinical trials.
As a result, our business may be materially harmed, our stock price may be adversely affected, and our ability to raise additional capital may be impaired. We may need to raise additional funds to support our long-term research, product development, business development activities, and commercialization programs. We regularly
consider various fund raising alternatives, including, for example, debt or equity financing, and monetizing of potential revenue streams. We may also seek additional funding through
strategic alliances, collaborations, or license agreements and other financing mechanisms. There can be no assurance that additional financing will be available on acceptable terms, if at
all. If adequate funds are not available, we may be required to delay, reduce the scope of our efforts to commercialize Gattex/Revestive or Natpara, if it receives regulatory approval, delay,
reduce the scope of, or eliminate one or more of our research and development programs, including NPSP795, or to obtain funds through arrangements with licensees or others that may
require us to relinquish rights to certain of our technologies or product candidates that we may otherwise seek to develop or commercialize on our own. We require cash to fund our operating expenses, to make capital expenditures, acquisitions and investments. We have financed operations since inception primarily through payments
received under collaborative research and license agreements; the private and public issuance and sale of equity securities; the issuance and sale of non-recourse debt, convertible debt
and lease financing; and sales of Gattex/Revestive. Through September 30, 2014, we have recognized $968.7 million of cumulative revenues from payments for research support,
license fees, product sales, milestone and royalty payments; $893.6 million from the sale of equity securities for cash; $738.6 million from the sale of non-recourse debt and convertible debt
for cash; and $99.7 million from sales of Gattex since its launch in February 2013. Our principal sources of liquidity are cash, cash equivalents, and marketable investment securities, which totaled $169.3 million at September 30, 2014. The primary objectives for our
marketable investment security portfolio are liquidity and safety of principal. Investments are intended to achieve the highest rate of return to us, consistent with these two objectives. Our
investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type
and issuer. 24
On April 8, 2014, the holders of the 5.75% Convertible Notes converted the remaining outstanding notes at a conversion price of $5.44 per share. We issued 3,041,451 shares
pursuant to this conversion and retired the remaining $16.5 million of the outstanding 5.75% Convertible Notes. The following table summarizes our cash flow activity for the nine months ended September 30, 2014 and 2013 (amounts in thousands): Net cash used in operating activities was $12.3 million and $25.1 million for the nine months ended September 30, 2014 and 2013, respectively. The
decrease in net cash used in 2014 was primarily due to the decrease in interest expense and non-cash royalty receivable related to the issuance of non-recourse Sensipar Notes to Amgen.
The REGPARA royalty revenue is pledged to service the principal and interest on our non-recourse notes and is not available to fund operations. The decrease in net cash used was also
related to the cash received from the sales of Gattex during the nine months ended September 30, 2014. The above decreases in net cash used in 2014 were partially offset by increased
spending related to the pre-launch activities for Natpara and costs associated with the launch of Revestive in the nine months ended September 30, 2014. Net cash provided by investing activities was $8.9 million during the nine months ended September 30, 2014 compared to net cash used in investing activities of $50.6 million during the
nine months ended September 30, 2013. The net cash provided by investing activities during the nine months ended September 30, 2014 was primarily the result of using proceeds from
the sale and maturity of marketable investment securities to fund operations. The net cash used in investing activities during the nine months ended September 30, 2013 was primarily the
result of investing excess cash that was not currently required to fund operations. Capital expenditures for the nine months ended September 30, 2014 and 2013 were $1.9 million and
$608,000, respectively. Net cash provided by financing activities was $6.6 million and $104.5 million for the nine months ended September 30, 2014 and 2013, respectively. Cash provided by financing
activities during the nine months ended September 30, 2014 primarily consisted of approximately $8.5 million received from the exercise of employee stock options and the sale of shares
under the employee stock purchase plan. This provision of net cash from financing activities was partially offset by using $2.2 million to pay taxes that were due from the withholding of
shares upon the vesting of certain restricted stock units. Cash provided by financing activities during the nine months ended September 30, 2013 primarily consisted of the $93.5 million
received from the public sale of 6.9 million common shares in May 2013 and approximately $6.0 million received from the exercise of employee stock options and the sale of shares for the
employee stock purchase plan. We could receive future milestone payments from all our agreements of up to $16.8 million in the aggregate if each of our current licensees accomplishes the specified research,
development and/or sales milestones provided in the respective agreements. In addition, all of the agreements require the licensees to make royalty payments to us if they sell products
covered by the terms of our license agreements; however, we do not control the subject matter, timing or resources applied by our licensees to their development programs. Thus, potential
receipt of milestone and royalty payments from these licensees is largely beyond our control. Each of these agreements may be terminated before its scheduled expiration date by the
respective licensee either for any reason or under certain conditions. We have entered into certain license agreements that may require us to pay milestone payments or royalties. For example, we are required to make royalty payments to certain
licensors on Gattex and Revestive net sales and cinacalcet HCl royalty revenues. We expect to enter into additional sponsored research and license agreements in the future. We have entered into long-term agreements with certain manufacturers and suppliers that require us to make contractual payment to these organizations. We expect to enter into
collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require up-front payments and long-term commitments of cash. 25
Critical Accounting Policies and Estimates For a discussion of our critical accounting policies, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K for the year ended December 31, 2013. New Accounting Standards Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk.
FINANCIAL INFORMATION
(In thousands)
(Unaudited)
September 30,
December 31,
2014
2013
Assets
Current assets:
Cash and cash equivalents
$
53,368
$
51,204
Marketable investment securities
115,979
129,270
Accounts receivable
38,125
41,242
Inventory
33,513
30,035
Prepaid expenses
6,730
5,621
Other current assets
1,206
1,380
Total current assets
248,921
258,752
Property and equipment, net
5,442
4,402
Goodwill
9,429
9,429
Intangibles, net
17,954
19,301
Other
469
338
Total assets
$
282,215
$
292,222
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses
$
35,002
$
33,117
Convertible notes payable
-
16,545
Current portion of non-recourse debt
7,270
8,752
Total current liabilities
42,272
58,414
Non-recourse debt, less current portion
100,007
123,635
Other liabilities
9,023
5,283
Total liabilities
151,302
187,332
Commitments and contingencies (notes 6 and 8)
Stockholders' equity:
Preferred stock, $0.001 par value. Authorized 5,000,000 shares;
issued and outstanding no shares
-
-
Common stock, $0.001 par value. Authorized 175,000,000 shares;
issued and outstanding 106,829,708 shares and
102,613,780 shares, respectively
107
103
Additional paid-in capital
1,161,858
1,127,420
Accumulated other comprehensive (loss) income
(1,633)
56
Accumulated deficit
(1,029,419)
(1,022,689)
Total stockholders' equity
130,913
104,890
Total liabilities and stockholders' equity
$
282,215
$
292,222
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2014
2013
2014
2013
Revenues:
Product sales, net
$
28,091
$
11,037
$
67,917
$
16,492
Royalties
29,109
28,129
89,450
84,613
License fees
-
36
-
36
Total revenues
57,200
39,202
157,367
101,141
Cost of sales
3,180
1,077
7,794
1,615
Operating expenses:
Research and development
24,530
18,798
66,238
65,381
Selling, general and administrative
28,139
17,558
79,142
46,228
Total operating expenses
52,669
36,356
145,380
111,609
Operating income (loss)
1,351
1,769
4,193
(12,083)
Other income (expense):
Interest income, net
97
108
321
221
Interest expense
(3,364)
(2,959)
(11,047)
(9,388)
Other
(9)
(5)
298
(18)
Total other expense, net
(3,276)
(2,856)
(10,428)
(9,185)
Loss before income tax expense
(1,925)
(1,087)
(6,235)
(21,268)
Income tax expense
221
-
495
4
Net loss
$
(2,146)
$
(1,087)
$
(6,730)
$
(21,272)
Net loss per common and potential common share
Basic
$
(0.02)
$
(0.01)
$
(0.06)
$
(0.22)
Diluted
$
(0.02)
$
(0.01)
$
(0.06)
$
(0.22)
Weighted average common and potential common
shares outstanding:
Basic
107,312
102,227
105,924
96,034
Diluted
107,312
102,227
105,924
96,034
(In thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2014
2013
2014
2013
Net loss
$
(2,146)
$
(1,087)
$
(6,730)
$
(21,272)
Other comprehensive income (loss):
Unrealized gains (loss) on securities:
Unrealized holding (loss) gain arising during period
(32)
89
3
16
Reclassification for recognized loss on marketable
investment securities during the period
(5)
-
(12)
(2)
Net unrealized (loss) gain on marketable investment securities
(37)
89
(9)
14
Foreign currency translation loss
(1,489)
(9)
(1,680)
-
Other comprehensive (loss) income
(1,526)
80
(1,689)
14
Comprehensive loss
$
(3,672)
$
(1,007)
$
(8,419)
$
(21,258)
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2014
2013
Cash flows from operating activities:
Net loss
$
(6,730)
$
(21,272)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
2,433
1,871
Accretion of premium (discount) on marketable investment securities
2,534
1,962
Shares issued for payment of services
-
549
Non-cash interest expense
6,036
8,674
Non-cash royalties
(30,387)
(29,831)
Compensation expense on share-based awards
11,249
7,343
Realized gain on sale of marketable investment securities
(12)
(2)
(Increase) decrease in operating assets:
Accounts receivable
1,124
(4,041)
Inventory
(4,239)
6,118
Prepaid expenses, other current assets and other assets
(1,119)
528
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses
3,003
4,263
Other liabilities
3,791
(1,242)
Net cash used in operating activities
(12,317)
(25,080)
Cash flows from investing activities:
Sales of marketable investment securities
8,661
6,451
Maturities of marketable investment securities
91,108
58,251
Purchases of marketable investment securities
(89,008)
(114,738)
Acquisitions of property and equipment
(1,883)
(608)
Net cash provided by (used in) investing activities
8,878
(50,644)
Cash flows from financing activities:
Net proceeds from the sale of common stock
-
93,454
Net proceeds from the exercise of stock options
8,517
11,684
Excess tax benefit from stock options
227
-
Shares withheld for the payment of taxes
(2,154)
(618)
Net cash provided by financing activities
6,590
104,520
Effect of exchange rate changes on cash
(987)
-
Net increase in cash and cash equivalents
2,164
28,796
Cash and cash equivalents at beginning of period
51,204
17,471
Cash and cash equivalents at end of period
$
53,368
$
46,267
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
$
256
$
712
Cash paid for income taxes
218
4
Supplemental Disclosure of Non-cash Investing and Financing Activities:
6.1 million shares of NPS common stock issued in connection with
the Takeda Termination and Transition agreement
-
55,403
Unrealized (loss) gain on marketable investment securities
(9)
14
Accrued acquisition of property and equipment
699
69
Noncash reductions of debt
25,111
20,245
Conversion of 5.75% convertible notes
16,535
-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of September 30, 2014:
Level 1
Level 2
Level 3
Total
Certificate of deposits
$
-
$
11,430
$
-
$
11,430
Corporate debt
-
95,751
-
95,751
Government agency debt
-
8,797
-
8,797
Money market funds
13,033
-
-
13,033
Total assets at fair value
$
13,033
$
115,978
$
-
$
129,011
As of December 31, 2013:
Level 1
Level 2
Level 3
Total
Certificate of deposits
$
-
$
13,020
$
-
$
13,020
Corporate
-
91,887
-
91,887
Government agencies
-
27,131
-
27,131
Money market funds
23,043
-
-
23,043
Total assets at fair value
$
23,043
$
132,038
$
-
$
155,081
As of September 30, 2014
As of December 31, 2013
Fair
Carrying
Fair
Carrying
Value
Value
Value
Value
5.75% Convertible Notes*
$
-
$
-
$
92,338
$
16,545
Sensipar Notes
33,525
33,501
54,097
54,395
rhPTH 1-84-Secured Debt
54,838
42,790
50,058
42,790
Regpara-Secured Debt
30,872
30,986
37,348
35,202
Total
$
119,235
$
107,277
$
233,841
$
148,932
* See Note 6
Gross
Gross
unrealized
unrealized
Amortized
holding
holding
Fair
cost
gains
losses
value
As of September 30, 2014:
Debt securities:
Corporate debt
$
107,211
$
15
$
(45)
$
107,181
Government agency debt
8,792
6
-
8,798
Total marketable investment securites
$
116,003
$
21
$
(45)
$
115,979
Gross
Gross
unrealized
unrealized
Amortized
holding
holding
Fair
cost
gains
losses
value
As of December 31, 2013:
Debt securities:
Corporate
$
103,175
$
23
$
(60)
$
103,138
Government agency
26,110
22
-
26,132
Total marketable investment securites
$
129,285
$
45
$
(60)
$
129,270
Held for less than 12 months
Held for more than 12 months
Total
Unrealized
Unrealized
Unrealized
Fair value
losses
Fair value
losses
Fair value
losses
As of September 30, 2014:
Available for Sale:
Debt securities:
Corporate debt
$
82,985
$
45
$
-
$
-
$
82,985
$
45
Government agency
debt
-
-
-
-
-
-
$
82,985
$
45
$
-
$
-
$
82,985
$
45
As of December 31, 2013:
Available for Sale:
Debt securities:
Corporate debt
$
74,407
$
56
$
5,732
$
4
$
80,139
$
60
Government agency
debt
-
-
-
-
-
-
$
74,407
$
56
$
5,732
$
4
$
80,139
$
60
As of September 30, 2014
As of December 31, 2013
Amortized
Amortized
cost
Fair value
cost
Fair value
Due within one year
$
107,385
$
107,360
$
103,280
$
103,266
Due after one year through five years
8,618
8,619
26,005
26,004
Due after five years
-
-
-
-
Total debt securities
$
116,003
$
115,979
$
129,285
$
129,270
For the Three Months
For the Nine Months
Ended September 30,
Ended September 30,
2014
2013
2014
2013
Proceeds from sales and maturities
$
21,810
$
18,045
$
99,769
$
64,702
Realized gains
5
-
12
2
Realized losses
-
-
-
-
September 30,
December 31,
2014
2013
Raw materials
$
31,411
$
29,330
Finished goods
2,102
705
Total inventory
$
33,513
$
30,035
September 30,
December 31,
2014
2013
Convertible notes
$
-
$
16,545
Non-recourse debt
107,277
132,387
Total debt
107,277
148,932
Less current portion
7,270
25,297
Total long-term debt
$
100,007
$
123,635
As of September 30, 2014
Weighted
Weighted
Number
average
average remaining
Aggregate
of
exercise
contractual
intrinsic
options
price
term
value
(in thousands)
(in years)
(in thousands)
Options outstanding at beginning
of year
6,656
$
8.03
Options granted
1,163
33.20
Options exercised
971
7.85
Options forfeited/expired
508
10.26
Options outstanding at September 30, 2014
6,340
12.50
7.37
$
94,207
Vested and expected to vest
6,012
12.05
7.29
$
91,391
Options exercisable at September 30, 2014
3,240
$
6.84
6.20
$
62,086
Three Months Ended
September 30,
2014
2013
Revenues:
Product sales, net
$
28,091
$
11,037
Royalties
29,109
28,129
License fees
-
36
Total revenues
$
57,200
$
39,202
Cost of sales
$
3,180
$
1,077
% of product sales, net
11
%
10
%
Operating expenses:
Research and development
$
24,530
$
18,798
% of total revenues
43
%
48
%
Selling, general and administrative
$
28,139
$
17,558
% of total revenues
49
%
45
%
Three Months Ended
September 30,
2014
2013
Product sales, net
$
28,091
$
11,037
Royalties:
Sensipar and Mimpara (cinacalcet HC1)
26,482
25,375
Regpara (cinacalcet HCl)
2,070
2,048
Nucynta (tapentadol)
557
706
Total royalties
29,109
28,129
Other
-
36
Total revenues
$
57,200
$
39,202
Returns and
Rebates and
Distribution-
Other Sales-
Chargebacks
Related Fees
Related Deductions
Total
Balance as of June 30, 2014
$
1,145
$
141
$
126
$
1,412
Provision related to current period sales
1,167
143
591
1,901
Credits/payments
(868)
(190)
(531)
(1,589)
Balance as of September 30, 2014
$
1,444
$
94
$
186
$
1,724
Nine Months Ended
September 30,
2014
2013
Revenues:
Product sales, net
$
67,917
$
16,492
Royalties
89,450
84,613
License fees
-
36
Total revenues
$
157,367
$
101,141
Cost of sales
$
7,794
$
1,615
% of product sales, net
11
%
10
Operating expenses:
Research and development
$
66,238
$
65,381
% of total revenues
42
%
65
Selling, general and administrative
$
79,142
$
46,228
% of total revenues
50
%
46
Nine Months Ended
September 30,
2014
2013
Product sales, net
$
67,917
$
16,492
Royalties:
Sensipar and Mimpara (cinacalcet HC1)
81,219
76,475
Regpara (cinacalcet HCl)
6,352
5,921
Nucynta (tapentadol)
1,879
2,217
Total royalties
89,450
84,613
Other
-
36
Total revenues
$
157,367
$
101,141
Returns and
Rebates and
Distribution-
Other Sales-
Chargebacks
Related Fees
Related Deductions
Total
Balance as of December 31, 2013
$
1,113
$
147
$
241
$
1,501
Provision related to current period sales
2,799
360
1,557
4,716
Credits/payments
(2,468)
(413)
(1,612)
(4,493)
Balance as of September 30, 2014
$
1,444
$
94
$
186
$
1,724
September 30,
December 31,
2014
2013
Cash, cash equivalents, and marketable investment securities
$
169,347
$
180,474
Total current assets
248,921
258,752
Current debt
7,270
8,752
Non-current debt
100,007
123,635
Stockholders' equity
$
130,913
$
104,890
Nine Months Ended
September 30,
2014
2013
Net cash used in operating activities
$
(12,317)
$
(25,080)
Net cash provided by (used in) investing activities
$
8,878
$
(50,644)
Net cash provided by financing activities
$
6,590
$
104,520
Our 9% non-recourse Sensipar Notes have a fixed interest rate. As of September 30, 2014, our Sensipar Notes had $33.5 million in aggregate principal amount outstanding. The fair value of the Sensipar Notes is affected by changes in interest rates and by historical and projected rates of royalty revenues from cinacalcet HCl sales.
Foreign Currency Risk. We have significant clinical and commercial-scale manufacturing agreements as well as foreign subsidiaries which are denominated in other foreign currencies. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar and other foreign currencies, or by weak economic conditions in other countries. When the U.S. dollar strengthens against the foreign currencies, the cost of expenses outside the U.S. decreases. When the U.S. dollar weakens against other foreign currencies, the cost of expenses in other countries increases. The monetary assets and liabilities in our foreign subsidiaries which are impacted by the foreign currency fluctuations are cash, accounts payable, and certain accrued liabilities. A hypothetical ten percent increase or decrease in the exchange rate between the U.S. dollar and other foreign currencies from the September 30, 2014 rate would cause the fair value of such monetary assets and liabilities in our foreign subsidiary to change by an insignificant amount. We are not currently engaged in any foreign currency hedging activities.
Item 4. |
Controls and Procedures. |
We maintain "disclosure controls and procedures" within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures, or Disclosure Controls, are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Our Disclosure Controls are also designed to ensure 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 disclosure. In designing and evaluating our Disclosure Controls, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.
26
Evaluation of Disclosure Controls and Procedures. As of September 30, 2014, we evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, which was done under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Immediately following the Signatures section of the Quarterly report on Form 10-Q are certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented. Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the date of their evaluation, our disclosure controls and procedures were effective to accomplish their intended purpose.
Change in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Legal Proceedings. |
There are no material litigation matters as of September 30, 2014.
In addition to the other information set forth in this Report, consider the factors discussed in Part 1, "Item 1A. Risk Factors" in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risks described in the aforementioned report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be not material also may materially adversely affect the Company's business, financial condition and or operating results.
Exhibits. |
Exhibit |
Description of Document |
10.1+ * |
First Amendment to Development and Supply Agreement, effective as of May 14, 2014, by and between Hospira Worldwide, Inc. and the Company. |
31.1* |
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
31.2* |
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32* |
Section 1350 Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer |
101.INS(1) |
XBRL Instance Document |
101.SCH(1) |
XBRL Taxonomy Extension Schema Document |
101.CAL(1) |
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF(1) |
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB(1) |
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE(1) |
XBRL Taxonomy Extension Presentation Linkbase Document |
+ |
Confidential information was omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission. |
* |
Furnished herewith. |
(1) |
This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of NPS Pharmaceuticals, 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 hereof and irrespective of any general incorporation language contained in such filing. |
27
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.
NPS PHARMACEUTICALS, INC. |
||||
Date: November 10, 2014 |
|
By: |
|
/s/ Francois Nader |
|
|
|
Francois Nader, |
|
Date: November 10, 2014 |
|
By: |
|
/s/ Luke M. Beshar |
|
|
|
Luke M. Beshar, |
EXHIBIT INDEX Exhibit Description of Document 10.1+ 31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32* 101.INS(1)
XBRL Instance Document
101.SCH(1)
XBRL Taxonomy Extension Schema Document
101.CAL(1)
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF(1)
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB(1)
XBRL Taxonomy Extension Label Linkbase Document
101.PRE(1)
XBRL Taxonomy Extension Presentation Linkbase Document
+ Confidential information was omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission. * Furnished herewith. (1)
This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange
Commission, and is not incorporated by reference into any filing of NPS Pharmaceuticals, 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 hereof and
irrespective of any general incorporation language contained in such filing.
Exhibit 10.1 Confidential Treatment Requested. Confidential portions of this document have been FIRST AMENDMENT TO This First Amendment to the Development and Supply Agreement ("Amendment") is made and effective as of May14, 2014
("Amendment Effective Date"), by and between Hospira Worldwide, Inc., ("Hospira") and NPS Pharmaceuticals, Inc. ("NPS"). RECITALS WHEREAS, Hospira and NPS are parties to that certain Development and Supply Agreement dated as of March 25, 2009 (the
"Agreement"); and WHEREAS, in accordance with Section 12.8 of the Agreement, the parties desire to amend the Agreement under the terms and conditions set forth
below. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the Agreement is amended as follows: 1. Incorporation of the Agreement. The Agreement is incorporated herein by this reference as though the same was set forth in its entirety. Except as
specifically set forth herein, the Agreement shall remain in full force and effect and its provisions shall be binding on the parties hereto. 2. Definitions; References. Certain defined terms are added to the Agreement as indicated below. Otherwise, all capitalized terms which are not defined
herein shall have the same meanings as set forth in the Agreement. References to numbered sections and exhibits cited herein refer to specific sections of, and exhibits to, the Agreement,
as amended. "1.10. "Product" or "Products" shall mean the Drug in final dosage form, for adult or pediatric
indications, packaged in standard flip top vials, meeting the Product Specifications. The terms "Adult Product" and "Pediatric Product" shall
refer to the Products having the respective dosage forms referred to herein."
Number
redacted and have been separately filed with the Commission.
DEVELOPMENT AND SUPPLY AGREEMENT
BETWEEN HOSPIRA WORLDWIDE, INC.
and
NPS Pharmaceuticals, Inc.
"1.16 "Territory" shall mean those countries or geographic areas of the world where Company intends to register, import, market, promote, sell and use the Products."
CONFIDENTIAL
"1.18. "United States means the United States of America, including the District of Columbia, the Commonwealth of Puerto Rico, all territories and possessions of the United States of America, United States military bases, and any other location over which the FDA has jurisdiction to regulate medicinal products intended for human use."
3. Section 3.2 is hereby amended as follows:
"(b) Company shall notify Hospira promptly in the event that it desires to qualify Hospira as a manufacturer of the Products for sale in any country of the Territory [***]. For the avoidance of doubt, "sale" shall include providing the Products pursuant to the approved by the applicable regulatory authority special access program which may be also known as "compassionate use," "expanded access" or "named patient supply" program. Where practical, Hospira shall provide Company with all reasonable additional technical, developmental and regulatory support, including, for example, regulatory support for Company's supplemental regulatory filings, packaging and product development, labeling, and Regulatory Authority inspections. The parties will agree to the reasonable incremental costs of such additional support in accordance with Section 4.1. In addition, Company shall reimburse Hospira for its costs incurred for any additional Regulatory Authority pre-approval inspections of the [***] Site at the rate quoted in Section 7.3."
4. A new Section 3.3 is added as follows, with existing Section 3.3 being re-designated as Section 3.4:
"3.3 Project Manager. Each party will appoint an authorized individual who will have primary responsibility for day-to-day interactions with the other party for the activities under the Project ("Project Manager"). Each party will use all reasonable efforts to provide the other party with at least thirty (30) days prior written notice of any change in its Project Manager. All communications between Hospira and Company regarding the conduct of the activities under the Project will be addressed to its Project Manager."
5. Section 5.5 is hereby amended by deleting the existing section in its entirety and replacing it with the following new language:
"5.5 Product Labeling. Except as otherwise specified in Section 5.7, Company shall be solely responsible for the labeling and finished-form packaging of the Product. All such labeling and packaging shall be in accordance with the Product Specifications. Hospira shall be responsible for ink jetting of the lot number on the seal of each vial or syringe."
Page 2 of 9
CONFIDENTIAL
6. Section 5.7 is hereby amended by deleting the section in its entirety and replacing it with the following new language:
"5.7 Delivery. Hospira shall deliver the Product to Company, [***] Site. Title to and risk of loss over the Products shall pass to Company at the time the Product is placed at the disposal of Company's designated carrier at the loading dock of the [***] Site. Hospira will pack the Products in bulk, unlabeled vials ("Brite Stock") for transport in conditions which will not adversely affect the Products and will ensure that all shipping cartons are appropriately marked, labeled or identified for transport, as may be specified in further detail in the Quality Agreement; provided, however, that Hospira shall not deliver any Product until Hospira has released such Product pursuant to the Product Specifications and/or the Quality Agreement and Company has performed its own quality review and release testing and has given Hospira its authorization to ship. Company will be responsible for procuring carriage and insurance in an amount [***], for all shipments. All freight, handling, insurance, duties, taxes and shipping expense will be borne by [***]. For any shipments ex United States, Company shall be the exporter of record.
7. Section 5.8(a) is hereby amended by deleting the sub-section in its entirety and replacing it with the following new sub-section (a):
"(a) Price. Hospira shall invoice Company for Product it delivers to Company at the price(s) as set forth on Exhibit 5.8. Each invoice shall reference the price of the Product in effect on the date of Hospira's invoice. Effective upon [***] during the Initial Term (and any renewal term thereafter), Hospira shall have the right to increase the price of the Products [***]. Price increases shall be effective for deliveries [***]. Such increases shall not exceed [***] Hospira shall use all reasonable efforts to provide written notice to Company of any anticipated price increase no later than [***]."
8. Article 6 is hereby amended by deleting Sections 6.5 through Section 6.10 in their entirety and replacing them with the following:
"6.5 Rolling Forecast. During [***], Company shall provide to Hospira a good faith, estimated rolling forecast of the quantity of Products that Company expects to order [***] (each, a "Rolling Forecast"). The first [***] of each Rolling Forecast shall be considered a binding commitment upon Company to purchase quantities described therein and a binding commitment upon Hospira to produce and deliver such quantities on the delivery dates described therein ("Firm Order Period"). The last [***] of each Rolling Forecast shall be non-binding upon the parties. The Project Managers, or their designees, shall review each Rolling Forecast to ensure that each Rolling Forecast delivered by Company is consistent with the requirements of this Agreement and, if necessary, to use good faith efforts to adjust such Rolling Forecasts in order to meet Company's ongoing requirements for the Product and to take into account Hospira's manufacturing schedule at the [***] Site.
Page 3 of 9
CONFIDENTIAL
"6.6 Purchase Orders. Company shall submit to Hospira firm purchase orders for the purchase of Product (each, a "Purchase Order") for the quantities of Product Company intends to purchase and the required delivery date(s); provided, however, that no delivery date in any Purchase Order shall be less than [***] prior to the requested delivery date. Hospira shall use all commercially reasonable efforts to meet the delivery dates set forth in each Purchase Orders. All Purchase Orders shall reference this Agreement and shall be governed exclusively by the terms contained herein. Company shall set forth in each Purchase Order (i) the quantity of Products ordered (ii) the amount of API estimated to be required to fill the Purchase Order (based on yield information provided by Hospira), (iii) the specified delivery date(s) and delivery instructions, and (iv) the price to be paid for the Product.
"6.7 Purchase Order Acceptance. Hospira will confirm each Purchase order issued in accordance with Section 6.6 within [***] after receipt and shall confirm to Company its acceptance of the Purchase Order, delivery date(s), the quantity of Products ordered and the purchase price to be paid by Company.
"6.8 Excess Quantities. Hospira shall accept all Purchase Orders specifying quantities of Product up to [***] in excess of the quantities listed in the corresponding Firm Order Period. Hospira shall not be obligated to supply quantities of Product over and above such [***] excess amount ("Non-Binding Excess") but shall use commercially reasonable efforts to manufacture and deliver to Company all or part of the Non-Binding Excess within [***] of issuance of the relevant Purchase Order. In no event, however, shall Hospira be required to supply any Product in excess of its applicable annual Product Supply Commitment.
"6.9 Format of Forecasts and Purchase Orders. Company shall submit each Rolling Forecast and all Purchase Orders electronically in spreadsheet form and will specify the quantities of Products in units and the Hospira product number (list number/inventory number).
"6.10 Minimum Purchase Requirement. [Intentionally Deleted].
"6.11 Purchase Order Changes; Cancellations.
(a) Changes. If Company requests that changes be made to any of its Purchase Orders within the Firm Order period, Hospira shall attempt to accommodate such changes within reasonable manufacturing capabilities and efficiencies. If Hospira can accommodate such changes, Hospira shall advise Company of any costs associated therewith. If Company indicates in writing to Hospira that it should proceed to make the changes, Company shall be deemed to have accepted the obligation to pay Hospira for such costs. If Hospira cannot accommodate such change, Company shall nonetheless be bound to its original Purchase Orders.
Page 4 of 9
CONFIDENTIAL
(b) Cancellations. If Company cancels any Purchase Order within the Firm Order Period, Hospira shall be relieved of its manufacturing obligations relating to such order but Company will not be relieved of its payment obligation unless Hospira agrees to waive such obligation in writing. Furthermore, if Company does not supply sufficient API to allow Hospira to fulfill any Purchase Order or acts in any other manner to effectively interfere with Hospira's ability to perform, which shall be deemed to be a breach of this Agreement, Company shall remain liable for the full amount of the Purchase Order, regardless of whether Hospira manufactures the Product or whether Company takes delivery of the Product."
9. Section 8.6 is hereby amended by deleting the existing section in its entirety and replacing it with the following:
"8.6 No Consequential Damages. EXCEPT WITH RESPECT TO EACH PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER OR BREACHES OF SECTION 11 (CONFIDENTIAL INFORMATION), NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES OR LOST PROFITS RESULTING FROM ANY BREACH OF THIS AGREEMENT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES."
10. Exhibit 1.9 is hereby amended by deleting the current exhibit in its entirety and replacing it with a new Exhibit 5.8 in the form attached hereto as Annex 1.
11. Exhibit 2.1 is hereby amended by adding a supplemental Exhibit 2.1(a) (Statement of Work No. 2) for the development of the Pediatric Product. Exhibit 2.1(a) shall be substantially in the form attached hereto as Annex 2.
12. Exhibit 5.8 is hereby amended by deleting the current exhibit in its entirety and replacing it with a new Exhibit 5.8 in the form attached hereto as Annex 3.
13. This Amendment may be executed in three or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. The parties may sign and deliver this Amendment by facsimile or sent by electronic mail in portable document format (PDF) and a reproduction of this Amendment made by facsimile or PDF will have the same effect as a signed and delivered original version.
SIGNATURE PAGE FOLLOWS
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CONFIDENTIAL
In Witness Whereof, the parties intending to be bound by the terms and conditions hereof have caused this Amendment to be signed by their duly authorized representatives as of the date first above written.
HOSPIRA WORLDWIDE, INC. |
NPS PHARMACEUTICALS, INC. |
By: /s/ Kevin Orfan |
By: /s/ Joseph Rogus |
Name: Kevin Orfan |
Name: Joseph Rogus |
Title: Vice President, Commercial Alliances |
Title: Sr. VP, Technical Operations & Supply Chain Mgmt |
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CONFIDENTIAL
ANNEX 1
Exhibit 1.9
Product Specifications
[***
]
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CONFIDENTIAL
ANNEX 2
Exhibit 2.1(a)
Statement of Work No. 2
[***
]
Page 8 of 9
CONFIDENTIAL
ANNEX 3
Exhibit 5.8
Product Pricing
[***
]
Page 9 of 9
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Francois Nader, President and Chief Executive Officer, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of NPS Pharmaceuticals, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 10, 2014 |
/s/ FRANCOIS NADER Francois Nader President and Chief Executive Officer |
Exhibit 31.2 RULE 13a-14(a)/15d-14(a) CERTIFICATION I, Luke M. Beshar, Executive Vice President and Chief Financial Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of NPS Pharmaceuticals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: November 10, 2014 |
/s/ LUKE M. BESHAR Luke M. Beshar Executive Vice President and Chief Financial Officer |
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, we the undersigned Chief Executive Officer and Chief Financial Officer of NPS
Pharmaceuticals, Inc. certify that the Quarterly Report of NPS Pharmaceuticals, Inc. on Form 10-Q for the quarter
ended September 30, 2014 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934
and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects, the financial
condition and results of operations of NPS Pharmaceuticals, Inc.
AND CHIEF FINANCIAL OFFICER
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Date: November 10, 2014 |
/s/ FRANCOIS NADER Francois Nader President and Chief Executive Officer |
Date: November 10, 2014 |
/s/ LUKE M. BESHAR Luke M. Beshar Executive Vice President and Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to NPS Pharmaceuticals, Inc. and will be retained by NPS Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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