UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30 2022, 2023
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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: 001-34703
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Alimera Sciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 20-0028718 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
6310 Town Square, Suite 400 Alpharetta, GA |
| 30005 |
(Address of principal executive offices) |
| (Zip Code) |
(678) 990-5740
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | ALIM | The Nasdaq Stock Market LLC (Nasdaq Global Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o |
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Non-accelerated filer | x |
| Smaller reporting company | x |
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| Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 x
As of November 10, 2022,August 9, 2023, there were 7,008,4828,801,727 shares of the registrant’s Common Stock issued and outstanding.
ALIMERA SCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this report of Alimera Sciences, Inc. (we, our, Alimera or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties (some of which are beyond our control) and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements.
All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf.behalf as predictions of future events. We undertake no obligation and specifically decline any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that weotherwise, except as may file with the Securities and Exchange Commission (SEC).be required under applicable securities laws.
We encourage you to read themanagement’s discussion and analysis of our financial condition and theresults of operations and our accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) contained in this Quarterly Report on Form 10-Q and our audited financial statements included in our Annual Report onthe 2022 Form 10-K for the year ended December 31, 2021, which we filed with the SEC on March 23, 2022 (the 2021 Form 10-K). We also encourage you to read Item 1A of Part 1 entitled “Risk Factors” of the 2021 Form 10-K, which contains a more detailed discussion of some of the risks and uncertainties associated with our business. In addition to the risks summarized below and in “Risk Factors” in the 2021 Form 10-K, other unknown or unpredictable factors also could affect our results.10-K. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements, projections and estimates. Meaningful factors that could cause actual results to differ include:
Operational Risks
•our dependence on the commercial success of our only product, ILUVIEN;
•the competition we face, given that the number of competitive products is growing and our competitors include larger, more established, fully integrated pharmaceutical companies and biotechnology companies that have substantially greater capital resources, existing competitive products, larger research and development staffs and facilities, greater marketing capabilities, and greater experience in drug development and in obtaining regulatory approvals than we do;
•uncertainty associated with our ability to retain our current employees and to recruit and retain the new employees we need in the future, in particular a productive sales force;
•the possibility that the NEW DAY Study may (a) fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME) or to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, and (b) take longer or be more costly to complete than we currently anticipate;
•our possible inability to expand our portfolio of ophthalmic products;
•the negative effects of inflation, which may increase the compensation we must pay to retain and attract a high-quality workforce and is likely to increase our operational costs;
Manufacturing Risks
•our dependence on third-party manufacturers to manufacture ILUVIEN or any future products or product candidates in sufficient quantities and quality, in a timely manner (particularly during the COVID-19 pandemic), and at an acceptable price;
•the possibility that we may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need;
•the possibility that the issues affecting global supply chains may negatively impact our ability to source materials and components to make ILUVIEN or to deliver ILUVIEN into our current markets;
•uncertainty associated with manufacturing components and materials being superseded or becoming obsolete;
•the possibility that staffing shortages at the third-party manufacturers where the ILUVIEN implant is made and the ILUVIEN applicator is assembled and packaged may lead to product shortages;
Financial Risks
•the possibility that we may not be able to refinance our $45.0 million Loan and Security Agreement with SLR Investment Corp. (SLR, f/k/a Solar Capital Ltd.) as Collateral Agent (Agent), and certain other lenders, including SLR in its capacity as a lender, dated December 31, 2019, as amended (the 2019 Loan Agreement) which would lead to a greater amount of cash being required to support its amortization on a monthly basis beginning on January 1, 2023;
•the possibility that we may be unable to pay the amounts due under the 2019 Loan Agreement, which on January 1, 2023 will begin to require amortization of principal, with principal payments of approximately $2,368,000 per month, plus interest;
•the possibility that we may fail to comply with the financial covenants the 2019 Loan Agreement, and in that event be unable to obtain a waiver from SLR for any resulting default;
•our possible need to raise additional financing, the terms of which may restrict our operations and, if the capital we raise is equity or a debt security that is convertible into equity, could dilute our stockholders’ investment;
•uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of ILUVIEN in the U.S., the European Economic Area (EEA) and other regions of the world where we sell ILUVIEN;
•a slowdown or reduction in our sales due to, among other things, a reduction in end user demand, unexpected competition, regulatory issues or other unexpected circumstances, including unfavorable developments in the COVID-19 pandemic;
•the risk that the planned discontinuation of LIBOR and the replacement of LIBOR with another reference rate may lead to increased interest costs;
•the effects of inflation on the floating interest rate we pay under the 2019 Loan Agreement, which could cause our financing costs to increase materially and thus adversely affect our financial results;
•the possibility that we may see cost increases from our third-party manufacturers and suppliers resulting from increased inflation;
Risks Related to the COVID-19 Pandemic
•the adverse effects of the COVID-19 pandemic, and its unpredictable duration and severity in light of current and possible new variants, in the regions where we have customers, employees, distributors and where our third-party manufacturers source raw materials used in the manufacturing of ILUVIEN;
•the adverse effects of the COVID-19 pandemic on sales of ILUVIEN that have resulted and could again result from (a) limitations on in-person access to physicians for treatment imposed by governments or healthcare facilities and (b) the unwillingness of patients, many of whom suffer from diabetic macular edema or, in Europe and the U.K., non-infectious uveitis, to visit their physicians in person for fear of contracting the COVID-19 coronavirus;
•the financial uncertainty associated with the adverse effects of the COVID-19 pandemic and the duration and severity of those effects in light of current and possible new variants; if these adverse effects were to strengthen again in the future, they may (a) adversely affect our revenue, financial condition and cash flows, and (b) affect certain estimates we use to prepare our quarterly financial results, including impairment of intangible assets, the income tax provision and recoverability of certain receivables;
•the possibility that the manufacture or distribution of the ILUVIEN insert or applicator may be disrupted by government action related to COVID-19 or by the effect of the COVID-19 pandemic on our manufacturers’ or distributors’ workforces;
•the possibility that the restrictions placed on regulatory and pricing bodies will delay or defer market access for ILUVIEN as we seek to secure reimbursement;
•the possibility that the economic impact of the COVID-19 pandemic will lead to changes in reimbursement policies and reduce market access for ILUVIEN in countries where we sell ILUVIEN;
•the possibility of reduced efficiency and potential distractions of our employees resulting from the prolonged impact of the COVID-19 pandemic, and the resulting loss of productivity;
•the possibility that enrollment of patients in our NEW DAY Study may not occur as quickly as we anticipate;
•the possible delay in enrollment of patients in our pediatric study for non-infectious uveitis affecting the posterior segment of the eye (NIU-PS);
Regulatory Risks
•uncertainty associated with our pursuit of reimbursement from local health authorities in certain countries for the recently obtained additional indication for ILUVIEN (for NIU-PS);
•delay in or failure to obtain regulatory approval and reimbursement of ILUVIEN or any future products or product candidates in additional markets where we do not currently sell ILUVIEN;
•uncertainty associated with our ability to meet any post market requirements for NIU-PS in the EEA;
•the possibility that our partner in the greater China market may fail to secure regulatory approval in the greater China market, which would have an adverse effect on our ability to receive our milestone payments under the Ocumension license agreement;
•uncertainty associated with our ability to successfully commercialize ILUVIEN following regulatory approval in additional markets; and
Intellectual Property Risks
•the possibility that we may be adversely affected by the expiration in the near-to medium-term of patents that protect key aspects of ILUVIEN.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | June 30, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(In thousands, except share and per share data) | (In thousands, except share and per share data) | |||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 5,514 | $ | 16,510 | $ | 18,775 | $ | 5,274 | ||
Restricted cash | 28 | 34 | 32 | 30 | ||||||
Accounts receivable, net | 19,142 | 19,128 | 22,589 | 19,612 | ||||||
Prepaid expenses and other current assets | 3,290 | 3,809 | 3,571 | 2,892 | ||||||
Inventory | 1,786 | 2,679 | 1,055 | 1,605 | ||||||
Total current assets | 29,760 | 42,160 | 46,022 | 29,413 | ||||||
NON-CURRENT ASSETS: | ||||||||||
Property and equipment, net | 2,446 | 2,783 | 2,465 | 2,525 | ||||||
Right of use assets, net | 1,424 | 1,710 | 1,277 | 1,395 | ||||||
Intangible asset, net | 9,446 | 10,897 | ||||||||
Intangible assets, net | 104,935 | 8,957 | ||||||||
Deferred tax asset | 118 | 137 | 131 | 129 | ||||||
Warrant asset | 235 | 833 | 93 | 183 | ||||||
TOTAL ASSETS | $ | 43,429 | $ | 58,520 | $ | 154,923 | $ | 42,602 | ||
CURRENT LIABILITIES: | ||||||||||
Accounts payable | $ | 8,706 | $ | 8,706 | $ | 8,040 | $ | 10,088 | ||
Accrued expenses | 3,661 | 3,617 | 6,002 | 3,998 | ||||||
Notes payable | 21,316 | — | — | 25,313 | ||||||
Finance lease obligations | 327 | 269 | 203 | 333 | ||||||
Total current liabilities | 34,010 | 12,592 | 14,245 | 39,732 | ||||||
NON-CURRENT LIABILITIES: | ||||||||||
Notes payable, net of discount | 22,492 | 43,080 | 63,954 | 18,683 | ||||||
Common stock warrants | 3,471 | — | ||||||||
Accrued licensor payments | 21,079 | — | ||||||||
Other non-current liabilities | 5,005 | 5,453 | 5,944 | 4,995 | ||||||
COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ DEFICIT: | ||||||||||
Preferred stock, $.01 par value — 10,000,000 shares authorized at September 30, 2022 and December 31, 2021: | ||||||||||
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at September 30, 2022 and December 31, 2021; liquidation preference of $24,000 at September 30, 2022 and December 31, 2021 | 19,227 | 19,227 | ||||||||
Common stock, $.01 par value — 150,000,000 shares authorized, 6,998,023 shares issued and outstanding at September 30, 2022 and 6,935,154 shares issued and outstanding at December 31, 2021 | 70 | 69 | ||||||||
STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||||
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2023 and December 31, 2022: | ||||||||||
Series A Convertible Preferred Stock, none authorized, issued and outstanding at June 30, 2023; 1,300,000 authorized and 600,000 issued and outstanding at December 31, 2022; liquidation preference of $24,000 at December 31, 2022 | — | 19,227 | ||||||||
Series B Convertible Preferred Stock, 78,617 authorized, issued and outstanding at June 30, 2023; liquidation preference of $XX,000 at June 30, 2023; none authorized, issued and outstanding at December 31, 2022 | 74,725 | — | ||||||||
Common stock, $.01 par value — 150,000,000 shares authorized, 8,803,727 shares issued and outstanding at June 30, 2023 and 6,995,513 shares issued and outstanding at December 31, 2022 | 88 | 70 | ||||||||
Additional paid-in capital | 378,005 | 377,229 | 386,979 | 378,238 | ||||||
Accumulated deficit | (411,608) | (397,281) | (412,779) | (415,388) | ||||||
Accumulated other comprehensive loss | (3,772) | (1,849) | (2,783) | (2,955) | ||||||
TOTAL STOCKHOLDERS’ DEFICIT | (18,078) | (2,605) | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 43,429 | $ | 58,520 | ||||||
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | 46,230 | (20,808) | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 154,923 | $ | 42,602 | ||||||
See Notes to Unaudited Interim Condensed Consolidated Financial Statements (Interim Financial Statements).
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
(In thousands, except share and per share data) | |||||||||||
REVENUE: | |||||||||||
PRODUCT REVENUE, NET | $ | 17,538 | $ | 14,604 | $ | 31,084 | $ | 26,502 | |||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (2,425) | (2,166) | (4,453) | (3,846) | |||||||
GROSS PROFIT | 15,113 | 12,438 | 26,631 | 22,656 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 3,648 | 3,932 | 7,812 | 7,515 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 4,373 | 2,945 | 8,544 | 6,185 | |||||||
SALES AND MARKETING EXPENSES | 6,434 | 6,865 | 12,238 | 13,718 | |||||||
DEPRECIATION AND AMORTIZATION | 1,866 | 670 | 2,547 | 1,359 | |||||||
OPERATING EXPENSES | 16,321 | 14,412 | 31,141 | 28,777 | |||||||
LOSS FROM OPERATIONS | (1,208) | (1,974) | (4,510) | (6,121) | |||||||
INTEREST EXPENSE AND OTHER | (1,694) | (1,383) | (3,361) | (2,747) | |||||||
UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET | (7) | 38 | (20) | 146 | |||||||
LOSS ON EXTINGUISHMENT OF DEBT | (1,079) | — | (1,079) | — | |||||||
CHANGE IN FAIR VALUE OF WARRANT ASSET | (105) | 221 | (91) | (331) | |||||||
CHANGE IN FAIR VALUE OF WARRANT LIABILITY | (5,911) | — | (5,911) | — | |||||||
NET LOSS BEFORE TAXES | (10,004) | (3,098) | (14,972) | (9,053) | |||||||
INCOME TAX PROVISION | (25) | (17) | (25) | (17) | |||||||
NET LOSS | (10,029) | (3,115) | (14,997) | (9,070) | |||||||
PREFERRED STOCK DIVIDENDS | (669) | — | (683) | ||||||||
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS | $ | (10,698) | $ | (3,115) | $ | (15,680) | $ | (9,070) | |||
NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS — Basic and Diluted | $ | (1.32) | $ | (0.45) | $ | (2.07) | $ | (1.30) | |||
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted | 8,093,640 | 6,999,707 | 7,565,868 | 6,995,247 | |||||||
See Notes to Interim Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
(In thousands) | |||||||||||
NET LOSS | $ | (10,029) | $ | (3,115) | $ | (14,997) | $ | (9,070) | |||
OTHER COMPREHENSIVE (LOSS) INCOME | |||||||||||
Foreign currency translation adjustments | — | (923) | 172 | (1,279) | |||||||
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME | — | (923) | 172 | (1,279) | |||||||
COMPREHENSIVE LOSS | $ | (10,029) | $ | (4,038) | $ | (14,825) | $ | (10,349) | |||
See Notes to Interim Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
(In thousands, except share and per share data) | |||||||||||
REVENUE: | |||||||||||
PRODUCT REVENUE, NET | $ | 13,598 | $ | 12,153 | $ | 40,100 | $ | 34,022 | |||
LICENSE REVENUE | — | — | — | 11,048 | |||||||
NET REVENUE | 13,598 | 12,153 | 40,100 | 45,070 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (2,006) | (1,689) | (5,852) | (5,064) | |||||||
GROSS PROFIT | 11,592 | 10,464 | 34,248 | 40,006 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 4,483 | 3,278 | 11,998 | 10,058 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 3,352 | 2,808 | 9,537 | 9,577 | |||||||
SALES AND MARKETING EXPENSES | 6,504 | 5,751 | 20,222 | 15,900 | |||||||
DEPRECIATION AND AMORTIZATION | 664 | 649 | 2,023 | 1,920 | |||||||
OPERATING EXPENSES | 15,003 | 12,486 | 43,780 | 37,455 | |||||||
(LOSS) INCOME FROM OPERATIONS | (3,411) | (2,022) | (9,532) | 2,551 | |||||||
INTEREST EXPENSE AND OTHER | (1,500) | (1,360) | (4,247) | (4,050) | |||||||
UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET | (67) | 142 | 79 | 323 | |||||||
GAIN ON EXTINGUISHMENT OF DEBT | — | — | — | 1,792 | |||||||
CHANGE IN FAIR VALUE OF WARRANT ASSET | (267) | (1,112) | (598) | (411) | |||||||
NET (LOSS) INCOME BEFORE TAXES | (5,245) | (4,352) | (14,298) | 205 | |||||||
INCOME TAX (PROVISION) BENEFIT | (12) | 169 | (29) | (471) | |||||||
NET LOSS | $ | (5,257) | $ | (4,183) | $ | (14,327) | $ | (266) | |||
NET LOSS PER SHARE — Basic and Diluted | $ | (0.75) | $ | (0.60) | $ | (2.05) | $ | (0.04) | |||
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted | 6,996,575 | 6,924,174 | 6,995,695 | 6,480,952 | |||||||
See Notes to Interim Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
(In thousands) | |||||||||||
NET LOSS | $ | (5,257) | $ | (4,183) | $ | (14,327) | $ | (266) | |||
OTHER COMPREHENSIVE LOSS | |||||||||||
Foreign currency translation adjustments | (644) | (451) | (1,923) | (1,015) | |||||||
TOTAL OTHER COMPREHENSIVE LOSS | (644) | (451) | (1,923) | (1,015) | |||||||
COMPREHENSIVE LOSS | $ | (5,901) | $ | (4,634) | $ | (16,250) | $ | (1,281) | |||
See Notes to Interim Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||||
September 30, | Six Months Ended | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||
(In thousands) | (In thousands) | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net loss | $ | (14,327) | $ | (266) | $ | (14,997) | $ | (9,070) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
Depreciation and amortization | 2,023 | 1,920 | 2,547 | 1,359 | ||||||
Non-cash consideration received as revenue | — | (973) | ||||||||
Loss on extinguishment of debt | 1,079 | — | ||||||||
Unrealized foreign currency transaction gain, net | (79) | (323) | 20 | (146) | ||||||
Amortization of debt discount and deferred financing costs | 853 | 722 | 488 | 552 | ||||||
Stock-based compensation expense | 723 | 758 | 442 | 581 | ||||||
Gain on extinguishment of debt | — | (1,792) | ||||||||
Change in fair value of warrant asset | 598 | 411 | 91 | 331 | ||||||
Change in fair value of warrant liability | 5,911 | — | ||||||||
Changes in assets and liabilities: | ||||||||||
Accounts receivable | (963) | 761 | (2,859) | (1,725) | ||||||
Prepaid expenses and other current assets | 317 | (158) | (539) | 507 | ||||||
Inventory | 739 | 395 | 559 | 942 | ||||||
Accounts payable | 428 | 160 | (2,066) | (880) | ||||||
Accrued expenses and other current liabilities | 249 | 561 | 202 | (181) | ||||||
Other long-term liabilities | (285) | (717) | 917 | (81) | ||||||
Net cash (used in) provided by operating activities | (9,724) | 1,459 | ||||||||
Net cash used in operating activities | (8,205) | (7,811) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Purchases of property and equipment | (171) | (500) | (171) | (41) | ||||||
Purchase of intangible assets | (75,272) | — | ||||||||
Net cash used in investing activities | (171) | (500) | (75,443) | (41) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Proceeds from issuance of Series B Convertible Preferred Stock | 78,339 | — | ||||||||
Series B Convertible Preferred Stock issuance costs | (509) | — | ||||||||
Proceeds from issuance of common stock | 40 | 10,042 | 2,404 | 40 | ||||||
Common stock issuance costs | — | (82) | ||||||||
Proceeds from exercise of stock options | 15 | 42 | ||||||||
Issuance of debt | 22,500 | — | ||||||||
Payment of debt costs | (4,108) | — | ||||||||
Payment of finance lease obligations | (164) | (160) | (251) | (204) | ||||||
Net cash (used in) provided by financing activities | (109) | 9,842 | ||||||||
Repurchase of Series A Preferred Stock | (938) | — | ||||||||
Repurchase of common stock | (314) | — | ||||||||
Net cash provided by (used in) financing activities | 97,123 | (164) | ||||||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (998) | (485) | 28 | (638) | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (11,002) | 10,316 | 13,503 | (8,654) | ||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period | 16,544 | 11,242 | 5,304 | 16,544 | ||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period | $ | 5,542 | $ | 21,558 | $ | 18,807 | $ | 7,890 | ||
SUPPLEMENTAL DISCLOSURES: | ||||||||||
Cash paid for interest | $ | 3,253 | $ | 3,230 | $ | 3,136 | $ | 2,145 | ||
Cash paid for income taxes | $ | 224 | $ | 47 | $ | 21 | $ | 182 | ||
Supplemental schedule of non-cash investing and financing activities: | ||||||||||
Note payable end of term payment accrued but unpaid | $ | 2,250 | $ | 2,250 | $ | 3,375 | $ | 2,250 | ||
Intangible asset acquired but unpaid | $ | 22,850 | $ | — | ||||||
See Notes to Interim Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICITEQUITY (DEFICIT)
Series A | Series A | Series B | |||||||||||||||||||||||||||||||||||||||||||||||
Convertible | Accumulated | Convertible | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Additional | Common | Other | Common Stock | Preferred Stock | Additional | Other | |||||||||||||||||||||||||||||||||||||||||
Paid-In | Stock | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Warrants | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||||||
2021 | (In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 5,719,367 | $ | 57 | 600,000 | $ | 19,227 | $ | 365,830 | $ | 370 | $ | (392,909) | $ | (553) | $ | (7,978) | |||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 45,000 | 1 | — | — | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 58 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Forfeitures of restricted stock | (10,933) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 262 | — | — | — | 262 | ||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (3,648) | — | (3,648) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | (597) | (597) | ||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 5,753,492 | 58 | 600,000 | 19,227 | 366,092 | 370 | (396,557) | (1,150) | (11,960) | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 1,164,343 | 11 | — | — | 9,949 | — | — | — | 9,960 | ||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 6,339 | — | — | — | 42 | — | — | — | 42 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 251 | — | — | — | 251 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 7,565 | — | 7,565 | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | 33 | 33 | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 6,924,174 | 69 | 600,000 | 19,227 | 376,334 | 370 | (388,992) | (1,117) | 5,891 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 3,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 245 | — | — | — | 245 | ||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (4,183) | — | (4,183) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | (451) | (451) | ||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 6,927,174 | $ | 69 | 600,000 | $ | 19,227 | $ | 376,579 | $ | 370 | $ | (393,175) | $ | (1,568) | $ | 1,502 | |||||||||||||||||||||||||||||||||
Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | ||||||||||||||||||||||||||||||||||||||||
2022 | (In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 6,935,154 | $ | 69 | 600,000 | $ | 19,227 | $ | 377,229 | $ | — | $ | (397,281) | $ | (1,849) | $ | (2,605) | 6,935,154 | $ | 69 | 600,000 | $ | 19,227 | — | $ | — | $ | 377,229 | $ | (397,281) | $ | (1,849) | $ | (2,605) | ||||||||||||||||
Issuance of common stock, net of issuance costs | 57,500 | 1 | — | — | — | — | — | — | 1 | 57,500 | 1 | — | — | — | — | — | — | — | 1 | ||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 312 | — | — | — | 312 | — | — | — | — | — | — | 312 | — | — | 312 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (5,955) | — | (5,955) | — | — | — | — | — | — | — | (5,955) | — | (5,955) | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | (356) | (356) | — | — | — | — | — | — | — | — | (356) | (356) | ||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 6,992,654 | 70 | 600,000 | 19,227 | 377,541 | — | (403,236) | (2,205) | (8,603) | 6,992,654 | 70 | 600,000 | 19,227 | — | — | 377,541 | (403,236) | (2,205) | (8,603) | ||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 10,307 | — | — | — | 39 | — | — | — | 39 | 10,307 | — | — | — | — | — | 39 | — | — | 39 | ||||||||||||||||||||||||||||||
Forfeitures of restricted stock | (7,500) | — | — | — | — | — | — | — | — | (7,500) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 267 | — | — | — | 267 | — | — | — | — | — | — | 267 | — | — | 267 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (3,115) | — | (3,115) | — | — | — | — | — | — | — | (3,115) | — | (3,115) | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | (923) | (923) | — | — | — | — | — | — | — | — | (923) | (923) | ||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 6,995,461 | 70 | 600,000 | 19,227 | 377,847 | — | (406,351) | (3,128) | (12,335) | 6,995,461 | $ | 70 | 600,000 | $ | 19,227 | — | $ | — | $ | 377,847 | $ | (406,351) | $ | (3,484) | $ | (12,335) | |||||||||||||||||||||||
Stock option exercises | 2,562 | — | — | — | 15 | — | — | — | 15 | ||||||||||||||||||||||||||||||||||||||||
2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | 6,995,513 | $ | 70 | 600,000 | $ | 19,227 | — | $ | — | $ | 378,238 | $ | (415,388) | $ | (2,955) | $ | (20,808) | ||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 597,000 | 6 | — | — | — | — | (6) | — | — | — | |||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (200,919) | (2) | — | — | — | — | (312) | — | — | (314) | |||||||||||||||||||||||||||||||||||||||
Repurchase of Preferred Stock - Series A | — | — | (600,000) | (19,227) | — | — | — | 18,289 | — | (938) | |||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Stock - Series B | — | — | — | — | 12,000 | 7,714 | — | — | — | 7,714 | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | 14 | — | (14) | — | — | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 143 | — | — | — | 143 | — | — | — | — | — | — | 226 | — | — | 226 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (5,257) | — | (5,257) | — | — | — | — | — | — | — | (4,968) | — | (4,968) | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | (644) | (644) | — | — | — | — | — | — | — | — | 172 | 172 | ||||||||||||||||||||||||||||||
Balance, September 30, 2022 | 6,998,023 | $ | 70 | 600,000 | $ | 19,227 | $ | 378,005 | $ | — | $ | (411,608) | $ | (3,772) | $ | (18,078) | |||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | 7,391,594 | 74 | — | — | 12,000 | 7,728 | 378,146 | (402,081) | (2,783) | (18,916) | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 1,415,133 | 14 | — | — | — | — | 34 | — | — | 48 | |||||||||||||||||||||||||||||||||||||||
Forfeitures of restricted stock | (3,000) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Stock - Series B | — | — | — | — | 66,617 | 66,328 | 2,355 | — | — | 68,683 | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | 669 | — | (669) | — | — | |||||||||||||||||||||||||||||||||||||||
Forfeiture of common stock warrants | — | — | — | — | — | — | 6,227 | — | — | 6,227 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 217 | — | — | 217 | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (10,029) | — | (10,029) | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | 8,803,727 | $ | 88 | — | $ | — | 78,617 | $ | 74,725 | $ | 386,979 | $ | (412,779) | $ | (2,783) | $ | 46,230 | ||||||||||||||||||||||||||||||||
See Notes to Interim Financial Statements.
1. NATURE OF OPERATIONS
Alimera Sciences, Inc., together with its wholly owned subsidiaries (the Company), is a pharmaceutical company that specializes in the commercialization and development of ophthalmic pharmaceuticals. The Company was formed on June 4, 2003 under the laws of the State of Delaware.
The Company presently focuses on diseases affecting the retina, because the Company believes these diseases are not well treated with current therapies and affect millions of people globally. The Company’s only product isproducts are ILUVIEN® (fluocinolone acetonide intravitreal implant) 0.19 mg, which has received marketing authorization and reimbursement in 24 countries for the treatment of diabetic macular edema (DME). , and YUTIQ® (fluocinolone acetonide intravitreal implant) 0.18 mg, available in the United States for the treatment and prevention of uveitis.
In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. In addition, ILUVIEN has received marketing authorization in 17 European countries and reimbursement in fiveten countries for the prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment (NIU-PS).
The Company markets ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Irelandand has made ILUVIEN available in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler.. In addition, the Company has entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Australia, New Zealand and several countries in the Middle East. In addition, the Company has granted an exclusive license to Ocumension Therapeutics for the development and commercialization of the Company’s 0.19mg fluocinolone acetonide intravitreal injection in China, East Asia and the Western Pacific.
Effects As of June 30, 2023, the COVID-19 Pandemic
The public health crisis caused byCompany has recognized sales of ILUVIEN to its international distributors in the COVID-19 pandemicMiddle East, China, Austria, Belgium, Czech Republic, France, Italy, Luxembourg, Spain, the Netherlands, and the measures taken by governments, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and the Company expects will continue to have to some degree, certain negative effects on, and present certain risks to, the Company’s business. These limitations and other effects of the COVID-19 pandemic had an adverse impact on the Company’s revenues beginning late in the first quarter of 2020, and this adverse impact has continued to a lesser degree through the date of this report in some of the Company’s key markets in Europe that have now begun to recover. As the COVID-19 pandemic continued, the Company’s liquidity and financial condition were adversely affected as well. These COVID-19 pandemic-related factors may continue to adversely affect the Company’s revenue, liquidity and financial condition, and the extent and duration of that effect is uncertain, particularly if SARS-CoV-2 variants emerge that may increase the transmissibility of the coronavirus or be more deadly, or both. This uncertainty could in the future affect certain estimates the Company uses to prepare its quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables and the prospective compliance with the Company’s covenants in its loan agreement.Nordic Region.
In responsethe U.S., YUTIQ is indicated for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye. The Company has the rights to commercialize YUTIQ under a product rights agreement dated May 17, 2023 (the Product Rights Agreement) with EyePoint Pharmaceuticals, Inc. (EyePoint Parent) in the COVID-19 pandemic,entire world, except Europe, the Middle East and Africa as the Company has implemented measureshad previously licensed from EyePoint Pharmaceuticals US, Inc. (EyePoint) rights in those territories to mitigatecertain products, which included YUTIQ (known as ILUVIEN® in Europe, the impactMiddle East and Africa) for the prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment. (See Note 17) The Product Rights Agreement also excludes any rights to YUTIQ for the treatment of chronic non-infectious uveitis affecting the posterior segment of the pandemic on its financial positioneye in China and operations. The Company is continuingcertain other countries and regions in Asia, which rights are subject to monitor the effects of the SARS-CoV-2 variantsa pre-existing exclusive license between EyePoint Parent and to increase its engagement with its customers to mitigate any loss of revenue in the affected markets.Ocumension Therapeutics.
2. BASIS OF PRESENTATION
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these Interim Financial Statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.
The accompanying Interim Financial Statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 20212022, and related notes included in the Company’s Annual Report on Form 10-K for the year
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ended December 31, 2021,2022, which was filed with the SEC on March 23,31, 2023 (the 2022 (the 2021 Form 10-K). The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the 2021Company’s Annual Report on Form 10-K.10-K filed with the Securities and Exchange Commission for the year ended December 31, 2022. Certain of the Company’s more significant accounting policies adopted in the current year are as follows:
Acquisition of Intangible Assets
The Company accounts for the acquisition of pharmaceutical product licenses as an asset acquisition in accordance with FASB ASC 805 – Business Combinations (“ASC 805”). ASC 805 specifies that if substantially all of the fair value of the gross assets acquired in a transaction are concentrated in a single identifiable asset or group of similar identifiable assets, then the set is not a business and is recorded as an asset acquisition. Under this model, the Company assigns the cost of the transaction to the acquired tangible assets, to the identified intangible assets and liabilities and any above or below-market contracts. The purchase price, including the direct amounts paid for the net assets in the transaction and any acquisition costs incurred that relate directly to the acquisition, is assigned based on the relative fair values of the assets acquired and liabilities assumed. The fair value of any identified intangible assets is determined at the acquisition date based on inputs and other factors based on market participants.
Adoption of New Accounting Standard
In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in Accounting Standards Codification (ASC) 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. The standard became effective for the Company on January 1, 2022. The adoption of this guidance did not have a material impact on the Company’s financial statements.
Accounting Standards Issued but Not Yet Effective
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The standard becomesbecame effective for the Company on January 1, 2023. The Company does not anticipate the adoption of this ASU willdid not have a material impact on its financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is available until December 31, 2022. The Company does not anticipate the adoption of this ASU will have a material impact on the Company’s financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.
Accounting Standards Issued but Not Yet Effective
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard was available until December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company does not anticipate the adoption of this ASU will have a material impact on its financial statements.
4. REVENUE RECOGNITION
Overview
The Company recognizes revenue when a customer obtains control of the related good or service. The amount recognized reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606Revenue from Contracts with Customers, the Company performs the following steps as outlined in the guidance: (1) identify the contract with the customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the entity satisfies a performance obligation. At the inception of a contract, the contract is evaluated to determine if it falls within the scope of ASC 606, followed by the Company’s assessment of the goods or services promised within each contract, assessment of whether the promised good or service is distinct and determination of the performance obligations. The Company then recognizes revenue based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.
Net Product Sales
The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (collectively, its Customers). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiatedprivately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The Company recognizes revenues from product sales at a point in time when the Customer obtains control, typically upon delivery. The Company accrues for fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Estimates of Variable Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.
With respect to the Company’s international contracts with third-party distributors, certain contracts have elements of variable consideration, and management reviews those contracts on a regular basis and makes estimates of revenue based on historical ordering patterns and known market trendsevents and data. The amount of variable consideration included in net sales in each period could vary depending on the terms of these contracts and the probability of reversal in future periods.
Consideration Payable to Customers
Distribution service fees are payments issued to distributors for compliance with various contractually-definedcontractually defined inventory management practices or services provided to support patient access to a product. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.
Product Returns
The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product, and the related product is destroyed after it is returned. The Company may, at its option, either refund the sales price paid by the Customer by issuing a credit or exchangeexchanging the returned product for replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products and product recalls, if any.
The estimation process for product returns involves, in each case, several interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue from product sales in the period the related revenue is recognized, and because this returned product cannot be resold, there is no corresponding asset for product returns. ToThrough the date of this report, product returns have been minimal.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
License Revenue
The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of the license agreementthese agreements may include payment to the Company of one or more of the following: non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.
Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.
The Company will recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606. For those milestone payments which are contingent on the occurrence of particular future events, the Company determines that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the expected value method. As such, the Company assesses each milestone to determine the probability of and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, the Company will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.
Customer Payment Obligations
The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s markets,locations, but generally range between 30 to 150120 days. Occasionally, the Company extends the timing of its receipt ofoffers extended payment from the Company’s internationalterms or payment term discounts to certain Customers. Amounts are recorded as accounts receivable when the Company’sCompany's right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that the Customer will pay for the product or services inwithin one year or less of receiving those products or services.
5. LEASES
The Company evaluates all of its contracts to determine whether it is or contains a lease at inception. The Company reviews its contracts for options to extend, terminate or purchase any right of use assets and accounts for these, as applicable, at inception of the contract. Upon adoption of ASC 842, the Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification or whether its contracts contain or are leases. The Company made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, or those that do not meet the Company’s capitalization threshold, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. Lease costs associated with those leases are recognized as incurred. The Company has also chosen the practical expedient that allows it to combine lease and non-lease components as a single lease component.
Lease renewal options are not recognized as part of the lease liability until the Company determines it is reasonably certain it will exercise any applicable renewal options. The Company has determined it is not reasonably certain it will exercise any applicable renewal options. The Company has not recorded any liability for renewal options in these Interim Financial Statements. The useful lives of leased assets as well as leasehold improvements, if any, are limited by the expected lease term.
Operating Leases
The Company’s operating lease activities primarily consist of leases for office space in the U.S., the U.K., Ireland, Portugal and Germany. Most of these leases include options to renew, with renewal terms generally ranging from one to eight years. The exercise of lease renewal options is at the Company’s sole discretion. Certain of the Company’s operating lease agreements include variable lease costs that are based on common area maintenance and property taxes. The Company expenses these payments as incurred. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplemental balance sheet information as of SeptemberJune 30, 20222023 and December 31, 20212022 for the Company’s operating leases is as follows:
September 30, | December 31, | June 30, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(In thousands) | (In thousands) | |||||||||
NON-CURRENT ASSETS: | ||||||||||
Right of use assets, net | $ | 1,424 | $ | 1,710 | $ | 1,277 | $ | 1,395 | ||
Total lease assets | $ | 1,424 | $ | 1,710 | $ | 1,277 | $ | 1,395 | ||
CURRENT LIABILITIES: | ||||||||||
Accrued expenses | $ | 588 | $ | 220 | $ | 685 | $ | 768 | ||
NON-CURRENT LIABILITIES: | ||||||||||
Other non-current liabilities | 2,360 | 2,735 | 2,029 | 2,267 | ||||||
Total lease liabilities | $ | 2,948 | $ | 2,955 | $ | 2,714 | $ | 3,035 | ||
The Company’s operating lease cost for the three and ninesix months ended SeptemberJune 30, 20222023 was $136,000$256,000 and $408,000,$405,000, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations. The Company’s operating lease cost for the three and ninesix months ended SeptemberJune 30, 20212022 was $117,000$134,000 and $352,000,$272,000, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations.
As of SeptemberJune 30, 2022,2023, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:
Years Ending December 31 | (In thousands) | (In thousands) | ||
2022 (remaining) | $ | 58 | ||
2023 | 678 | |||
2023 (remaining) | $ | 354 | ||
2024 | 654 | 680 | ||
2025 | 474 | 474 | ||
2026 | 488 | 488 | ||
2027 | 503 | |||
Thereafter | 1,555 | 1,052 | ||
Total | 3,907 | 3,551 | ||
Less amount representing interest | (959) | (837) | ||
Present value of minimum lease payments | 2,948 | 2,714 | ||
Less current portion (as a portion of accrued expenses) | (588) | (685) | ||
Non-current portion (as a portion of other non-current liabilities) | $ | 2,360 | $ | 2,029 |
Cash paid for operating leases was $193,000$176,000 and $351,000 during the ninethree and six months ended SeptemberJune 30, 2022.2023, respectively. No right-of-use assets were obtained in connection with operating leases for the three and ninesix months ended SeptemberJune 30, 2022.2023. Cash paid for operating leases was $588,000$64,000 and $132,000 during the ninethree and six months ended SeptemberJune 30, 2021.2022, respectively. No right-of-use assets were obtained in connection with operating leases for the ninethree and six months ended SeptemberJune 30, 2021.2022.
As of SeptemberJune 30, 2022,2023, the weighted average remaining lease terms of the Company’s operating leases was 6.96.0 years. The weighted average discount rate used to determine the lease liabilities was 9.5%.
Finance Leases
The Company’s finance lease activities primarily consist of leases for office equipment and automobiles. Property and equipment leases are capitalized at the lesser of fair market value or the present value of the minimum lease payments at the inception of the leases using the Company’s incremental borrowing rate. The Company’s finance lease agreements do not contain any material residual value guarantees or material restrictive covenants.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplemental balance sheet information as of SeptemberJune 30, 20222023 and December 31, 20212022 for the Company’s finance leases is as follows:
September 30, | December 31, | June 30, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(In thousands) | (In thousands) | |||||||||
NON-CURRENT ASSETS: | ||||||||||
Property and equipment, net | $ | 252 | $ | 392 | $ | 384 | $ | 366 | ||
Total lease assets | $ | 252 | $ | 392 | $ | 384 | $ | 366 | ||
CURRENT LIABILITIES: | ||||||||||
Finance lease obligations | $ | 327 | $ | 269 | $ | 203 | $ | 333 | ||
NON-CURRENT LIABILITIES: | ||||||||||
Other non-current liabilities | 81 | 225 | 180 | 131 | ||||||
Total lease liabilities | $ | 408 | $ | 494 | $ | 383 | $ | 464 | ||
Depreciation expense associated with property and equipment under finance leases was approximately $59,000$71,000 and $94,000$65,000 for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Depreciation expense associated with property and equipment under finance leases was approximately $214,000$123,000 and $303,000$155,000 for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Interest expense associated with finance leases was $10,000$11,000 and $14,000$10,000 for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Interest expense associated with finance leases was $31,000$22,000 and $46,000$21,000 for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
As of SeptemberJune 30, 2022,2023, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:
Years Ending December 31 | (In thousands) | (In thousands) | ||
2022 (remaining) | $ | 155 | ||
2023 | 266 | |||
2023 (remaining) | $ | 178 | ||
2024 | 38 | 177 | ||
2025 | 12 | 114 | ||
2026 | 15 | |||
Total | 471 | 484 | ||
Less amount representing interest | (63) | (101) | ||
Present value of minimum lease payments | 408 | 383 | ||
Less current portion | (327) | (203) | ||
Non-current portion | $ | 81 | $ | 180 |
Cash paid for finance leases was $164,000$132,000 and $251,000 during the ninethree and six months ended SeptemberJune 30, 2022.2023, respectively. The Company acquired $80,000 and $170,000 of property and equipment in exchange for finance leases during the three and six months ended June 30, 2023, respectively. Cash paid for finance leases was $167,000 and $175,000 during the three and six months ended June 30, 2022, respectively. No property or equipment was obtained in exchange for finance leases during the three and ninesix months ended SeptemberJune 30, 2022.
As of SeptemberJune 30, 2022,2023, the weighted average remaining lease terms of the Company’s finance leases was 0.60.8 years. The weighted average discount rate used to determine the finance lease liabilities was 9.5%9.9%.
6. GOING CONCERN
The accompanying Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
To date, theThe Company has incurred recurring losses, negative cash flow from operations and has accumulated a deficit of $411,608,000$412,779,000 from the Company’s inception through SeptemberJune 30, 2022.2023. As of SeptemberJune 30, 2022,2023, the Company had approximately $5,514,000$18,807,000 in cash and cash equivalents. The Company’s ability to achieve profitability and positive cash flow depends on its ability to increase revenue and contain its expenses.
Further, the Company must maintain compliance with the debt covenants of its $45,000,000 Loan and Security Agreement dated December 31, 2019 with SLR Investment Corp., asCorp (SLR) and certain other lenders (as amended, (the 2019 Loan Agreement; see Note 10). Additionally, amortization of principal under the 2019 Loan Agreement is currently scheduledAgreement). (See Note 10) If the Company were unable to begin on January 1, 2023,comply with paymentsthe Revenue Covenant (as defined in Note 10) at any time over the course of approximately $2,368,000
Tablethe next year, the lenders have the right to accelerate the maturity of Contents
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
per month, plus interest. The Company is seeking to refinance thisthe loan by December 31, 2022, before the amortization payments begin. In management’s opinion, the uncertainty regarding future revenues raiseswhich would raise substantial doubt about the Company’s ability to continue as a going concern without access to additionalalternative debt and/or equity financing, over the course of the next twelve months.
The Company’s operations and thus its net product revenues were adversely affected by the COVID-19 pandemic, and this adverse impact has continued to a lesser degree through the date of this report in some of the Company’s key markets in Europe that have now begun to recover. During the nine months ended September 30, 2021 and December 31, 2021, the Company did not generate sufficient revenue to meet the trailing six-month revenue covenant included in the 2019 Loan Agreement. The lenders provided a consent that permitted the Company not to maintain the revenue covenant as of September 30, 2021 and December 31, 2021 and waived any event of default that had occurred or may be deemed to have occurred.
The Company met the trailing six-month revenue covenant included in the 2019 Loan Agreement for the six-month periods ended March 31, 2022, June 30, 2022 and September 30, 2022, and the Company expects to comply with the revenue covenant at the next reportable date, which is December 31, 2022, and through one year after the filing date of this Quarterly Report on Form 10-Q, although the Company can give no assurances in that regard. Due primarily to the remaining uncertainty surrounding the COVID-19 pandemic, it is possible that the Company will fail to comply with the revenue covenant.
If the Company (a) fails to comply with the revenue covenant or (b) lacks the cash to make and therefore fails to make the required amortization payments that commence on January 1, 2023, and in either event the lenders do not provide a consent and waiver, acceleration of the maturity of the loan is one of the remedies available to the lenders. If the lenders accelerate the maturity of the loan, the Company would be forced to find alternative financing or enter into an alternative agreement with the lenders. The Company cannot be sure that alternative financing will be available when needed or that, if available, the alternative financing could be obtained on terms that are not significantly detrimental to the Company or its stockholders.
To meet the Company’s anticipated future working capital needs, in March and May 2023, the Company willconsummated equity financings and amended the 2019 Loan Agreement (See Note 10). The Company may in the future need to raise additional debt and/or equity financing. The source, timing, and availability of any future financing will depend upon market conditions and refinanceother factors that may be outside of the 2019 Loan Agreement. WhileCompany’s control. Funding may not be available when needed, at all, or on terms acceptable to the CompanyCompany. Because of these factors and the requirement to satisfy the Revenue Covenant and the Company’s history of recurring losses and negative cash flow from time to time has been able to raise additional capital through issuance of equity and/or debt financing, the Company cannot guarantee that it willoperations, there may be able to maintain debt compliance, raise additional equity, contain or reduce expenses, or increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these Interim Financial Statementsfinancial statements are issued. However, the Company believes the current cash reserves and expected revenue from operations are sufficient to fund its operation for at least the next 12 months.
7. INVENTORY
Inventory consisted of the following:
September 30, | December 31, | June 30, | December 31, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||
(In thousands) | (In thousands) | |||||||||
Component parts (1) | $ | 123 | $ | 200 | $ | 505 | $ | 152 | ||
Work-in-process (2) | 600 | 1,416 | 73 | 560 | ||||||
Finished goods | 1,063 | 1,063 | 477 | 893 | ||||||
Total Inventory | $ | 1,786 | $ | 2,679 | $ | 1,055 | $ | 1,605 | ||
(1) Component parts inventory consists of manufactured components of the ILUVIEN applicator.
(2) Work-in-process consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing or stability testing as required by U.S. or EEA regulatory authorities.
8. INTANGIBLE ASSETASSETS
ILUVIEN Intangible Asset
As a result of the approval of ILUVIEN by the U.S. Food and Drug AdministrationAdministration’s (FDA) approval of ILUVIEN in September 2014, the Company was required to pay EyePoint Pharmaceuticals, Inc. (EyePoint)in October 2014 a milestone payment of $25,000,000 (the EyePoint Milestone Payment) to EyePoint, formerly known as pSivida US, Inc. (see Note 9).
The gross carrying amount of the intangible asset is $25,000,000, which is being amortized over approximately 13 years from the payment date. The amortization expense related to the intangible asset was approximately $489,000$484,000 for both the three months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively. The amortization expense related to the intangible asset was approximately $1,451,000$962,000 for both the six months ended June 30, 2023 and 2022. The net book value of the intangible asset was $7,995,000 and $8,957,000 as of June 30, 2023 and December 31, 2022, respectively.
The estimated remaining amortization as of June 30, 2023 is as follows (in thousands):
Years Ending December 31 | (In thousands) | |
2023 (remaining) | $ | 978 |
2024 | 1,946 | |
2025 | 1,940 | |
2026 | 1,940 | |
2027 | 1,191 | |
Total | $ | 7,995 |
YUTIQ Intangible Asset
On May 17, 2023 the Company was granted an exclusive and sublicensable right and license, pursuant to the Product Rights Agreement to commercialize YUTIQ for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa, excluding any rights for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye in China and certain other countries and regions in Asia, which rights are subject to a pre-existing exclusive license between EyePoint and Ocumension Therapeutics. As a result, the Company paid EyePoint Parent an upfront payment of $75,000,000 and will make four quarterly additional guaranteed payments to EyePoint Parent totaling $7,500,000 in 2024 as well as royalties in 2025 through 2028 (see Note 17).
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The gross carrying amount of the nineintangible asset is $98,122,000, which is being amortized over approximately 10 years from the initial payment date. The amortization expense related to the intangible asset was approximately $1,182,000 for the three and six months ended SeptemberJune 30, 2022 and 2021, respectively.2023. The net book value of the intangible asset was $9,446,000 and $10,897,000$96,940,000 as of SeptemberJune 30, 2022 and December 31, 2021, respectively.2023.
The estimated futureremaining amortization expense as of SeptemberJune 30, 2022 for the remaining periods in the next five years and thereafter2023 is as follows:follows (in thousands):
Years Ending December 31 | (In thousands) | (In thousands) | ||
2022 (remaining) | $ | 489 | ||
2023 | 1,940 | |||
2023 (remaining) | $ | 4,942 | ||
2024 | 1,946 | 9,831 | ||
2025 | 1,940 | 9,804 | ||
2026 | 1,940 | 9,804 | ||
2027 | 9,804 | |||
Thereafter | 1,191 | 52,755 | ||
Total | $ | 9,446 | $ | 96,940 |
9. LICENSE AGREEMENTS
EyePoint License Agreement
In February 2005, the Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in EyePoint’s proprietary insert technology. This agreement was subsequently amended a number of times (as amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.
In July 2017, the Company amended and restated its EyePoint license agreement, which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the Company has the right to the technology underlying ILUVIEN for the treatment of (a) human eye diseases, including uveitis, in Europe, the Middle East, and Africa, and (b) human eye diseases other than uveitis worldwide. The New Collaboration Agreement converted the Company’s previous profit share obligation to a royalty payable on global net revenues of ILUVIEN.
Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to $15,000,000 of commercialization costs that were incurred prior to profitability of ILUVIEN and to offset a portion of future payments owed to EyePoint with these accumulated commercialization costs, referred to as the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of SeptemberJune 30, 2022,2023, the balance of the Future Offset was approximately $7,099,000.$6,762,000, which is fully reserved.
During the three and ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, the Company’s net royalty expense payable to EyePoint was 5.2%, which was reduced from 6% due to the recoverable balance of the Future Offset. The Company will be required to pay an additional 2% royalty on future global net revenues and other related consideration in excess of $75,000,000 in any year. During the three and ninesix months ended SeptemberJune 30, 2022,2023, the Company recognized approximately $705,000$463,000 and $2,080,000,$857,000, respectively, of royalty expense, which is included in cost of goods sold, excluding depreciation and amortization. As of SeptemberJune 30, 2022,2023, approximately $705,000$857,000 of this royalty expense was included in the Company’s accounts payable. During the three and ninesix months ended SeptemberJune 30, 2021,2022, the Company recognized approximately $628,000$758,000 and $2,232,000$1,375,000, respectively, of royalty expense respectively, which is included in cost of goods sold, excluding depreciation and amortization.
Ocumension License Agreement
On April 14, 2021, the Company entered into an exclusive license agreement (the License Agreement) with Ocumension (Hong Kong) Limited (“Ocumension HK”)(Ocumension HK), a wholly owned subsidiary of Ocumension Therapeutics, for the development and commercialization under Ocumension HK’s own brand name(s), either directly or through its affiliates or approved third-party sublicensees, of the Company’s 190 microgram0.19 mg fluocinolone acetonide intravitreal implant in applicator (the “Product”;Product; currently marketed in the United States, Europe, and the Middle East as “ILUVIEN®”ILUVIEN®) for the treatment and prevention of eye diseases in humans, other than uveitis, in a specified territory. The
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
“Territory” Territory is defined as the People’s Republic of China, including Hong Kong SAR and Macau SAR, region of Taiwan, South Korea, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
The Company received a nonrefundable upfront payment of $10,000,000 from Ocumension HK and may in the future receive additional sales-based milestone payments totaling up to $89,000,000 upon the achievement by Ocumension HK of certain specified sales milestones during the term of the License Agreement. The Company’s receipt of future milestone payments depends upon whether Ocumension HK is able to successfully complete product development and commercialization in the Territory, which requires, among other things, obtaining necessary regulatory approvals and appropriate reimbursement pricing in the various countries and jurisdictions in the Territory, a process that may take several years. During the nine months ended September 30,In 2021 the Company recognized $11,048,000 in license revenue from the Ocumension transaction (including the value of a warrant subscription agreement, which Alimera received as consideration, for Alimera to purchase 1,000,000 shares of Ocumension Therapeutics during a period of four years), in accordance with ASC 606, Revenue from Contracts with Customers, with the remaining approximate $300,000 in consideration classified as deferred revenue that will be recognized over the remaining term of the license agreement once Ocumension begins to sell products.
The term of the License will continue (a) until the 10th anniversary of the latest first commercial sale of the Product in any country or jurisdiction in the Territory or (b) for as long as Ocumension HK is commercializing the Product in any part of the Territory, whichever is later. The term is subject to the Company’s right to partially terminate the Agreement beginning on the 10th anniversary of the effective date with respect to any country or jurisdiction in the Territory in which Ocumension has not achieved at the time of termination first commercial sale and is not continuing to commercialize the Product. Ocumension will purchase Product from the Company at a fixed transfer price without royalty obligation on future sale (other than milestone payments as described above). Ocumension HK is responsible for all costs of development and commercialization in the Territory.Territory.
When the Company entered into the license agreement, it also entered into a share purchase agreement and a warrant subscription agreement, (warrant agreement), which are discussed in Note 16.
10. LOAN AGREEMENTS
Loan Agreements with SLR Investment Corp. (formerly named Solar Capital Ltd.)
As ofOn January 5, 2018, the Company entered into a $40,000,000 loan and security agreement with Solar Capital Ltd., as Collateral Agent, and the parties signatory thereto from time to time as Lenders, including Solar Capital Ltd. in its capacity as a Lender (the 2018 Loan Agreement). On December 31, 2019, the Company refinanced the 2018 Loan Agreement by entering into a $45,000,000 loan and security agreement (as amended, the(the 2019 Loan Agreement) with SLR Investment Corp. (SLR, f/k/a Solar Capital Ltd.), as Collateral Agent, and the parties signing the Loan Agreement from time to time as Lenders, including Solar Capital Ltd.SLR in its capacity as a Lender (collectively, the Lenders). UnderThe Company amended the 2019 Loan Agreement on March 24, 2023 (the Fifth Amendment) and entered into a related exit fee agreement with the Company borrowed $42,500,000Lenders. (See Note 21) Pursuant to the Fifth Amendment, the Lenders agreed to, among other things, (i) an additional tranche of $2,500,000 to increase the Company’s existing term loan facility to $47,500,000, subject to certain closing conditions, and (ii) extend a $15,000,000 additional term loan available to be funded at the Lender’s sole discretion.
Interest on December 31, 2019 and borrowed the remaining $2,500,000 on February 21, 2020. The two borrowings under the 2019 Loan Agreement totaled $45,000,000 and are referredprior to as the SLR Loan, given that Solar Capital Ltd. changed its name to SLR Investment Corp. (SLR) in February 2021. The SLR Loan maturesFifth Amendment was payable at an annual rate the greater of (i) one-month LIBOR or (ii) 1.78%, plus 7.65% per annum. Interest on July 1, 2024. The Company used the initial proceeds of the SLR Loan to pay off the outstanding loan under the 20182019 Loan Agreement along with related prepayment, legalfollowing the Fifth Amendment is payable at an annual rate equal to 5.15% plus the greater of (i) 4.60% and other fees(ii) one-month SOFR, which will reset monthly. As of March 31, 2023, the interest rate on the 2019 Loan Agreement was approximately 9.75%. The 2019 Loan Agreement provides for interest only payments until April 30, 2025, which may be extended an additional 12 months if the Company meets certain financial targets by March 31, 2025, followed by monthly payments of principal and expensesinterest through the loan maturity date of approximately $2,300,000, which included $2,200,000 in fees to SLR.April 30, 2028.
2018 Exit Fee Agreement
Notwithstanding the repayment of the outstanding loan under the 2018 Loan Agreement, with part of the SLR Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, SLR, as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Loan Agreement upon the repayment of the outstanding loan under the 2018 Loan Agreement and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the 2018 Exit Fee Agreement.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Specifically, the Company is obligated to pay an exit fee of $2,000,000 on a “change in control” (as defined in the 2018 Exit Fee Agreement). To the extent that the Company has not already paid the $2,000,000 fee, the Company is also obligated to pay a fee of $1,000,000 on achieving each of the following milestones:
• first, if the Company achieves revenues of $80,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and
• second, if the Company achieves revenues of $100,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.
2019 Exit Fee Agreement
The Company is also obligated to pay additional fees under the Exit Fee Agreement dated as of December 31, 2019 by and among the Company, SLR as Agent, and the Lenders (2019 Exit Fee Agreement). The 2019 Exit Fee Agreement will survive the termination of the 2019 Loan Agreement and has a term of 10 years. The Company will be obligated to pay a $675,000 exit fee upon the occurrence of an exit event, which generally means a change in control, as defined in the 2019 Exit Fee Agreement.
First Amendment to 2019 Loan Agreement
On May 1, 2020, the Company entered into a First Amendment (the First Amendment) to the 2019 Loan Agreement. The First Amendment also included revised covenants that applied to the Company’s financial performance during 2020, all of which were met. The First Amendment, among other things, required that a revenue covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with a plan the Company submitted to the Collateral Agent in February 2021, and with such plan to be approved by the Company’s board of directors (the Board) and SLR in its sole discretion.
Second Amendment to 2019 Loan2023 Exit Fee Agreement
On March 30, 2021,24, 2023, the Company entered into the Fifth Amendment Exit Fee Agreement (the New Exit Fee Agreement), which will survive the termination of the Amended Loan Agreement and has a Second Amendment (the Second Amendment)term of 10 years. The Company will be obligated to pay an exit fee of 1.5% of the 2019original principal amount funded under the Amended Loan Agreement upon the occurrence of an exit event, which generally means a change in control, as defined in the New Exit Fee Agreement. The Second Amendment, among other things:
(a)reflected the Collateral Agent’s consent to the Company’s delivery of Board-approved annual financial projections for 2021 by April 1, 2021 (whichIf the Company deliveredhas not already paid the exit fee under the New Exit Fee Agreement, the Company is also obligated to pay an equivalent fee upon achieving revenues of $82,500,000 or more from the sale of ILUVIEN in a timely manner);
(b)specified the minimum revenue amount, calculatedordinary course of business to third party customers, measured on a trailing six-month12-month basis andduring the term of the New Exit Fee Agreement, tested at the end of each calendar quartermonth. The Company’s existing 2015 and 2019 Exit Fee Agreements remain in 2021, that the Company must achieve for each such period (the Revenue Covenant);
(c)required that the Revenue Covenant be tested at March 31, 2022 and at the last day of each quarter thereafter, with the minimum revenue amount equaleffect. The fees payable pursuant to a percentage of the Company’s projected revenues in accordance with an annual plan thatexisting exit fee agreements and the Company must submit to the Collateral Agent by January 15th of such year, such plan to be approvedNew Exit Fee Agreement, as amended by the Board and the Collateral AgentOmnibus Amendment to Exit Fee Agreements dated as of May 17, 2023, will not exceed $3,387,500 in its sole discretion; andtotal.
(d)provided that in future years the Company must deliver to the Collateral Agent and the Lenders as soon as available after approval thereof by the Board, but no later than the earlier of (x) 15 days after such approval and (y) February 28 of such year, the Company’s annual financial projections for the entire current fiscal year as approved by the Board; provided that any revisions to such projections approved by the Board shall be delivered to the Collateral Agent and the Lenders no later than seven days after such approval.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Third Amendment to 2019 Loan Agreement
On February 22, 2022, the Company entered into a Third Amendment to the 2019 Loan Agreement (the Third Amendment), which, among other things:
(a)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2022, that the Company must achieve for each such period (the Third Amendment Revenue Covenant);
(b)consented to the Company maintaining a lower minimum revenue amount under the Third Amendment Revenue Covenant for the trailing six-month period ended December 31, 2021 than previously required under the 2019 Loan Agreement (and waived any event of default that may have occurred or may be deemed to have occurred as a result of the Company’s lower revenue amount for that period); and
(c)required that the Third Amendment Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with an annual plan thatsubmitted by the Company must submit to the Collateral Agent by January 15 of such year, such plan to be thereafter approved by the BoardCompany’s board of directors and the Collateral Agent in its sole discretion no later than February 28 of such year.
Interest onFourth Amendment to 2019 Loan Agreement
On December 7, 2022, the Company entered into a Fourth Amendment to the 2019 Loan Agreement is payable(the Fourth Amendment), which, among other things:
(a)extends the amortization date from January 1, 2023 to April 1, 2023, provided that such date may be further extended to July 1, 2023 upon the Company’s request and in consultation with the Lenders, in each of the Lenders’ sole discretion;
(b)specifies the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2023, that the Company must achieve for each such period (the Fourth Amendment Revenue Covenant); and
(c)requires that the Fourth Amendment Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of Alimera’s projected revenues in accordance with an annual plan submitted by the Company to the Collateral Agent by January 15th of such year, such plan to be thereafter approved by Alimera’s board of directors and the Collateral Agent in its sole discretion no later than February 28 of such year.
Fifth Amendment to 2019 Loan Agreement
On March 24, 2023, the Company entered into a Fifth Amendment to the 2019 Loan Agreement (the Fifth Amendment), under which the Lenders agreed to, among other things:
(a)an additional tranche of $2,500,000 to increase the Company’s existing term loan facility to $47,500,000, subject to certain closing conditions (the New Term Loan);
(b)extend a $15,000,000 additional term loan available to be funded at the Lender’s sole discretion;
(c)annual interest rate equal to 5.15% plus the greater of (i) 4.60%, and (ii) one-month LIBOR or (ii) 1.78%, in either case plus 7.65% per annum. AsSOFR, which will reset monthly, on the New Term Loan;
(d)extend the maturity date to April 30, 2028 and the interest-only period to April 30, 2025, which may be extended an additional 12 months if the Company meets certain financial targets by March 31, 2025; and
(e)specify the minimum revenue amount, calculated on a trailing six month basis beginning with the six month period ended March 31, 2023, and tested at the end of September 30, 2022,each calendar quarter, that the interest rate underCompany must achieve for each such period.
Sixth Amendment to 2019 Loan Agreement
On May 17, 2023, the Company entered into a Sixth Amendment to the 2019 Loan Agreement was 10.28%. The(the Sixth Amendment and the 2019 Loan Agreement providesas so amended, the Amended Loan Agreement), under which the Lenders agreed to, among other things:
(a)increase the amount available for interest only payments until January 1, 2023.an additional term loan under the facility from $15,000,000 to $20,000,000;
(b)The Company’s operations and thus its net product revenues were adversely affected byfund the COVID-19 pandemic, and this adverse impact has continued to a lesser degree through the date of this report in somefull amount of the Company’s key marketsadditional term loan on May 17, 2023; and
(c)specify the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in Europe2023 and 2024, that have now begun to recover. During each of the six months ended September 30, 2021 and December 31, 2021, the Company did not generate sufficient revenue to meet the trailing six-month Revenue Covenant included in the 2019 Loan Agreement. Formust achieve for each such six-month period the Lenders provided a consent that permitted the Company not to maintain the(the Revenue Covenant as of September 30, 2021 and December 31, 2021, respectively, and waived any event of default that may have occurred or may have been deemed to have occurred. Covenant).
The Company was in compliancecomplied with the Revenue Covenant as of March 31, 2022,on June 30, 2022 and September 30, 2022, and the Company2023, expects to comply with the Revenue Covenant at the next reportable date, which is December 31, 2022, althoughSeptember 30, 2023, and the Company can give no assurances in that regard. See Note 6.remainder of the Revenue Covenants through one year after these financial statements are issued.
Modification of Debt
In accordance with the guidance in ASC 470-50, Debt, the Company entered into and accounted for the FirstThird Amendment, the SecondFourth Amendment, and the ThirdFifth Amendment as modifications and expensed, as they were incurred, legal costs associated with third parties as costs of the modifications. The Company capitalized $113,000 of costs in connection with the Fourth Amendment. The Company did not capitalize any additional costs associated with the Amendments.Third Amendment. The Company capitalized $2,625,000 of costs in connection with the Fifth Amendment.
Paycheck Protection Program LoanExtinguishment of Debt
On April 22, 2020,In accordance with the guidance in ASC 470-50, Debt, the Company received a $1,778,000 loan (the PPP Loan) underentered into and accounted for the Paycheck Protection Program established by the U.S. Small Business AdministrationSixth Amendment as partan extinguishment of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act.debt. The PPP Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA, National Association (HSBC) as the lender. On July 21, 2020, the Company submitted an application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven in its entirety, including interest, on April 16, 2021. As a result of forgiveness, the Company recognized a gainloss on extinguishment of debt of $1,792,000 during$1,079,000 in connection with the nine months September 30, 2021.Sixth Amendment.
Fair Value of Debt
The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at SeptemberJune 30, 20222023 and December 31, 2021.2022.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. LOSS PER SHARE (EPS)
The Company follows ASC 260, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because the Company’s preferred stockholders participate in dividends equally with common stockholders (if the Company were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, the Company’s preferred stockholders are not contractually obligated to share in losses.On August 1, 2023, the Company’s stockholders approved the issuance of shares of common stock upon conversion of the Series B Preferred and the issuance of shares of common stock upon exercise of certain warrants. The Company set August 15, 2023 as the date for the Mandatory Conversion (as defined in Note 19).
Basic EPS is computed by dividing net income or loss available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options and warrants the Company has issued. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either not classified as participating or would have been anti-dilutive, were as follows:
June 30, | |||||
2023 | 2022 | ||||
Series A convertible preferred stock | — | 601,504 | |||
Series B convertible preferred stock | 45,272,874 | — | |||
Common stock warrants | 1,600,000 | — | |||
Stock options | 1,217,045 | 1,310,465 | |||
Total | 48,089,919 | 1,911,969 | |||
September 30, | |||||
2022 | 2021 | ||||
Series A convertible preferred stock | 601,504 | 601,504 | |||
Common stock warrants | — | 30,582 | |||
Stock options | 1,294,895 | 1,081,238 | |||
Total | 1,896,399 | 1,713,324 | |||
12. PREFERRED STOCK
Securities Purchase Agreement
On March 24, 2023, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with certain investors (the Original Investors) for the sale of up to 27,000 shares of the Company’s newly designated Series B Convertible Preferred Stock, par value $0.01 per share (the Series B Preferred Stock) and warrants (the Warrants) to purchase up to 5,714,286 shares of the Company’s common stock, for an aggregate purchase price of $12,000,000. On March 24, 2023 (the Tranche 1 Closing Date), the Company issued and sold an aggregate of 12,000 shares of Series B Preferred Stock at a per-share purchase price of $1,000 (the Stated Value) and the Warrants for aggregate gross proceeds of $12,000,000 (the Tranche 1 Closing). The proceeds from the Tranche 1 Closing were used to fund development and commercialization of the Company’s existing and potential future pipeline drugs, maintenance of the Company’s credit facility and corporate purposes substantially related to the commercialization of the Company’s existing and pipeline drugs, as well as the Repurchase (as defined below).
The initial conversion price of the shares of Series B Preferred Stock issued at the Tranche 1 Closing is $2.10 (the Tranche 1 Conversion Price). The conversion price of the Series B Preferred Stock is subject to certain customary adjustments, including a weighted average anti-dilution adjustment.
Unless and until stockholder approval to issue the common stock underlying the Series B Preferred Stock is obtained (Stockholder Approval), the Series B Preferred Stock will not be convertible into common stock to the extent that such conversion would cause (i) the aggregate number of shares of common stock that would be issued pursuant to the Purchase Agreement and the transactions contemplated thereby to exceed 1,401,901 (19.99% of the voting power or number of shares of common stock, issued and outstanding immediately prior to the execution of the Purchase Agreement), which number will be reduced, on a share-for-share basis, by the number of shares of common stock issued or issuable pursuant to any transactions that may be aggregated with the transactions contemplated by the Purchase Agreement under applicable Nasdaq rules (the Exchange Cap); or (ii) the aggregate number of shares of common stock that would be issued pursuant to such conversion, when aggregated with any shares of common stock then beneficially owned by the holder (or group of holders required to be aggregated) of such shares, would result in (a) a “change of control” under applicable Nasdaq listing rules (the Change of Control Cap) or (b) such holder or a “person” or “group” to beneficially own in excess of 9.99% of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such conversion (the Ownership Limitation).
The Series B Preferred Stock will be entitled to receive dividends and other distributions pro rata with the common stock. In addition, prior to conversion, dividends will accrue on the Series B Preferred Stock at an annual rate of 6% of the Stated Value, accruing daily. The Series B Preferred Stock is not redeemable.
The Warrants have an exercise price equal to the Tranche 1 Conversion Price (as adjusted pursuant to the Certificate of Designation of the Series B Preferred Stock through the date of Stockholder Approval) and expire seven years from the date of the Tranche 1 Closing. The Warrants are exercisable upon the earlier of (a) a change of control and (b) March 24, 2024; provided that prior to Stockholder Approval, exercise of the Warrants is subject to the Ownership Limitation, the Change of Control Cap and the Exchange Cap.
Joinder and Amendment to Securities Purchase Agreement
On May 17, 2023, Alimera entered into a joinder and amendment (the Purchase Agreement Amendment) to the Purchase Agreement. The Purchase Agreement Amendment added certain investors as parties to the Purchase Agreement with respect to the Tranche 2 Closing (as defined below) and amended certain provisions of the Purchase Agreement. Pursuant to the amended Purchase Agreement, on May 17, 2023, the Company issued 66,617 shares of Series B Preferred at the Stated Value and 1,401,901 shares of common stock, for aggregate gross proceeds of $69.0 million (the Tranche 2 Closing). The initial conversion price of the shares of Series B Preferred issued at the Tranche 2 Closing was $1.70. Further, pursuant to the terms of the Purchase Agreement Amendment, the Company and the Original Investors agreed to reduce the number of shares of common stock issuable upon exercise of the Warrants to 1,600,000. The proceeds from the Tranche 2 Closing were utilized by Alimera to fund a portion of the upfront cash payment due upon execution of the Product Rights Agreement.
At June 30, 2023, the Series B Preferred Stock had $683,000 of cumulative dividends in arrears ($5.00 per share). On August 1, 2023, the Company received Stockholder Approval (see Note 19).
Series A Convertible Preferred Stock
In October 2012, the Company closed its preferred stock financing in which it sold units consisting of 1,000,000 shares of Series A Convertible Preferred Stock (Series A Preferred Stock) and warrants (which expired on October 1, 2017) to purchase 300,000 shares of Series A Preferred Stock for gross proceeds of $40,000,000, prior to the payment of approximately $560,000 of related issuance costs. The powers, preferences and rights of the Series A Preferred Stock are set forth in the certificate of designation for the Series A Preferred Stock filed by the Company with the Delaware Secretary of State as part of the Company’s certificate of incorporation. As of September 30,December 31, 2022, there were 600,000 shares of Series A Convertible Preferred Stock issued and outstanding.
As a condition to entering into the Purchase Agreement, the Company repurchased 200,919 shares of common stock and 600,000 shares of its Series A Preferred Stock held by the holders thereof (the Repurchase), for an aggregate purchase price of approximately $1,252,000. The holders of the Series A Preferred Stock were entitled to a liquidation preference before the holders of common stock would be entitled to receive any consideration in the event of the Company’s liquidation. As of December 31, 2022, the Series A Preferred Stock aggregate liquidation preference was $24,000,000. As a result of the Repurchase, no shares of the Series A Preferred Stock remain outstanding and the liquidation preference is no longer in effect. Following the Repurchase, the Company filed a certificate of elimination of the Series A Preferred Stock with the Secretary of State of the State of Delaware.
13. EQUITY INCENTIVE PLANS
Under the Company’s 2019 Omnibus Incentive Plan (the 2019 Plan), the Compensation Committee of the Board is authorized to grant equity-based incentive awards that include stock options, restricted stock units and shares of restricted stock to officers, directors, employees and contractors. Equity-based awards are also outstanding under the Company’s 2010 Equity Incentive Plan, although no new awards can be granted under that plan. The Company also has an employee stock purchase plan.
Stock Options
During the three months ended SeptemberJune 30, 20222023 and 2021,2022, the Company recorded compensation expense related to stock options of approximately $134,000$148,000 and $207,000,$218,000, respectively. During the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, the Company recorded compensation expense related to stock options of approximately $653,000,$315,000 and $666,000,$476,000, respectively. As of SeptemberJune 30, 2022,2023, the total unrecognized compensation cost related to non-vested stock options granted was $1,295,000$895,000 and is expected to be recognized over a weighted average period of 2.612.3 years. The following table presents a summary of stock option activity for the three months ended SeptemberJune 30, 20222023 and 2021:2022:
Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | June 30, | |||||||||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||
Exercise | Exercise | Exercise | Exercise | |||||||||||||||||||
Options | Price ($) | Options | Price ($) | Options | Price ($) | Options | Price ($) | |||||||||||||||
Options outstanding at beginning of period | 1,310,465 | 19.39 | 1,087,464 | 23.46 | 1,216,953 | 18.03 | 1,315,161 | 19.39 | ||||||||||||||
Grants | 600 | 6.75 | 9,350 | 8.52 | 17,321 | 2.55 | 1,700 | 4.34 | ||||||||||||||
Forfeitures and expirations | (17,229) | 45.18 | (6,396) | 15.58 | ||||||||||||||||||
Exercises | — | — | — | — | ||||||||||||||||||
Options outstanding at period end | 1,217,045 | 17.43 | 1,310,465 | 19.39 | ||||||||||||||||||
Options exercisable at period end | 893,401 | 22.07 | 887,543 | 25.91 | ||||||||||||||||||
Weighted average per share fair value of options granted during the period | $ | 1.77 | $ | 2.94 | ||||||||||||||||||
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Forfeitures and expirations | (13,608) | 16.69 | (15,376) | 21.85 | |||||||
Exercises | (2,562) | 5.85 | — | — | |||||||
Options outstanding at period end | 1,294,895 | 19.44 | 1,081,438 | 23.36 | |||||||
Options exercisable at period end | 921,965 | 25.04 | 780,062 | 29.61 | |||||||
Weighted average per share fair value of options granted during the period | $ | 4.58 | $ | 5.67 |
The following table provides presents a summary of stock option activity for the ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
Nine Months Ended | ||||||||||||||||||||||
September 30, | Six Months Ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||
Exercise | Exercise | Exercise | Exercise | |||||||||||||||||||
Options | Price ($) | Options | Price ($) | Options | Price ($) | Options | Price ($) | |||||||||||||||
Options outstanding at beginning of period | 1,075,795 | 23.35 | 939,379 | 26.72 | 1,175,339 | 19.03 | 1,075,795 | 23.35 | ||||||||||||||
Grants | 285,850 | 4.96 | 222,650 | 5.63 | 117,723 | 2.70 | 285,250 | 4.96 | ||||||||||||||
Forfeitures | (64,188) | 20.46 | (74,194) | 14.15 | ||||||||||||||||||
Forfeitures and expirations | (76,017) | 19.41 | (50,580) | 21.51 | ||||||||||||||||||
Exercises | (2,562) | 5.85 | (6,397) | 6.59 | — | — | — | — | ||||||||||||||
Options outstanding at period end | 1,294,895 | 19.44 | 1,081,438 | 23.36 | 1,217,045 | 17.43 | 1,310,465 | 19.39 | ||||||||||||||
Options exercisable at period end | 921,965 | 25.04 | 780,062 | 29.61 | 893,401 | 22.07 | 887,543 | 25.91 | ||||||||||||||
Weighted average per share fair value of options granted during the period | $ | 3.32 | $ | 3.65 | $ | 1.86 | $ | 3.32 | ||||||||||||||
The following table provides additional information related to outstanding stock options as of SeptemberJune 30, 2022:2023:
Weighted | Weighted | |||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||
Average | Remaining | Aggregate | Average | Remaining | Aggregate | |||||||||||||||||
Exercise | Contractual | Intrinsic | Exercise | Contractual | Intrinsic | |||||||||||||||||
Shares | Price ($) | Term | Value ($) | Shares | Price ($) | Term | Value ($) | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||
Outstanding | 1,294,895 | 19.44 | 5.88 years | 80 | 1,217,045 | 17.43 | 5.57 years | 24 | ||||||||||||||
Exercisable | 921,965 | 25.04 | 4.74 years | 47 | 893,401 | 22.07 | 4.50 years | 7 | ||||||||||||||
Outstanding, vested and expected to vest | 1,247,077 | 19.98 | 5.76 years | 75 | 1,182,115 | 17.81 | 5.48 years | 22 | ||||||||||||||
The following table provides additional information related to outstanding stock options as of December 31, 2021:2022:
Weighted | Weighted | |||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||
Average | Remaining | Aggregate | Average | Remaining | Aggregate | |||||||||||||||||
Exercise | Contractual | Intrinsic | Exercise | Contractual | Intrinsic | |||||||||||||||||
Shares | Price ($) | Term | Value ($) | Shares | Price ($) | Term | Value ($) | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||
Outstanding | 1,075,795 | 23.35 | 5.56 years | 21 | 1,175,339 | 19.03 | 5.68 years | — | ||||||||||||||
Exercisable | 809,837 | 28.76 | 4.57 years | 5 | 878,115 | 23.62 | 4.72 years | — | ||||||||||||||
Outstanding, vested and expected to vest | 1,043,347 | 23.88 | 5.46 years | 19 | 1,139,482 | 19.46 | 5.58 years | — | ||||||||||||||
As of SeptemberJune 30, 2022, 704,7852023, 52,283 shares remain available for grant under the 2019 Plan. On August 1, 2023, the Company’s stockholders approved the Alimera Sciences, Inc. 2023 Equity Incentive Plan (Note 19).
Restricted Stock and Restricted Stock Units (RSUs)
The following table presents a summary of restricted stock and RSU activity for the three months ended June 30, 2023 and 2022:
Three Months Ended | |||||||||||
June 30, | |||||||||||
2023 | 2022 | ||||||||||
Weighted | Weighted | ||||||||||
Average | Average | ||||||||||
Grant Date | Grant Date | ||||||||||
Shares | Fair Value ($) | Shares | Fair Value ($) | ||||||||
Restricted stock and RSUs outstanding at beginning of period | 685,176 | 1.67 | 94,063 | 5.29 | |||||||
Grants | — | — | — | — | |||||||
Vested restricted stock and RSUs | — | — | (7,500) | 8.93 | |||||||
Forfeitures | (3,000) | 1.35 | — | — | |||||||
Restricted stock and RSUs outstanding at period end | 682,176 | 1.67 | 86,563 | 4.98 | |||||||
The following table presents a summary of restricted stock and RSU activity for the six months ended June 30, 2023 and 2022:
Six Months Ended June 30, | |||||||||||
2023 | 2022 | ||||||||||
Weighted | Weighted | ||||||||||
Average | Average | ||||||||||
Grant Date | Grant Date | ||||||||||
Shares | Fair Value ($) | Shares | Fair Value ($) | ||||||||
Restricted stock and RSUs outstanding at beginning of period | 73,594 | 4.98 | 46,250 | 5.65 | |||||||
Grants | 632,050 | 1.39 | 57,500 | 4.96 | |||||||
Vested restricted stock and RSUs | (20,468) | 4.98 | (9,687) | 5.01 | |||||||
Forfeitures | (3,000) | 1.35 | (7,500) | 8.93 | |||||||
Restricted stock and RSUs outstanding at period end | 682,176 | 1.67 | 86,563 | 4.98 | |||||||
Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718, Compensation - Stock Compensation (ASC 718) was $62,000 and $43,000 for the three months ended June 30, 2023 and 2022, respectively. Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718, Compensation - Stock Compensation (ASC 718) was $109,000 and $89,000 for the six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023, the total unrecognized compensation cost related to restricted stock and RSUs was $1,120,000 and is expected to be recognized over a weighted average period of 3.62 years.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock
The following table presents a summary of restricted stock activity for the three months ended September 30, 2022 and 2021:
Three Months Ended | |||||||||||
September 30, | |||||||||||
2022 | 2021 | ||||||||||
Weighted | Weighted | ||||||||||
Average | Average | ||||||||||
Grant Date | Grant Date | ||||||||||
Shares | Fair Value ($) | Shares | Fair Value ($) | ||||||||
Restricted stock outstanding at beginning of period | 86,563 | 4.98 | 46,250 | 5.65 | |||||||
Grants | — | — | 3,000 | 8.59 | |||||||
Vested units | — | — | — | — | |||||||
Forfeitures | — | — | — | — | |||||||
Restricted stock outstanding at period end | 86,563 | 4.98 | 49,250 | 5.83 | |||||||
The following table presents a summary of restricted stock activity for the nine months ended September 30, 2022 and 2021:
Nine Months Ended | |||||||||||
September 30, | |||||||||||
2022 | 2021 | ||||||||||
Weighted | Weighted | ||||||||||
Average | Average | ||||||||||
Grant Date | Grant Date | ||||||||||
Shares | Fair Value ($) | Shares | Fair Value ($) | ||||||||
Restricted stock outstanding at beginning of period | 46,250 | 5.65 | 30,086 | 3.12 | |||||||
Grants | 57,500 | 4.96 | 55,500 | 5.73 | |||||||
Vested units | (9,687) | 5.01 | (25,403) | 3.12 | |||||||
Forfeitures | (7,500) | 8.93 | (10,933) | 4.20 | |||||||
Restricted stock outstanding at period end | 86,563 | 4.98 | 49,250 | 5.83 | |||||||
Employee stock-based compensation expense related to restricted stock recognized in accordance with ASC 718, Compensation - Stock Compensation (ASC 718) was $0 and $23,000 for the three months ended September 30, 2022 and 2021, respectively. Employee stock-based compensation expense related to restricted stock recognized in accordance with ASC 718 was $46,000 and $58,000 for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the total unrecognized compensation cost related to restricted stock was $363,000 and is expected to be recognized over a weighted average period of 2.94 years.
Employee Stock Purchase Plan
During each of the three months ended SeptemberJune 30, 20222023 and 2021,2022, the Company recorded compensation expense related to its employee stock purchase plan of approximately $9,000, and $15,000, respectively.$7,000. During the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, the Company recorded compensation expense related to its employee stock purchase plan of approximately $24,000$18,000, and $34,000,$15,000, respectively.
14. INCOME TAXES
In accordance with ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized. At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates.
The Company also applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements. There has been no change to the Company’s policy that recognizes potential interest and penalties related to
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
uncertain tax positions. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.
For the ninesix months ended SeptemberJune 30, 2022,2023, the Company has not recorded income tax expense or benefit. The Company has incurred losses in all material jurisdictions for the current quarter. No tax benefit is expected to be realized for the losses in the United States and the United Kingdom due to the ongoing losses and valuation allowances in these jurisdictions. Tax expense or benefit for income and losses in other jurisdictions (Ireland, Germany, and Portugal) are immaterial for the quarter.period.
At December 31, 2021,2022, the Company had U.S. federal NOL carry-forwards of approximately $143,200,000$147,200,000 and state NOL carry-forwards of approximately $106,700,000$107,700,000 available to reduce future taxable income.income, subject to limitation based upon the results of the Company’s analyses under Internal Revenue Code Sections 382 and 383. The Company’s U.S. federal NOL carry-forwards remain fully reserved as of SeptemberJune 30, 2022. Except for2023. If not utilized, the NOLs generated after 2017, the U.S. federal NOLs not fully utilizedNOL carry-forwards will expire at various dates between 2029 and 2038; most2037, the Company’s federal NOL created in 2018 and onward will carry forward indefinitely and the state NOL carry-forwards will expire at various dates between 20212023 and 2041. Under2042.
NOL carry-forwards may be subject to annual limitations under Internal Revenue Code Sections 382 and 383 in the Tax Cutsevent that certain changes in ownership of the Company were to occur. The Company has not yet completed a formal evaluation of the impact of the issuance of the Company’s Series B Preferred Stock in March and Jobs ActMay of 2017, U.S. federal NOLs2023 on the Company’s NOL carry-forwards and some state NOLs generated after 2017 will carryforward indefinitely.whether certain changes in ownership have occurred that would limit the Company’s ability to utilize a portion of its NOL carry-forwards.
As of December 31, 2021,2022, the Company’s U.K. subsidiary is in a net deferred tax asset position primarily due to the step up in tax basis for intangible assets created by the transfer of intellectual property from the Netherlands to the U.K. Based upon the expected pattern of reversal of deferred taxes, it is not more likely than not that these deferred tax assets will be realized. As such, a full valuation allowance is placed against the net deferred tax assets of the U.K. subsidiary. The Company’s Irish subsidiary has a deferred tax asset for net operating loss carryforwards. The Company expects this net operating loss carryforward to be fully realizable in the future based upon the Company’s control of the transfer pricing arrangements. A valuation allowance is not recorded on the deferred tax assets of the Ireland subsidiary. Deferred tax considerations for all other foreign entities are immaterial to the financial statements.
Effective January 1, 2022, for U.S. tax purposes research and development costs, including software development costs, are required to be capitalized and will be deductible over five years for costs incurred domestically and over fifteen years for costs incurred in a foreign country. Additionally, the first year of amortization requires that amortization begin with the midpoint of the taxable year. As of December 31, 2022, the Company recorded a deferred tax asset of approximately $969,000 related to capitalized research and development costs. This deferred tax asset is fully reserved with a valuation allowance.
On August 16, 2022, the President of the United States signed the Inflation Reduction Act (IRA) into law. The IRA enacted a 15% corporate minimum tax effective in 2024, a 1% tax on share repurchases after December 31, 2022, and created and extended certain tax-related energy incentives. The Company does not currently expect the tax-related provisions of the IRA to have a material effect on its financial results.
The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings and original investments in such subsidiaries. As a result, the Company does not expect to record deferred tax liabilities in the future related to excesses of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.
Tax years from 2018 to 2020 remain subject to examination in California, Georgia, Kentucky, Tennessee, Texas and on the federal level, with the exception of the assessment of NOL carry-forwards available for utilization, which can be examined for all years since 2009. The statute of limitations on these years will close when the NOLs expire or when the statute closes on the years in which the NOLs are utilized.
15. SEGMENT INFORMATION
During the three months ended SeptemberJune 30, 20222023 and 2021,2022, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 65%68% and 57%, respectively,61% of the Company’s consolidated product revenues.revenues, respectively. During the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 62%63% and 54%, respectively,60% of the Company’s consolidated product revenues.revenues, respectively. These same two customers within the U.S. segment accounted for approximately 68% and 64%71% of the Company’s consolidated accounts receivable at SeptemberJune 30, 20222023 and at December 31, 2021, respectively.2022
During the first quarter of 2021, theThe Chief Executive Officer (CEO), who is the Company’s chief operating decision maker, changedhas determined that the manner in which the chief operating decision maker monitors performance, aligns strategies and allocates resources, which resulted in a change in the operating segments. The Company’s operations are now managed as three operating segments: U.S., International and Operating Cost. The Company determined that each of these operating segments represented a reportable segment. Previously, the Company was managed as two operating segments: U.S. and International. In monitoring performance, aligning strategies and allocating resources, the chief operating decision maker manages and evaluates the Company’s U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, the Company classifies within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.
The Company’s U.S. and International segments represent the sales and marketing, general and administrative and research and
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development.
Each of the Company’s U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to the Company’s consolidated totals. The Company does not report balance sheet information by segment because the chief operating decision maker does not review that information. The Company allocates certain operating expenses among its reporting segments based on activity-based costing methods. These activity-based costing methods require the Company to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment.
The following tables present a summary of the Company’s reporting segments for the three months ended SeptemberJune 30, 20222023 and 2021:2022:
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
September 30, 2022 | June 30, 2023 | |||||||||||||||||||||||||||
U.S. | International | Operating Cost | Other | Consolidated | U.S. | International | Operating Cost | Other | Consolidated | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||||||
PRODUCT REVENUE, NET | $ | 8,920 | $ | 4,678 | $ | — | $ | — | $ | 13,598 | $ | 11,876 | $ | 5,662 | $ | — | $ | — | $ | 17,538 | ||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,057) | (949) | — | — | (2,006) | (1,290) | (1,135) | — | — | (2,425) | ||||||||||||||||||
GROSS PROFIT | 7,863 | 3,729 | — | — | 11,592 | 10,586 | 4,527 | — | — | 15,113 | ||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,229 | 942 | 2,353 | (41) | 4,483 | 1,748 | 842 | 1,033 | 25 | 3,648 | ||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 367 | 434 | 2,417 | 134 | 3,352 | 1,101 | 510 | 2,619 | 143 | 4,373 | ||||||||||||||||||
SALES AND MARKETING EXPENSES | 4,439 | 1,873 | 142 | 50 | 6,504 | 4,781 | 1,379 | 225 | 49 | 6,434 | ||||||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | — | 664 | 664 | — | — | — | 1,866 | 1,866 | ||||||||||||||||||
OPERATING EXPENSES | 6,035 | 3,249 | 4,912 | 807 | 15,003 | 7,630 | 2,731 | 3,877 | 2,083 | 16,321 | ||||||||||||||||||
SEGMENT INCOME (LOSS) FROM OPERATIONS | 1,828 | 480 | (4,912) | (807) | (3,411) | 2,956 | 1,796 | (3,877) | (2,083) | (1,208) | ||||||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | — | (1,834) | (1,834) | — | — | — | (8,796) | (8,796) | ||||||||||||||||||
NET LOSS BEFORE TAXES | $ | (5,245) | $ | (10,004) | ||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
September 30, 2021 | June 30, 2022 | |||||||||||||||||||||||||||
U.S. | International | Operating Cost | Other | Consolidated | U.S. | International | Operating Cost | Other | Consolidated | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||||||
PRODUCT REVENUE, NET | $ | 6,917 | $ | 5,236 | $ | — | $ | — | $ | 12,153 | $ | 8,943 | $ | 5,661 | $ | — | $ | — | $ | 14,604 | ||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (830) | (859) | — | — | (1,689) | (1,060) | (1,106) | — | — | (2,166) | ||||||||||||||||||
GROSS PROFIT | 6,087 | 4,377 | — | — | 10,464 | 7,883 | 4,555 | — | — | 12,438 | ||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,042 | 979 | 1,221 | 36 | 3,278 | 1,281 | 807 | 1,799 | 45 | 3,932 | ||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 224 | 6 | 2,429 | 149 | 2,808 | 195 | 468 | 2,112 | 170 | 2,945 | ||||||||||||||||||
SALES AND MARKETING EXPENSES | 3,943 | 1,610 | 138 | 60 | 5,751 | 4,568 | 2,112 | 133 | 52 | 6,865 | ||||||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | — | 649 | 649 | — | — | — | 670 | 670 | ||||||||||||||||||
OPERATING EXPENSES | 5,209 | 2,595 | 3,788 | 894 | 12,486 | 6,044 | 3,387 | 4,044 | 937 | 14,412 | ||||||||||||||||||
SEGMENT INCOME (LOSS) FROM OPERATIONS | 878 | 1,782 | (3,788) | (894) | (2,022) | 1,839 | 1,168 | (4,044) | (937) | (1,974) | ||||||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | — | (2,330) | (2,330) | — | — | — | (1,124) | (1,124) | ||||||||||||||||||
NET LOSS BEFORE TAXES | $ | (4,352) | $ | (3,098) | ||||||||||||||||||||||||
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present a summary of the Company’s reporting segments for the ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
Nine Months Ended | Six Months Ended | |||||||||||||||||||||||||||
September 30, 2022 | June 30, 2023 | |||||||||||||||||||||||||||
U.S. | International | Operating Cost | Other | Consolidated | U.S. | International | Operating Cost | Other | Consolidated | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||||||
PRODUCT REVENUE, NET | $ | 24,783 | $ | 15,317 | $ | — | $ | — | $ | 40,100 | $ | 19,456 | $ | 11,628 | $ | — | $ | — | $ | 31,084 | ||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (2,932) | (2,920) | — | — | (5,852) | (2,195) | (2,258) | — | — | (4,453) | ||||||||||||||||||
GROSS PROFIT | 21,851 | 12,397 | — | — | 34,248 | 17,261 | 9,370 | — | — | 26,631 | ||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 3,680 | 2,665 | 5,612 | 41 | 11,998 | 2,910 | 1,589 | 3,266 | 47 | 7,812 | ||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 878 | 1,326 | 6,810 | 523 | 9,537 | 2,205 | 1,227 | 4,814 | 298 | 8,544 | ||||||||||||||||||
SALES AND MARKETING EXPENSES | 13,739 | 5,932 | 392 | 159 | 20,222 | 9,056 | 2,794 | 291 | 97 | 12,238 | ||||||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | — | 2,023 | 2,023 | — | — | — | 2,547 | 2,547 | ||||||||||||||||||
OPERATING EXPENSES | 18,297 | 9,923 | 12,814 | 2,746 | 43,780 | 14,171 | 5,610 | 8,371 | 2,989 | 31,141 | ||||||||||||||||||
SEGMENT INCOME (LOSS) FROM OPERATIONS | 3,554 | 2,474 | (12,814) | (2,746) | (9,532) | 3,090 | 3,760 | (8,371) | (2,989) | (4,510) | ||||||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | — | (4,766) | (4,766) | — | — | — | (10,462) | (10,462) | ||||||||||||||||||
NET LOSS BEFORE TAXES | $ | (14,298) | $ | (14,972) | ||||||||||||||||||||||||
Nine Months Ended | Six Months Ended | |||||||||||||||||||||||||||
September 30, 2021 | June 30, 2022 | |||||||||||||||||||||||||||
U.S. | International | Operating Cost | Other | Consolidated | U.S. | International | Operating Cost | Other | Consolidated | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||||||
PRODUCT REVENUE, NET | $ | 18,352 | $ | 15,670 | $ | — | $ | — | $ | 34,022 | $ | 15,863 | $ | 10,639 | $ | — | $ | — | $ | 26,502 | ||||||||
LICENSE REVENUE | — | 11,048 | — | — | 11,048 | |||||||||||||||||||||||
NET REVENUE | 18,352 | 26,718 | — | — | 45,070 | |||||||||||||||||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (2,285) | (2,779) | — | — | (5,064) | (1,875) | (1,971) | — | — | (3,846) | ||||||||||||||||||
GROSS PROFIT | 16,067 | 23,939 | — | — | 40,006 | 13,988 | 8,668 | — | — | 22,656 | ||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 2,641 | 3,005 | 4,343 | 69 | 10,058 | 2,451 | 1,723 | 3,259 | 82 | 7,515 | ||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 694 | 1,064 | 7,311 | 508 | 9,577 | 511 | 892 | 4,393 | 389 | 6,185 | ||||||||||||||||||
SALES AND MARKETING EXPENSES | 10,889 | 4,407 | 423 | 181 | 15,900 | 9,242 | 4,116 | 250 | 110 | 13,718 | ||||||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | — | 1,920 | 1,920 | — | — | — | 1,359 | 1,359 | ||||||||||||||||||
OPERATING EXPENSES | 14,224 | 8,476 | 12,077 | 2,678 | 37,455 | 12,204 | 6,731 | 7,902 | 1,940 | 28,777 | ||||||||||||||||||
SEGMENT INCOME (LOSS) FROM OPERATIONS | 1,843 | 15,463 | (12,077) | (2,678) | 2,551 | 1,784 | 1,937 | (7,902) | (1,940) | (6,121) | ||||||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | — | (2,346) | (2,346) | — | — | — | (2,932) | (2,932) | ||||||||||||||||||
NET INCOME BEFORE TAXES | $ | 205 | $ | (9,053) | ||||||||||||||||||||||||
16. OTHER AGREEMENTS WITH OCUMENSION
Share Purchase Agreement
On April 14, 2021, the Company entered into a Share Purchase Agreement with Ocumension Therapeutics, pursuant to which the Company offered and sold to Ocumension 1,144,945 shares of common stock (the “Shares”)Shares), at a purchase price of $8.734044 per Share. The number of Shares sold was equal to 19.9% of the number of shares of common stock outstanding immediately before the closing.
The aggregate gross proceeds from the sale of the Shares were $10,000,000. The Company has used and intends to continue to use the net proceeds from the sale of the Shares to continue to commercialize ILUVIEN® and for general corporate purposes, which may include working capital, capital expenditures, other clinical trial expenditures, acquisitions of new technologies, products or businesses in ophthalmology, and investments.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pursuant to the Share Purchase Agreement and subject to certain limited exceptions, Ocumension is prohibited from selling, transferring, or otherwise disposing of the Shares for a year following the closing date.
Ocumension is entitled to certain purchase rights if the Company elects to offer or sell new securities in either a private or public offering.
Warrant Subscription Agreement
On April 14, 2021, the Company entered into thea warrant agreement with Ocumension Therapeutics pursuant to which Ocumension agreed to issue to the Company 1,000,000 non-transferable warrants granting the Company the right for a period of four years to subscribe to up to an aggregate of 1,000,000 shares of Ocumension stock at the subscription price of HK$23.88 per warrant share (or US$3.07 per warrant share as converted to U.S. Dollars at the exchange rate on April 9, 2021 of 0.12853 U.S. Dollars per HK$), subject to adjustment. (The converted rate is for illustrative purposes only; if the Company exercises the warrants, it will pay the subscription price of HK$23.88 per warrant share in HK$.) The warrants were issued on August 13, 2021, pursuant to the terms of the warrant agreement. The warrants are not and will not be listed on any stock exchange.
17. OTHER AGREEMENTS WITH EYEPOINT PARENT AND EYEPOINT
Product Rights Agreement
On May 17, 2023 the Company entered into the Product Rights Agreement with EyePoint Parent whereby the Company was granted an exclusive and sublicensable (in accordance with the terms of the Product Rights Agreement) right and license (the License) certain of EyePoint Parent’s and its affiliates’ intellectual property to develop, manufacture, sell, commercialize and otherwise exploit certain products, including YUTIQ for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa. The License also excludes any rights to YUTIQ for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye in China and certain other countries and regions in Asia, which rights are subject to a pre-existing exclusive license between EyePoint and Ocumension Therapeutics.
Additionally, pursuant to the Product Rights Agreement, EyePoint Parent will transfer and assign to the Company certain assets and certain contracts with third parties related to YUTIQ, including the new drug application #210331 for YUTIQ.
As a result, the Company paid EyePoint Parent an upfront payment of $75,000,000 and will make four quarterly guaranteed payments to EyePoint Parent totaling $7,500,000 in 2024. The Company will also pay royalties to EyePoint Parent from 2025 to 2028 at a percentage of mid-to-low double digits of the Company’s annual U.S. net salesof certain products (including YUTIQ and ILUVIEN) in excess of certain thresholds, beginning at $70,000,000 in 2025, increasing annually thereafter. Upon the Company’s payment of the upfront payment and the guaranteed payments, the licenses and rights granted to the Company will automatically become perpetual and irrevocable.
The Company also entered into a transition services agreement with EyePoint Parent under which EyePoint Parent has agreed to temporarily provide certain transition services to the Company on a cost-plus pricing arrangement following the closing date.
The total purchase consideration was $98,122,000, which has been recorded as an intangible asset, and includes the upfront payment of $75,000,000 as well as the guaranteed payments and estimated future royalties discounted to their fair value as of the transaction date of $7,085,000 and $15,765,000 respectively. The discounted fair values of the guaranteed payments and estimated future royalties were recorded as liabilities within the consolidated balance sheet on the transaction date as represented below.
June 30, 2023 | ||
(In thousands) | ||
Assets: | ||
Product rights intangible asset | $ | 98,122 |
Liabilities: | ||
Accrued expenses | 1,771 | |
Accrued licensor payments | 21,079 | |
The Company concluded, based on the acquisition of a single asset due to substantially all of the value being concentrated in the Product Rights Agreement, lack of acquired employees and manufacturing, as well as absence of certain other inputs and acquired processes, that the transaction did not qualify as a business and therefore, recorded the acquisition of the License as an asset acquisition in accordance with ASC 805. Under ASC 805, the fair value cost of the net assets purchased is allocated, based on their relative fair value, to the acquired tangible assets and identified intangible assets and liabilities in accordance with U.S. GAAP.
The gross carrying amount of the intangible asset is $98,122,000, which is being amortized over approximately 10 years from the initial payment date (See Note 8). Acquisition costs associated with the acquisition of $272,000 were capitalized into the total purchase price of the transaction.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17.Commercial Supply Agreement
In connection with the Product Rights Agreement, the Company entered into a commercial supply agreement (the Supply Agreement) with EyePoint Parent pursuant to which, during the term of the Product Rights Agreement, EyePoint Parent will be responsible for manufacturing and exclusively supplying (subject to certain exceptions) to the Company agreed-upon quantities of YUTIQ necessary for Alimera to commercialize YUTIQ in the United States at certain cost plus amounts, subject to adjustments set forth in the Supply Agreement.
EyePoint Parent’s manufacture and supply to Alimera of YUTIQ under the Supply Agreement will be exclusive (subject to certain exceptions set forth in the Supply Agreement) until Alimera has the right and ability to manufacture and supply YUTIQ for commercialization in the United States.
The Company may elect to manufacture YUTIQafter an initial 18-month term following the closing date upon the satisfaction of certain conditions.
18. FAIR VALUE
The Company applies ASC 820, Fair Value Measurements, in determining the fair value of certain assets and liabilities. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Currently, the only asset being valued in this manner is the warrant agreement with Ocumension Therapeutics described in the previous paragraph.
In determining fair value, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The following fair value tables presenttable presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:
September 30, 2022 | June 30, 2023 | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||
Assets: | ||||||||||||||||||||||
Warrant asset (1) | $ | — | $ | 235 | $ | — | $ | 235 | $ | — | $ | 93 | $ | — | $ | 93 | ||||||
Assets measured at fair value | $ | — | $ | 235 | $ | — | $ | 235 | $ | — | $ | 93 | $ | — | $ | 93 | ||||||
Liabilities: | ||||||||||||||||||||||
Common stock warrant liability (1) | $ | — | $ | 3,471 | $ | — | $ | 3,471 | ||||||||||||||
Liabilities measured at fair value | $ | — | $ | 3,471 | $ | — | $ | 3,471 | ||||||||||||||
December 31, 2021 | December 31, 2022 | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||
Assets: | ||||||||||||||||||||||
Warrant asset (1) | $ | — | $ | 833 | $ | — | $ | 833 | $ | — | $ | 183 | $ | — | $ | 183 | ||||||
Assets measured at fair value | $ | — | $ | 833 | $ | — | $ | 833 | $ | — | $ | 183 | $ | — | $ | 183 | ||||||
Liabilities: | ||||||||||||||||||||||
Common stock warrant liability (1) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Liabilities measured at fair value | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
(1) The Company uses the Black-Scholes pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in this value each reporting period are reported in the condensed consolidated statement of operations.
19. SUBSEQUENT EVENTS
Pre-Funded Warrants
On August 1, 2023, the Company amended the Certificate of Designation of Series B Convertible Preferred Stock. Prior to such amendment, the Certificate of Designation provided that the Series B Preferred would automatically convert at the then-applicable conversion price (Mandatory Conversion) in full into common stock following Stockholder Approval. As amended, the Certificate of Designation provides that the Company may issue pre-funded common stock warrants (Pre-Funded Warrants) to certain holders of Series B Preferred that elected to receive Pre-Funded Warrants prior to Stockholder Approval in lieu of a portion of common stock that would otherwise be issued in the Mandatory Conversion to such holders. The Pre-Funded Warrants have an exercise price of $0.01 per share. The Pre-Funded Warrants were offered to holders of Series B Preferred whose Mandatory Conversion of Series B Preferred would otherwise result in such holders, together with their affiliates and certain related parties, beneficially owning more than 9.99% of the outstanding common stock immediately following Mandatory Conversion the opportunity to purchase, if such holders so chose prior to Stockholder Approval, Pre-Funded Warrants, in lieu of shares of common stock that would otherwise result in such holder’s beneficial ownership exceeding 9.99% of the outstanding common stock.
Stockholder Approvals
On August 1, 2023, the Company’s stockholders provided Stockholder Approval, and the Company set August 15, 2023 as the date for the Mandatory Conversion. On August 1, 2023, the Company’s stockholders also approved the 2023 Equity Incentive Plan (the date of such approval, the Effective Date), which replaces the 2019 Plan. No new awards will be granted under the 2019 Plan. The 2023 Equity Incentive Plan has a share reserve equal to the sum of (a) 3,231,755 shares of common stock, (b) shares that are subject to awards granted under the 2019 Plan that are outstanding on or after the Effective Date and that are subsequently forfeited, cancelled, expire or lapse unexercised or unsettled or are reacquired by the Company, (c) the number of shares reserved under the 2019 Plan that are not issued or subject to outstanding awards under the 2019 Plan on the Effective Date, and (d) the increase in shares described in the next sentence. On the first anniversary of the Effective Date, the number of shares of common stock that may be issued under the 2023 Equity Incentive Plan will increase by a number of shares equal to 6% of the number of outstanding shares of common stock (assuming full conversion of the Series B Preferred into common stock).
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes (Interim Financial Statements) that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors.factors, including those described in Part I, Item 1A, “Risk Factors” and elsewhere in the 2022 Annual Report. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.
Overview
Alimera Sciences, Inc., and its subsidiaries (we, our or us), is a commercial-stage globalpharmaceutical company that specializesdeveloping and commercializing ILUVIEN (fluocinolone acetonide intravitreal implant) 0.19 mg, in the commercializationU.S. and development of prescription ophthalmic pharmaceuticals. We focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people globally. Our only product is ILUVIEN®, which has received marketing authorization and reimbursement in numerous countriesabroad for the treatment of DME. diabetic macular edema, a leading cause of blindness, and outside the U.S. for non-infectious uveitis affecting the posterior segment of the eye (NIU-PS). ILUVIEN is a state-of-the-art, sustained release intravitreal implant that enables patients to maintain vision longer, and importantly, with fewer injections. We commercialize ILUVIEN in the U.S., Europe, China and Middle East. Additionally, on May 17, 2023, we acquired from EyePoint Pharmaceuticals, Inc. (EyePoint Parent), the exclusive commercialization rights to YUTIQ® (fluocinolone acetonide intravitreal implant) 0.18 mg, for the treatment and prevention of NIU-PS worldwide except for Europe, the Middle East, and Africa.
In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DMEdiabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. In addition, ILUVIEN is also now indicatedhas received marketing authorization in 17 European countries and reimbursement in Europeten countries for the prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS).NIU-PS.
We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Ireland, and we have made ILUVIEN available in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler.Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Australia, New Zealand and several countries in the Middle East. Further,In addition, we have granted an exclusive license to Ocumension Therapeutics for the development and commercialization of our 0.19mg fluocinolone acetonide intravitreal implantinjection in China, East Asia and the Western Pacific. As of June 30, 2023 we have recognized sales of ILUVIEN to international distributors in the Middle East, China, Austria, Belgium, Czech Republic, France, Italy, Luxembourg, Spain, the Netherlands, and the Nordic Region.
In the U.S., YUTIQ is indicated for the treatment of chronic NIU-PS. Pursuant to our May 17, 2023 product rights agreement with EyePoint Parent (the Product Rights Agreement), we have the commercialization rights to YUTIQ in the entire world, except Europe, the Middle East and Africa as we had previously licensed from EyePoint Pharmaceuticals US, Inc. (EyePoint) rights to certain products, which included YUTIQ (known as ILUVIEN® in Europe, the Middle East and Africa) for the prevention of relapse in recurrent NIU-PS in those territories. The Product Rights Agreement also excludes any rights to YUTIQ for the treatment of chronic NIU-PS in China and certain other countries and regions in Asia, which rights are subject to a pre-existing exclusive license between EyePoint Parent and Ocumension Therapeutics.
Recent Developments
Pre-Funded Warrants
On August 1, 2023, we amended the Certificate of Designation of Series B Convertible Preferred Stock. Prior to such amendment, the Certificate of Designation provided that the Series B Preferred would automatically convert at the then-applicable conversion price (Mandatory Conversion) in full into common stock following Stockholder Approval (as defined below). As amended, the Certificate of Designation provides that we may issue pre-funded common stock warrants (Pre-Funded Warrants) to certain holders of Series B Preferred that elected to receive Pre-Funded Warrants prior to Stockholder Approval in lieu of a portion of common stock that would otherwise be issued in the Mandatory Conversion to such holders. The Pre-Funded Warrants have an exercise price of $0.01 per share. The Pre-Funded Warrants were offered to holders of Series B Preferred whose Mandatory Conversion of Series B Preferred would otherwise result in such holders, together with their affiliates and certain related parties, beneficially owning more than 9.99% of the outstanding common stock immediately following Mandatory Conversion the opportunity to purchase, if such holders so chose prior to Stockholder Approval, Pre-Funded Warrants, in lieu of shares of common stock that would otherwise result in such holder’s beneficial ownership exceeding 9.99% of the outstanding common stock.
Stockholder Approval
On August 1, 2023, our stockholders approved the issuance of shares of common stock upon conversion of the Series B Preferred and the issuance of shares of common stock upon exercise of certain warrants. We set August 15, 2023 as the date for the Mandatory Conversion.
Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME)
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME for the indications and in the countriesis reimbursed and marketed as shown in the following table:
Indication for the Treatment of DME | Countries Where ILUVIEN Has Received Marketing Authorization to Treat DME | Countries Where ILUVIEN Has Received Reimbursement Approval to Treat DME | Countries Where ILUVIEN is Currently Available to Treat DME | ||||
Treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure | U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates | U.S., Kuwait, Lebanon and the United Arab Emirates | U.S., Kuwait, Lebanon and the United Arab Emirates | ||||
Treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies | The United Kingdom (U.K.), Germany, France, Italy, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, the Czech Republic, the Netherlands and Luxembourg | The U.K., Belgium, Germany, France, Italy, Spain, Portugal, Ireland, Luxembourg and the Netherlands | The U.K., Belgium, the Czech Republic, Germany, France, Italy, Spain, Portugal, Ireland, Austria, Luxembourg, Denmark, Norway, Finland, Sweden and the Netherlands | ||||
Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (NIU-PS)
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat NIU-PS for the indications and in the countriesis reimbursed and marketed as shown in the following table:
Indication for the Treatment of NIU-PS | Countries Where ILUVIEN Has Received Marketing Authorization to Treat NIU-PS | Countries Where ILUVIEN Has Received Reimbursement Approval to Treat NIU-PS | Countries Where ILUVIEN is Currently Marketed to Treat NIU-PS | |||
The prevention of relapse in recurrent NIU-PS | The U.K., Germany, France, Spain, Portugal, Ireland, | The U.K., Germany, Ireland (private sector), Italy, France, Portugal, Spain, the Czech Republic, Luxembourg and the Netherlands | The U.K., Germany, Ireland, Italy, France, Spain, the Czech Republic, Luxembourg, the Netherlands, Denmark, Norway, Portugal, Sweden, Finland, Austria and Belgium |
The COVID-19 Pandemic and Our StepsAdditionally, we market YUTIQ to Address its Effects on Our Businesstreat chronic NIU-PS in the U.S.
The unprecedented eventsSources of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues, liquidity and financial condition. These adverse effects of the pandemic on us have resulted from the following, among other factors:Revenues
•Limitations imposed by governmentsOur revenues for the three months ended June 30, 2023 and private parties2022 were generated from product sales primarily in the U.S., Germany and the U.K. In the U.S., two large pharmaceutical distributors accounted for 63% and 61% of our consolidated product revenues for the three months ended June 30, 2023 and 2022, respectively. These U.S.-based distributors purchase ILUVIEN, and YUTIQ in 2023 from us, maintain inventories of ILUVIEN and YUTIQ and sell on in-person access to physicians have adversely affected usphysician offices, pharmacies and hospitals. Internationally, in certain countries where ILUVIEN is currently marketedwe sell direct, our customers are hospitals, clinics and may again do so if reimposed where they have been lifted.
•Patients’ concerns about their personal health during the COVID-19 pandemic have also negatively affected our business.
•Limitations on travel curtailed our in-person marketing activities, and may again do so if reimposed.
•Pressure on health services arising from winter epidemics of COVID and flu can result in prioritization of hospital resources and cancellation or delay of elective procedures such as intravitreal injections.
•SARS-CoV-2 variants may continue to emerge, with unpredictable effects on our business.
These factors may continue to adversely impact our revenue in affected markets and our capital resources, although the extent and duration of that impact is currently uncertain. (Pleasepharmacies. We sometimes refer to “Special Note Regarding Forward-Looking Statementsphysician offices, pharmacies, hospitals and Projections” above.)
clinics as end users. In responseinternational countries where we sell to distributors, these developments, we have implemented measuresdistributors purchase ILUVIEN from us and maintain inventories of ILUVIEN that they sell to mitigate the impact of the pandemic on our financial position and operations. We are continuing to monitor the effects of the SARS-CoV-2 variants and to increase our engagement with our customers to mitigate any anticipated loss of revenue in those markets that may be affected.
For more information about the effect of the COVID-19 pandemic on our business and the related risks we face, please see Part I, Item 1A, “Risk Factors – Risks Related to the Public Health Pandemic,” in the 2021 Form 10-K.their customers.
Transactions with Ocumension Therapeutics
On April 14, 2021, we entered into a transaction with Ocumension Therapeutics incorporated in the Cayman Islands with limited liability (Ocumension), or one of its affiliates.. In the Ocumension transaction, we received a total of $20.0 million in cash under two agreements:
•a Share Purchase Agreement with Ocumension, pursuant to which we offered and sold to Ocumension 1,144,945 shares of our common stock at a purchase price of $8.734044 per share, or $10.0 million in total; and
•an Exclusive License Agreement (the Ocumension License Agreement) with a wholly owned subsidiary of Ocumension, pursuant to which we granted an exclusive license for the development and commercialization of our 190 microgram0.19 mg fluocinolone acetonide intravitreal implant in applicator under Ocumension’s own branded label in China, East Asia, and the Western Pacific, in exchange for a nonrefundable upfront payment of $10.0 million and aggregated potential sales milestone payments of up to $89.0 million upon achievement by the Ocumension subsidiary of specified amounts of net sales of the licensed product in in the future. We recognized $11.0 million in license revenue from the Ocumension transaction (including the value of a warrant subscription agreement, which we received as consideration, from Ocumension, to purchase 1,000,000 shares of Ocumension Therapeutics during a period of four years (the Ocumension Warrant))years), in accordance with Accounting Standards Codification (ASC)ASC 606, Revenue from Contracts with Customers, with the remaining approximate $300,000 in consideration received classified as deferred revenue that will be recognized over the remaining term of the license agreement once Ocumension begins to sell products. Revenue from the Ocumension License Agreement is included within net revenue in the accompanying condensed consolidated statementsInterim Financial Statements; and
•a Share Purchase Agreement with Ocumension, pursuant to which we offered and sold to Ocumension 1,144,945 shares of operations.our common stock at a purchase price of $8.734044 per share, or $10.0 million in total.
For more information about the Ocumension transaction, see Notes 9 and 16 in the Interim Financial Statements and our Current Report on Form 8-K filed with the SEC on April 14, 2021.Statements.
Sources of RevenuesAgreements with EyePoint Parent and EyePoint
Our revenues for the three months ended September 30, 2022 and 2021 were generated from product sales primarily in the U.S., Germany and the U.K. Our revenues for the nine months ended September 30, 2022 and 2021 were generated from product sales primarily in the U.S., Germany and the U.K. For the nine months ended September 30, 2021, our revenues also reflected (a) the recognition of $1.0 million of deferred revenue associated with the termination of our Canadian distribution agreement with Knight Therapeutics, and (b) license revenue of $11.0 million from (i) the upfront license payment under the Ocumension License Agreement and (ii) the value of the Ocumension Warrant under an analysis performed utilizing ASC 606, Revenue from Contracts with Customers. In the U.S., two large pharmaceutical distributors accounted for 65% and 57% of our consolidated product revenues for the three months ended September 30, 2022 and 2021, respectively, and 62% and 54% of our consolidated product revenues for the nine months ended September 30, 2022 and 2021, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN for sale to their customers.
License Agreement with EyePoint Pharmaceuticals US, Inc.
Under the July 2017, New Collaboration Agreementwe amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), (the New Collaboration Agreement). Under the New Collaboration Agreement, we have rights tohold a worldwide license from EyePoint for the use of steroids, including FAc, in EyePoint’s proprietary insert technology underlying ILUVIEN for the treatment of (a) human eyeall ocular diseases, includingother than uveitis, inoutside of Europe, the Middle East and Africa, and (b) human eye diseases other than uveitis worldwide. During eachAfrica. The New Collaboration Agreement converted our previous profit share obligation to a royalty payable on global net
revenues of ILUVIEN. The New Collaboration Agreement included a right to offset $15.0 million of future royalty payments (the Future Offset). As of June 30, 2023, the balance of the three and nine months ended September 30, 2022 and 2021, our net royalty expense payableFuture Offset was approximately $6.9 million, which is fully reserved. We will be able to recover the balance of the Future Offset as a reduction of future royalties that would otherwise be owed to EyePoint wasby reducing the royalty owed from 6% to 5.2%. We will pay an additional 2% royalty on future global for net revenues and other related consideration up to $75.0 million annually and from 8% to 6.8% for net revenues and other related consideration in excess of $75.0 million on an annual basis.
On May 17, 2023 we entered into a product rights agreement (the Product Rights Agreement) with EyePoint Parent whereby we were granted an exclusive and sublicensable right and license under EyePoint Parent’s and its affiliates’ interest in any year. (Forcertain of EyePoint Parent’s and its affiliates’ intellectual property to develop, manufacture, sell, commercialize and otherwise exploit certain products, including YUTIQ, for the treatment and prevention of uveitis in the entire world, except Europe, the Middle East and Africa. Pursuant to the agreement, we have paid to EyePoint Parent an upfront payment of $75 million and will also make four quarterly guaranteed payments to EyePoint Parent totaling $7.5 million during 2024 (“the payments”). We will also pay royalties to EyePoint Parent from 2025 to 2028 at a percentage of mid-to-low double digits of annual U.S. net sales of certain products (including YUTIQ and ILUVIEN) in excess of certain thresholds, beginning at $70 million in 2025, increasing annually thereafter. Upon making the payments, the licenses and rights granted to Alimera will automatically become perpetual and irrevocable.
We also entered into a commercial supply agreement (the Supply Agreement) with EyePoint Parent pursuant to which, during the term of the Product Rights Agreement, EyePoint Parent will be responsible for manufacturing and exclusively supplying (subject to certain exceptions) to us agreed-upon quantities of YUTIQ necessary for us to commercialize YUTIQ in the United States at certain cost plus amounts, subject to adjustments. EyePoint Parent’s manufacture and supply to us of YUTIQ will be exclusive (subject to certain exceptions) until we have the right and ability to manufacture and supply YUTIQ for commercialization in the United States. The term of the Supply Agreement is for a period of two years and thereafter automatically renews for successive one-year terms unless either party provides notice of non-renewal to the other party within a specified period of time prior to the beginning of the next automatic renewal term, provided, that the Supply Agreement automatically terminates upon the successful completion of the transfer of manufacturing for YUTIQto us or our designee. The Supply Agreement also automatically terminates upon termination of the Product Rights Agreement.
For more information about our agreementagreements with EyePoint Parent and EyePoint, including how we calculate the royalty percentages we are required to pay, see Note 9 and Note 17 in the Interim Financial Statements.)
Consolidated Results of Operations
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
(In thousands, except share and per share data) | (In thousands, except share and per share data) | |||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||
PRODUCT REVENUE, NET | $ | 13,598 | $ | 12,153 | $ | 40,100 | $ | 34,022 | $ | 17,538 | $ | 14,604 | $ | 31,084 | $ | 26,502 | ||||||
LICENSE REVENUE | — | — | — | 11,048 | ||||||||||||||||||
NET REVENUE | 13,598 | 12,153 | 40,100 | 45,070 | ||||||||||||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (2,006) | (1,689) | (5,852) | (5,064) | (2,425) | (2,166) | (4,453) | (3,846) | ||||||||||||||
GROSS PROFIT | 11,592 | 10,464 | 34,248 | 40,006 | 15,113 | 12,438 | 26,631 | 22,656 | ||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 4,483 | 3,278 | 11,998 | 10,058 | 3,648 | 3,932 | 7,812 | 7,515 | ||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 3,352 | 2,808 | 9,537 | 9,577 | 4,373 | 2,945 | 8,544 | 6,185 | ||||||||||||||
SALES AND MARKETING EXPENSES | 6,504 | 5,751 | 20,222 | 15,900 | 6,434 | 6,865 | 12,238 | 13,718 | ||||||||||||||
DEPRECIATION AND AMORTIZATION | 664 | 649 | 2,023 | 1,920 | 1,866 | 670 | 2,547 | 1,359 | ||||||||||||||
OPERATING EXPENSES | 15,003 | 12,486 | 43,780 | 37,455 | 16,321 | 14,412 | 31,141 | 28,777 | ||||||||||||||
(LOSS) INCOME FROM OPERATIONS | (3,411) | (2,022) | (9,532) | 2,551 | ||||||||||||||||||
LOSS FROM OPERATIONS | (1,208) | (1,974) | (4,510) | (6,121) | ||||||||||||||||||
INTEREST EXPENSE AND OTHER | (1,500) | (1,360) | (4,247) | (4,050) | (1,694) | (1,383) | (3,361) | (2,747) | ||||||||||||||
UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET | (67) | 142 | 79 | 323 | (7) | 38 | (20) | 146 | ||||||||||||||
GAIN ON EXTINGUISHMENT OF DEBT | — | — | — | 1,792 | ||||||||||||||||||
LOSS ON EXTINGUISHMENT OF DEBT | (1,079) | — | (1,079) | — | ||||||||||||||||||
CHANGE IN FAIR VALUE OF WARRANT ASSET | (267) | (1,112) | (598) | (411) | (105) | 221 | (91) | (331) | ||||||||||||||
NET (LOSS) INCOME BEFORE TAXES | (5,245) | (4,352) | (14,298) | 205 | ||||||||||||||||||
INCOME TAX (PROVISION) BENEFIT | (12) | 169 | (29) | (471) | ||||||||||||||||||
CHANGE IN FAIR VALUE OF WARRANT LIABILITY | (5,911) | — | (5,911) | — | ||||||||||||||||||
NET LOSS BEFORE TAXES | (10,004) | (3,098) | (14,972) | (9,053) | ||||||||||||||||||
INCOME TAX PROVISION | (25) | (17) | (25) | (17) | ||||||||||||||||||
NET LOSS | $ | (5,257) | $ | (4,183) | $ | (14,327) | $ | (266) | (10,029) | (3,115) | (14,997) | (9,070) | ||||||||||
NET LOSS PER SHARE — Basic and Diluted | $ | (0.75) | $ | (0.60) | $ | (2.05) | $ | (0.04) | ||||||||||||||
PREFERRED STOCK DIVIDENDS | (669) | — | (683) | — | ||||||||||||||||||
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS | $ | (10,698) | $ | (3,115) | $ | (15,680) | $ | (9,070) | ||||||||||||||
NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS — Basic and Diluted | $ | (1.32) | $ | (0.45) | $ | (2.07) | $ | (1.30) | ||||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted | 6,996,575 | 6,924,174 | 6,995,695 | 6,480,952 | 8,093,640 | 6,999,707 | 7,565,868 | 6,995,247 | ||||||||||||||
Net Revenue
We generate revenue from sales of ILUVIEN and YUTIQ, our only product.two products. In addition to generating revenue from product sales, we seek to generate revenue from other sources such as upfront fees, milestone payments in connection with collaborative or strategic relationships, and royalties resulting from the licensing of ILUVIEN or any future product candidates and other intellectual property. Revenue from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.
NetProduct revenue, net increased by approximately $1.4$2.9 million, or 11%20%, to approximately $13.6$17.5 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $12.2$14.6 million for the three months ended SeptemberJune 30, 20212022. The increase was primarily due to sales of YUTIQ beginning in May 2023 in the U.S. as well as increased accessunit sales volume of ILUVIEN in both the U.S. and International segments of our business.
Product revenue, net increased by approximately $4.6 million, or 17%, to physicians, improved patient flow in physician practices, and investment in our sales, marketing, scientific and medical programs. Partially offsetting this increase, our international product revenueapproximately $31.1 million for the threesix months ended SeptemberJune 30, 2022, as reported in U.S. dollars, was negatively affected in comparison2023, compared to the 2021 period by changes in foreign currency exchange rates that reduced our international revenueapproximately $26.5 million for the 2022 period by approximately 18%, or $810,000. six months ended June 30, 2022. The increase was primarily due to sales of YUTIQ beginning in May 2023 in the U.S. as well as increased unit sales volume of ILUVIEN in both the U.S. and International segments of our business.
Adjustments in net product revenue to exclude fluctuations in foreign currency exchange rates result in a non-GAAP financial measure.measure, which we refer to as adjusted net product revenue. Please refer to “Liquidity and Capital Resources – Non-GAAP“Non-GAAP Financial Measure” on page 4447 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.
Net revenue decreased by approximately $5.0 million, or 11%, to approximately $40.1 million for the nine months ended September 30, 2022, compared to approximately $45.1 million for the nine months ended September 30, 2021. The decrease was primarily attributable to (a) the $11.0 million of recognized license revenue from our transactions with Ocumension and (b) the recognition of $1.0 million in deferred product revenue associated with the termination of our Canadian distribution agreement with Knight Therapeutics, both of which were recognized during the nine months ended September 30, 2021. Offsetting these decreases, consolidated net product revenue increased by approximately $6.1 million, or 18%, to approximately $40.1 million from $34.0 million for the nine months ended September 30, 2022 and 2021, respectively. The increase was primarily due to increased access to physicians, improved patient flow in physician practices, and investment in our sales, marketing, scientific and medical programs. Partially offsetting this increase, our international net product revenue for the nine months ended September 30, 2022, as reported in U.S. dollars, was negatively affected in comparison to the 2021 period by changes in foreign exchange rates that reduced our international revenue for the 2022 period by approximately 12%, or $1.9 million. Please
refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.
Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit
Gross profit is affected by costs of goods sold, which includes costs of manufactured goods sold and royalty payments to EyePoint under the New Collaboration Agreement. Additionally, cost of goods sold by our international distributors fluctuates depending on the revenue share attributable to the respective contract.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $300,000,$260,000, or 18%12%, to approximately $2.0$2.4 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $1.7$2.2 million for the three months ended SeptemberJune 30, 2021.2022. The increase was primarily related to our increased product sales.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $800,000,$600,000, or 16%, to approximately $5.9$4.5 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $5.1$3.8 million for the ninethree months ended SeptemberJune 30, 2021.2022. The increase was primarily related to our increased product sales.
Gross profit increased by approximately $1.1$2.7 million, or 10%22%, to approximately $11.6$15.1 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $10.5$12.4 million for the three months ended SeptemberJune 30, 2021.2022. Gross margin was 85%86% and 86%85% for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
Gross profit decreasedincreased by approximately $5.8$4.1 million, or 15%18%, to approximately $34.2$26.6 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $40.0$22.7 million for the ninesix months ended SeptemberJune 30, 2021.2022. Gross margin was 85%86% and 89%85% for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively. The decrease was primarily related to the events associated with Ocumension and Knight Therapeutics described above, both of which were recognized during the 2021 period.
Research, Development and Medical Affairs Expenses
Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and YUTIQ and include salaries and related expenses for research and development and medical affairs personnel, expenses related to clinical trials including our NEW DAY Study, and expenses tied to physician engagement by our medical science liaisons. Our research, development and medical affairs expenses also include costs related to clinical studies such as the NEW DAY Study and the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. We expense both internal and external research and development costs as they are incurred.
Research, development and medical affairs expenses increaseddecreased by approximately $1.2 million,$280,000, or 36%7%, to approximately $4.5$3.6 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $3.3$3.9 million for the three months ended SeptemberJune 30, 2021.2022. The increasedecrease was primarily attributable to increasesdecreases of approximately $400,000$140,000 in inserter component manufacturing costs, $370,000 of clinical study costs related to increased enrollmentand $140,000 in our NEW DAY Study, and $280,000 in personnel and travelscientific communications costs.
Research, development and medical affairs expenses increased by approximately $1.9 million,$300,000, or 19%4%, to approximately $12.0$7.8 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $10.1$7.5 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to increases of approximately $630,000 of personnel and travel costs, $610,000$530,000 in inserter component manufacturing costs, $440,000 in scientific communication costs, and $290,000 of clinical study costs related to increased enrollmentand $130,000 in our NEW DAY Study. These increases wereapplicator design costs, partially offset by a decrease of $230,000 of quality assurance$290,000 in scientific communications costs.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, information technology, training and employee development.human resources. Other significant costs include facilities costs and professional fees for accounting and legal services.services, including legal services associated with obtaining and maintaining patents and managing license agreements. We expect to continue to incur significant costs to comply with the reporting, corporate governance, internal control and similar requirements applicable to public companies.
General and administrative expenses increased by approximately $600,000,$1.4 million, or 21%48%, to approximately $3.4$4.4 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $2.8$2.9 million for the three months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to an offsetting recoveryincreases of $560,000$630,000 of bad debt expense, $360,000 in VAT expenseprofessional fees, $130,000 in logistics fees, and $100,000 in office costs during the three months ended SeptemberJune 30, 2021.2023.
General and administrative expenses increased by approximately $2.4 million, or 39%, to approximately $8.5 million for the six months ended June 30, 2023, compared to approximately $6.2 million for the six months ended June 30, 2022. The increase was primarily attributable to increases of $1.5 million of bad debt expense, $550,000 in professional fees, $160,000 in franchise tax costs, and $160,000 in logistics fees during the six months ended June 30, 2023.
General and administrative expenses decreased by approximately $40,000, or 4%, to approximately $9.5 million for the nine months ended September 30, 2022, compared to approximately $9.6 million for the nine months ended September 30, 2021.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion of ILUVIEN and YUTIQ, including the assessment of the commercial opportunity, of, the development of market awareness, for, the pursuit of reimbursement approval, for, and the commercialization of ILUVIEN,generally, including launch plans for ILUVIEN in new markets. Other costs include third party service fees, professional fees associated with developing plans for ILUVIEN and YUTIQ or any future products or product candidates and maintaining public relations.
Sales and marketing expenses increaseddecreased by approximately $800,000,$430,000, or 14%6%, to approximately $6.5$6.4 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $5.7$6.9 million for the three months ended SeptemberJune 30, 2021.2022. The increasedecrease was primarily attributable to increasesdecreases of approximately $760,000$400,000 in marketing costs, including costs to attend conventions, costs related to our direct to patient marketing campaign and costs associated with customer engagement which has contributed to our increase net product revenue.engagement.
Sales and marketing expenses increaseddecreased by approximately $4.3$1.5 million, or 27%11%, to approximately $20.2$12.2 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $15.9$13.7 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increasedecrease was primarily attributable to increasesdecreases of approximately $2.5$1.7 million in marketing costs, including costs to attend conventions, costs related to our direct to patient marketing campaign and costs associated with customer engagement which has contributed to our increase net product revenue and $1.5 million of added personnel costs, including commissions, and travel expenses.engagement.
Operating Expenses
As a result of the increases and decreases in various expenses described above, total operating expenses increased by approximately $2.5$1.9 million, or 20%13%, to approximately $15.0$16.3 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $12.5$14.4 million for the three months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to increases of approximately $1.4 million in general and administrative expenses and $1.2 million in depreciation and amortization, partially offset by decreases of $280,000 in research and development expenses and medical affairs expenses, $800,000$430,000 in sales and marketing expenses and $600,000 in general and administrative expenses as described above.
As a result of the increases and decreases in various expenses described above, total operating expenses increased by approximately 6.3$2.4 million, or 17%8%, to approximately $43.8$31.1 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $37.5$28.8 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to increases of approximately $4.3$2.4 million in salesgeneral and marketingadministrative expenses, $1.2 million in depreciation and amortization expenses, and $1.9 million$300,000 in research, development and medical affairs expenses. These increases wereexpense, partially offset by a decrease of approximately $40,000$1.5 million in generalsales and administrativemarketing expenses as described above.
Interest Expense and Other
Interest Expenseexpense and Otherother increased by approximately $100,000,$310,000, or 7%22%, to approximately $1.5$1.7 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $1.4 million for the three months ended SeptemberJune 30, 2021.2022. This increase is related to the increasing interest rate onadditional borrowing under our debt.credit facility.
Interest Expenseexpense and Otherother increased by approximately $200,000$610,000, or 5%22%, to approximately $4.2$3.4 million for the ninesix months ended SeptemberJune 30, 20222023, compared to approximately $4.0$2.7 million for the ninesix months ended SeptemberJune 30, 2021.2022. This increase is related to the increasing interest rate onadditional borrowing under our debt.credit facility.
Basic and Diluted Net Loss Applicable to Common Stockholders per Share of Common Stock
We follow FASB Accounting Standards Codification, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common stockholders (if we were to declare and pay dividends), we use the two-class method to calculate EPS. However, our preferred stockholders are not contractually obligated to share in losses.
Basic EPS is computed by dividing net (loss) income available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options and warrants we have issued. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, because the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future but were not included in the computation of diluted EPS because they were either classified as participating and do not share in losses or would have been anti-dilutive. Those securities
were approximately 6.9 million for the three and six months ended June 30, 2023, and 1.9 million for the three and ninesix months ended SeptemberJune 30, 2022, and 1.7 million for the three and nine months ended September 30, 2021.2022.
Results of Operations – Segment Review
The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how our Chief Executive Officer (CEO), who is the Company’s chief operating decision maker, monitors the performance of our reporting segments.
Our U.S. and International segments represent the sales and marketing, general and administrative and research and development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development. In monitoring performance, aligning strategies and allocating resources, our chief operating decision maker manages and evaluates our U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, we classify within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.
Each of our U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to our consolidated totals. For that reconciliation, please see Note 1915 in the Interim Financial Statements. We do not report balance sheet information by segment because our chief operating decision maker does not review that information. We allocate certain operating expenses among our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment.
U.S. Segment
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||
PRODUCT REVENUE, NET | $ | 8,920 | $ | 6,917 | $ | 24,783 | $ | 18,352 | $ | 11,876 | $ | 8,943 | $ | 19,456 | $ | 15,863 | ||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,057) | (830) | (2,932) | (2,285) | (1,290) | (1,060) | (2,195) | (1,875) | ||||||||||||||
GROSS PROFIT | 7,863 | 6,087 | 21,851 | 16,067 | 10,586 | 7,883 | 17,261 | 13,988 | ||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,229 | 1,042 | 3,680 | 2,641 | 1,748 | 1,281 | 2,910 | 2,451 | ||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 367 | 224 | 878 | 694 | 1,101 | 195 | 2,205 | 511 | ||||||||||||||
SALES AND MARKETING EXPENSES | 4,439 | 3,943 | 13,739 | 10,889 | 4,781 | 4,568 | 9,056 | 9,242 | ||||||||||||||
OPERATING EXPENSES | 6,035 | 5,209 | 18,297 | 14,224 | 7,630 | 6,044 | 14,171 | 12,204 | ||||||||||||||
SEGMENT INCOME FROM OPERATIONS | $ | 1,828 | $ | 878 | $ | 3,554 | $ | 1,843 | $ | 2,956 | $ | 1,839 | $ | 3,090 | $ | 1,784 | ||||||
U.S. Segment – three months ended SeptemberJune 30, 20222023 compared to the three months ended SeptemberJune 30, 20212022
Product revenue, net. Product revenue, net increased by approximately $2.0$2.9 million, or 29%33%, to approximately $11.9 million for the three months ended June 30, 2023, compared to approximately $8.9 million for the three months ended SeptemberJune 30, 2022, compared to approximately $6.9 million for the three months ended September 30, 2021.2022. The increase was primarily due to increased accessend user demand, which represents units purchased by physicians and pharmacies from distributors, as well as sales of YUTIQ beginning in May 2023. The difference between GAAP revenue and end user demand is due to physicians, improved patient flow in physician practices and investment in our sales, marketing, scientific and medical programs.the timing of distributor purchases.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $270,000,$230,000, or 33%22%, to approximately $1.3 million for the three months ended June 30, 2023, compared to approximately $1.1 million for the three months ended SeptemberJune 30, 2022, compared to approximately $830,000 for the three months ended September 30, 2021.2022. The increase was primarily attributable to our increased product sales.
Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $200,000,$470,000, or 20%36%, to approximately $1.2$1.7 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $1.0$1.3 million for the three months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to an increase of approximately $240,000$310,000 in personnelclinical study costs and travel$170,000 in personnel costs.
General and administrative expenses. General and administrative expenses increased by approximately $140,000,$910,000, or 63%465%, to approximately $370,000$1.1 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $230,000$200,000 for the three months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to an increase of approximately $620,000 in bad debt expense for replacement orders and $210,000 in insurance costs.
Sales and marketing expenses. Sales and marketing expenses increased by approximately $500,000,$210,000, or 13%5%, to approximately $4.4$4.8 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $3.9$4.6 million for the three months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to increasesan increase of $520,000$200,000 in marketing costs, including costs to attend conventions, and costs related to our direct to patient marketing campaign.campaign and costs associated with customer engagement.
U.S. Segment – ninesix months ended SeptemberJune 30, 20222023 compared to the ninesix months ended SeptemberJune 30, 20212022
Net revenue.Product revenue, net. NetProduct revenue, net increased by approximately $6.4$3.6 million, or 35%23%, to approximately $24.8$19.5 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $18.4$15.9 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increase was primarily due to increased accessend user demand, which represents units purchased by physicians and pharmacies from distributors, as well as sales of YUTIQ beginning in May 2023. The difference between GAAP revenue and end user demand is due to physicians, improved patient flow in physician practices and investment in our sales, marketing, scientific and medical programs.the timing of distributor purchases.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $600,000,$320,000, or 26%17%, to approximately $2.9$2.2 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $2.3$1.9 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to our increased product sales.
Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $1.0 million$460,000, or 38%19%, to approximately $3.6$2.9 million for the ninesix monthsended SeptemberJune 30, 2022,2023, compared to approximately $2.6$2.5 million for the ninethree months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to increasesan increase of approximately $730,000$310,000 in personnel and travelclinical study costs and $480,000$140,000 in scientific communicationpersonnel costs.
General and administrative expenses. General and administrative expenses increased by approximately $190,000,$1.7 million, or 28%332%, to approximately $880,000$2.2 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $690,000$510,000 for the ninesix months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to an increase of approximately $1.3 million in bad debt expense for replacement orders and $400,000 in insurance costs.
Sales and marketing expenses. Sales and marketing expenses increaseddecreased by approximately $2.8 million,$190,000, or 26%2%, to approximately $13.7$9.1 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to approximately $10.9$9.2 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increasedecrease was primarily attributable to increasesa decrease of approximately $1.7 million$160,000 in marketing costs, including costs to attend conventions, and costs related to our direct to patient marketing campaign and $1.1 million in added personnel costs including increased commissions and travel expenses.associated with customer engagement.
International Segment
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
(In thousands) | |||||||||||
REVENUE: | |||||||||||
PRODUCT REVENUE, NET | $ | 4,678 | $ | 5,236 | $ | 15,317 | $ | 15,670 | |||
LICENSE REVENUE | — | — | — | 11,048 | |||||||
NET REVENUE | 4,678 | 5,236 | 15,317 | 26,718 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (949) | (859) | (2,920) | (2,779) | |||||||
GROSS PROFIT | 3,729 | 4,377 | 12,397 | 23,939 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 942 | 979 | 2,665 | 3,005 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 434 | 6 | 1,326 | 1,064 | |||||||
SALES AND MARKETING EXPENSES | 1,873 | 1,610 | 5,932 | 4,407 | |||||||
OPERATING EXPENSES | 3,249 | 2,595 | 9,923 | 8,476 | |||||||
International Segment
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Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
(In thousands) | |||||||||||
REVENUE: | |||||||||||
PRODUCT REVENUE, NET | $ | 5,662 | $ | 5,661 | $ | 11,628 | $ | 10,639 | |||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,135) | (1,106) | (2,258) | (1,971) | |||||||
GROSS PROFIT | 4,527 | 4,555 | 9,370 | 8,668 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 842 | 807 | 1,589 | 1,723 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 510 | 468 | 1,227 | 892 | |||||||
SALES AND MARKETING EXPENSES | 1,379 | 2,112 | 2,794 | 4,116 | |||||||
OPERATING EXPENSES | 2,731 | 3,387 | 5,610 | 6,731 | |||||||
SEGMENT INCOME FROM OPERATIONS | $ | 1,796 | $ | 1,168 | $ | 3,760 | $ | 1,937 | |||
International Segment - three months ended SeptemberJune 30, 20222023 compared to the three months ended SeptemberJune 30, 20212022
Net revenue.Product revenue, net. NetProduct revenue, net was $5.7 million for each of the three months ended June 30, 2023 and June 30, 2022.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization was $1.1 million for each of the three months ended June 30, 2023 and June 30, 2022.
Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $30,000, or 4%, to approximately $840,000 the three months ended June 30, 2023 compared to approximately $810,000 for the three months ended June 30, 2022.
General and administrative expenses. General and administrative expenses increased by approximately $40,000, or 9%, to approximately $510,000 for the three months ended June 30, 2023 compared to approximately $470,000 for the three months ended June 30, 2022.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $500,000,$730,000, or 10%35%, to approximately $4.7$1.4 million for the three months ended SeptemberJune 30, 2022,2023, compared to approximately $5.2$2.1 million for the three months ended SeptemberJune 30, 2021. Our2022. The decrease was primarily attributable to a decrease of approximately $680,000 in marketing costs, including costs to attend conventions, costs related to our direct to patient marketing campaign and costs associated with customer engagement.
International Segment - six months ended June 30, 2023 compared to the six months ended June 30, 2022
Product revenue, net. Product revenue, net increased by approximately $990,000, or 9%, to approximately $11.6 million for the six months ended June 30, 2023, compared to approximately $10.6 million for the six months ended June 30, 2022. The increase in international product revenue, net for the threesix months ended SeptemberJune 30, 2022,2023, as reported in U.S. dollars, was negatively affectedprimarily due to an increase in comparison to the 2021 period by changes in foreign exchange rates that reduced our international revenue for the 2022 period by approximately 18%, or $810,000. Please refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.end user demand.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization increased by approximately $90,000,$290,000, or 10%15%, to approximately $950,000$2.3 million for the threesix months ended SeptemberJune 30, 2022,2023, compared to approximately $860,000$2.0 million for the threesix months ended SeptemberJune 30, 2021.2022.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $40,000,$130,000, or 4%8%, to approximately $940,000$1.6 million for the threesix months ended SeptemberJune 30, 2022,2023, compared to approximately $980,000$1.7 million for the threesix months ended SeptemberJune 30, 2021.2022. The decrease was primarily attributable to a decrease of $140,000 in personnel and consultant costs.
General and administrative expenses. General and administrative expenses wereincreased by approximately $430,000$340,000, or 38%, to approximately $1.2 million for the threesix months ended SeptemberJune 30, 20222023 compared to approximately $10,000$890,000 for the threesix months ended SeptemberJune 30, 2021.
2022. The increase was primarily attributable to an increase in bad debt expense related to a recoveryformer distributor of $560,000 in VAT expense$190,000 and $170,000 of logistics fees during the threesix months ended SeptemberJune 30, 2021.2023.
Sales and marketing expenses. Sales and marketing expenses increaseddecreased by approximately $300,000,$1.3 million, or 19%32%, to approximately $1.9$2.8 million for the threesix months ended SeptemberJune 30, 2022,2023, compared to approximately $1.6$4.1 million for the threesix months ended SeptemberJune 30, 2021.2022. The increasedecrease was primarily attributable to increasesa decrease of approximately $240,000$1.2 million in marketing costs, including costs to attend conventions.conventions, costs related to our direct to patient marketing campaign and costs associated with customer engagement.
InternationalOperating Cost Segment
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
(In thousands) | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | $ | 1,033 | $ | 1,799 | $ | 3,266 | $ | 3,259 | |||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,619 | 2,112 | 4,814 | 4,393 | |||||||
SALES AND MARKETING EXPENSES | 225 | 133 | 291 | 250 | |||||||
OPERATING EXPENSES | 3,877 | 4,044 | 8,371 | 7,902 | |||||||
SEGMENT LOSS FROM OPERATIONS | $ | (3,877) | $ | (4,044) | $ | (8,371) | $ | (7,902) | |||
Operating Cost Segment - ninethree months ended SeptemberJune 30, 20222023 compared to the ninethree months ended SeptemberJune 30, 2021
Net revenue. Net revenue decreased by approximately $11.4 million, or 43%, to approximately $15.3 million for the nine months ended September 30, 2022 compared to approximately $26.7 million for the nine months ended September 30, 2021. The decrease was primarily related to the events with Ocumension and Knight Therapeutics described above, both of which were recognized during the 2021 period. Additionally, our international product revenue for the nine months ended September 30, 2022, as reported in U.S. dollars, was negatively affected in comparison to the 2021 period by changes in foreign exchange rates that reduced our international revenue for the 2022 period by approximately 12%, or $1.9 million. Please refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization increased by approximately $100,000, or 4%, to $2.9 million for the nine months ended September 30, 2022 compared to approximately $2.8 million for the nine months ended September 30, 2021.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $300,000,$780,000, or 10%43%, to approximately $2.7$1.0 million for the ninethree monthsended SeptemberJune 30, 2022,2023, compared to approximately $3.0$1.8 million for the three months ended SeptemberJune 30, 2021.2022. The decrease was primarily attributable to a decrease indecreases of approximately $560,000 of clinical study costs associated with consultants.the NEW DAY study as well as safety and quality costs and $140,000 in personnel costs.
General and administrative expenses. General and administrative expenses increased by approximately $300,000$510,000, or 27%24%, to approximately $1.3$2.6 million for the ninethree monthsended SeptemberJune 30, 2022,2023, compared to approximately $1.0$2.1 million for the ninethree months ended SeptemberJune 30, 2021.2022. The increase was primarily attributable to a recoveryincreases of VAT expense during the nine months ended September 30, 2021.approximately $410,000 in professional fees and $130,000 in office costs.
Sales and marketing expenses. Sales and marketing expenses increased by approximately $1.5 million,$90,000 or 34%,69% to approximately $5.9 million$220,000 for the ninethree months ended SeptemberJune 30, 2022,2023, compared to approximately $4.4 million$130,000 for the ninethree months ended SeptemberJune 30, 2021. The increase was primarily attributable to increases of approximately $790,000 in marketing costs, including costs to attend conventions, $430,000 in personnel costs including increased commissions and travel expenses, $210,000 in market access costs and $120,000 in consultant costs.2022.
Operating Cost Segment
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
(In thousands) | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | $ | 2,353 | $ | 1,221 | $ | 5,612 | $ | 4,343 | |||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,417 | 2,429 | 6,810 | 7,311 | |||||||
SALES AND MARKETING EXPENSES | 142 | 138 | 392 | 423 | |||||||
OPERATING EXPENSES | 4,912 | 3,788 | 12,814 | 12,077 | |||||||
SEGMENT LOSS FROM OPERATIONS | $ | (4,912) | $ | (3,788) | $ | (12,814) | $ | (12,077) | |||
Operating Cost Segment - threesix months ended SeptemberJune 30, 20222023 compared to the threesix months ended SeptemberJune 30, 20212022
Research, development and medical affairs expenses. Research, development and medical affairs expenses increased bywere approximately $1.2 million, or 93%, to approximately $2.4$3.3 million for the threeeach of the six months ended SeptemberJune 30, 2022, compared to approximately $1.2 million for the three months ended September2023 and June 30, 2021. The increase was primarily attributable to increases of approximately $400,000 in inserter component manufacturing costs and $370,000 of clinical study costs, including costs associated with our NEW DAY Study.2022.
General and administrative expenses. General and administrative expenses wereincreased by approximately $2.4$420,000, or 10%, to approximately $4.8 million for the threesix monthsended June 30, 2023, compared to approximately $4.4 million for the six months ended SeptemberJune 30, 2022 and September 30, 2021, respectively.2022. The increase was primarily attributable to increases of approximately $770,000 in professional fees, partially offset by a decrease in insurance costs of $420,000.
Sales and marketing expenses. Sales and marketing expenses wereincreased by approximately $140,000$40,000 or 16% to approximately $290,000 for each of the threesix months ended SeptemberJune 30, 2022 and September2023, compared to approximately $250,000 for the six months ended June 30, 2021, respectively.2022.
Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $1.3 million, or 30%, to approximately $5.6 million for the nine months ended September 30, 2022, compared to approximately $4.3 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $610,000 in inserter component manufacturing costs and $290,000 of clinical study costs including costs associated with our NEW DAY Study.
General and administrative expenses. General and administrative expenses decreased by approximately $500,000, or 7%, to approximately $6.8 million for the nine months ended September 30, 2022, compared toapproximately $7.3 million for the nine months ended September 30, 2021. The decrease was primarily attributable to decreases of $390,000 of professional fees and $210,000 in personnel and travel expenses.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $30,000, or 7%, to approximately $390,000 for the nine months ended September 30, 2022, compared toapproximately $420,000 for the nine months ended September 30, 2021.
Other
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | $ | (41) | $ | 36 | $ | 41 | $ | 69 | $ | 25 | $ | 45 | $ | 47 | $ | 82 | ||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 134 | 149 | 523 | 508 | 143 | 170 | 298 | 389 | ||||||||||||||
SALES AND MARKETING EXPENSES | 50 | 60 | 159 | 181 | 49 | 52 | 97 | 110 | ||||||||||||||
DEPRECIATION AND AMORTIZATION | 664 | 649 | 2,023 | 1,920 | 1,866 | 670 | 2,547 | 1,359 | ||||||||||||||
OPERATING EXPENSES | 807 | 894 | 2,746 | 2,678 | 2,083 | 937 | 2,989 | 1,940 | ||||||||||||||
SEGMENT LOSS FROM OPERATIONS | $ | (807) | $ | (894) | $ | (2,746) | $ | (2,678) | $ | (2,083) | $ | (937) | $ | (2,989) | $ | (1,940) | ||||||
Our CEO, who is our chief operating decision maker, manages and evaluates our U.S., International and Operating Cost segments based upon segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. We classify the non-cash expenses included in research, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses within Other in the Interim Financial Statements.
$1.2 million in depreciation and amortization expenses.
Operating expenses. Operating expenses in Other decreasedincreased by approximately $90,000,$1.0 million, or 10%54%, to $810,000approximately $3.0 million for the threesix months ended SeptemberJune 30, 2022,2023, compared to approximately $900,000$1.9 million for the threesix months ended SeptemberJune 30, 2021.
Operating expenses2022. The increase was primarily attributable to an increase of $1.1 million in Other was approximately $2.7 million for each of the nine months ended September 30, 2022depreciation and 2021.amortization expenses.
Depreciation and amortization. Depreciation and amortization wasincreased by approximately $660,000 and $650,000$1.2 million, or 179%, to approximately $1.9 million for the three months ended SeptemberJune 30, 2022 and 2021, respectively.2023, compared to approximately $670,000 for the three months ended June 30, 2022. The increase was primarily attributable to amortization of the YUTIQ intangible asset which was acquired in May 2023.
Depreciation and amortization. Depreciation and amortization wasincreased by approximately $2.0$1.2 million, and $1.9or 87%, to approximately $2.5 million for the ninesix months ended SeptemberJune 30, 2022 and 2021, respectively.2023, compared to approximately $1.4 million for the six months ended June 30, 2022. The increase was primarily attributable to amortization of the YUTIQ intangible asset which was acquired in May 2023.
Liquidity and Capital Resources
Overview
Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit in stockholders’ equity of $411.6$412.8 million as of SeptemberJune 30, 2022.2023. As of SeptemberJune 30, 2022,2023, we had approximately $5.5$18.8 million in cash and cash equivalents. In mid-April 2021March 2023 we received a total$12.0 million in gross proceeds from the Tranche 1 closing of $20.0our Series B Preferred Stock financing and an additional $2.5 million in cash fromin connection with the Ocumension transaction described above.Fifth Amendment to the 2019 Loan Agreement. We have used these funds to commercialize ILUVIEN, to fund our NEW DAY clinical trial and for general corporate purposes, which may include working capital, capital expenditures, other clinical trial expenditures, acquisitionspurposes. In May 2023 we received $67.0 million in gross proceeds from the Tranche 2 closing of new technologies, products or businesses in ophthalmology,our Series B Preferred Stock financing and investments.
As explained above in “Effects of the COVID-19 Pandemic,” the unprecedented events of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues, liquidity and capital resources. The duration of that impact is uncertain at this time, particularly in light of the continued emergence of SARS-CoV-2 variants that increase the transmissibility of the coronavirus.
Since January 2020, we have funded our operations through:
(a)cash received from our sales;
(b)net proceeds of the loans that we obtained in December 2019 and February 2020 from a group of lenders led by SLR Investment Corp. (formerly named Solar Capital Ltd.) under a $45.0 million loan and security agreement (the 2019 Loan Agreement);
(c)an approximately $1.8 million loan (the PPP Loan) we obtained in April 2020 under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, which was forgiven in its entirety, including interest, on April 16, 2021; and
(d)theadditional $20.0 million in funds we obtainedcash in April 2021 as a result ofconnection with the Ocumension transaction.
The 2019 Loan Agreement does not include a revolving loan feature and has been fully advanced by the lenders. We currently have no additional borrowing capacity, andSixth Amendment to the 2019 Loan Agreement generally prohibits any additional debt unless we obtain the prior consentAgreement. We used these funds to fund a portion of the lenders.upfront payment to acquire the commercial rights for YUTIQ.
Indebtedness
Loans from SLR Investment Corp. (SLR, formerly known as Solar Capital Ltd. until February 2021)(SLR). On January 5, 2018, we entered into a $40.0 million loan and security agreement with SLR, as Collateral Agent, and the parties signatory thereto from time to time as Lenders, including SLR in its capacity as a lender (the 2018 Loan Agreement). OnIn December 31, 2019, we refinanced the 2018 Loan Agreementour previously outstanding debt facility by entering into a $45.0 million loan and security agreement (the 2019 Loan Agreement) with SLR, as the Collateral Agent, and the parties signing the loan agreement from time to time as Lenders, including SLR in its capacity as a Lender (collectively, the Lenders). Under theThe 2019 Loan Agreement we borrowed $42.5 millionhas been amended on December 31, 2019 and borrowed the remaining $2.5 million on February 21, 2020. The two borrowings under the 2019 Loan Agreement totaled $45.0 million and are referred to as the SLR Loan. The SLR Loan matures on July 1, 2024. We used the initial proceeds of the SLR Loan to pay off the outstanding loan under the 2018 Loan Agreement, along with related prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to SLR. We used the remaining proceeds of the SLR Loan to provide additional working capital for general corporatemultiple occasions.
purposes during 2020 and the first half of 2021.
On May 1, 2020, we entered into a First Amendment to the 2019 Loan Agreement (the First Amendment). The First Amendment included revised covenants that applied to our financial performance during 2020, all of which we met. The First Amendment, among other things, required that a minimum revenue covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with a plan we submitted to the Collateral Agent in February 2021, with such plan to be approved by our board of directors (the Board) and the Collateral Agent in its sole discretion.
On March 30, 2021, we entered into a Second Amendment to the 2019 Loan Agreement (the Second Amendment), which among other things:
(a)reflected the Collateral Agent’s consent to our delivery of Board-approved annual financial projections for 2021 by April 1, 2021 (which we delivered in a timely manner);
(b)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2021, that we must achieve for each such period (the Revenue Covenant);
(c)required that the Revenue Covenant be tested at March 31, 2022 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we must submit to the Collateral Agent by January 15th of such year, such plan to be approved by our Board and the Collateral Agent in its sole discretion; and
(d)provided that in future years we must deliver to the Collateral Agent and the Lenders as soon as available after approval thereof by our Board, but no later than the earlier of (x) 15 days after such approval and (y) February 28 of such year, our annual financial projections for the entire current fiscal year as approved by our Board, provided that any revisions to such projections approved by our Board shall be delivered to the Collateral Agent and the Lenders no later than seven days after such approval.
On February 22, 2022, we entered into a Third Amendment to the 2019 Loan Agreement (the Third Amendment), which, among other things:
(a)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2022, that we must achieve for each such period (the Third Revenue Covenant);
(b)consented to maintaining a lower minimum revenue amount under the Third Revenue Covenant for the trailing six-month period ended December 31, 2021 than previously required under the 2019 Loan Agreement (and waived any event of default that may have occurred or may be deemed to have occurred as a result of our lower revenue amount for that period); and
(c)required that the Third Revenue Covenant be tested at March 31,June 30, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we must submit to the Collateral Agent by January 15 of such year, such plan to be thereafter approved by our Board and the Collateral Agent in its sole discretion no later than February 28 of such year.
Interest onOn December 7, 2022, we entered into a Fourth Amendment to the 2019 Loan Agreement is payable(the Fourth Amendment), which, among other things:
(a)extended the amortization date from January 1, 2023 to April 1, 2023, provided that such date could be further extended to July 1, 2023 upon our request and in consultation with the Lenders, in each of the Lenders’ sole discretion;
(b)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2023, that we must achieve for each such period (the Fourth Revenue Covenant); and
(c)required that the Fourth Revenue Covenant be tested at June 30, 2024 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan submitted to the Collateral Agent by January 15th of such year, such plan to be thereafter approved by the Board and the Collateral Agent in its sole discretion no later than February 28 of such year.
On March 24, 2023, we entered into a Fifth Amendment to the 2019 Loan Agreement (the Fifth Amendment), which among other things:
(a)added an additional tranche of $2,500,000 to increase the existing term loan facility to $47,500,000, subject to certain closing conditions (the New Term Loan);
(b)extended a $15,000,000 additional term loan available to be funded at the Lender’s sole discretion;
(c)specified an annual interest rate equal to 5.15% plus the greater of (i) 4.60% and (ii) one-month LIBOR or (ii) 1.78%, in either case plus 7.65% per annum. AsSOFR, which will reset monthly, on the New Term Loan;
(d)extended the maturity date to April 30, 2028 and the interest-only period to April 30, 2025, which may be extended an additional 12 months if the Company meets certain financial targets by June 30, 2025; and
(e)specified the minimum revenue amount, calculated on a trailing six-month basis beginning with the six month period ended June 30, 2023, and tested at the end of September 30, 2022,each calendar quarter, that the interest rate underCompany must achieve for each such.
On May 17, 2023 we entered into a Sixth Amendment to the 2019 Loan Agreement was 10.28%. The(the Sixth Amendment and the 2019 Loan Agreement providesas so amended, the Amended Loan Agreement), which among other things, increased the term loan available to $20,000,000 and fully funded the term loan, and specified the minimum revenue amount calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2023 and 2024, that we must achieve for interest only payments until January 1, 2023.each such period. We currently have no additional borrowing capacity, and the 2019 Loan Agreement generally prohibits any additional debt unless we obtain the prior consent of the lenders.
The Federal Reserve has raised interest rates seven times in 2022 and four times to date in 2023 and has indicated it may continue to do so to combat the effects of inflation and has announced that it expects to continue to do so in the future.inflation. An increase in LIBOR (or a successor interest rate)SOFR would increase our interest costs. For example, a 1.0% increaseSignificant increases in the interest rate under the 2019 Loan Agreement above the interest rate that applied to us as of September 30, 2022 (10.28%) would increase our interest expense by approximately $426,000 per year and reduce our liquidity and capital resources by that amount. A more significant increasecosts could materially and adversely affect our results of operations and our ability to pay amounts due under the 2019 Loan Agreement. The 2019 Loan Agreement, providesand any increase in the interest we pay would reduce our cash available for interest only payments through December 31, 2022, followed by 19 monthly payments of approximately $2.4 million in principal, plus interest, until the loan matures on July 1, 2024.working capital, acquisitions, and other uses.
Our operations and thus our net product revenues have continued to be adversely affected by the COVID-19 pandemic. During each of the six months ended September 30, 2021 and December 31, 2021, we did not generate sufficient revenue to meet the trailing six-month Revenue Covenant included in the 2019 Loan Agreement. For each such six-month period, the Lenders provided a consent that permitted us not to maintain the Revenue Covenant as of September 30, 2021 and December 31, 2021, respectively, and waived any event of default that
may have occurred or may have been deemed to have occurred. We were in
During 2022 and at June 30, 2023, we maintained compliance with the Revenue Covenant as of March 31, 2022 and September 30, 2022, and weour revenue covenant at each reportable date. We expect to comply with the Revenue Covenant at the next reportable date, which is September 30, 2022, and through one year after the filing date of this Quarterly Report on Form 10-Q, although we can give no assurances in that regard. However, due torevenue covenant for the remaining uncertainty surrounding the COVID-19 pandemic, it is possible that we will fail to comply with the Revenue Covenant.measurement dates in 2023. If we fail to comply with the Revenue Covenantrevenue covenant and the Lenderslenders do not provide a consent and waiver, acceleration of the maturity of the loan is one of the remedies available to the Lenders.lenders. If the Lenderslenders accelerate the maturity of the loan, we would be forced to find alternative financing or enter into an alternative agreement with the Lenders.lenders. We cannot be sure that alternative financing will be available when needed or that, if available, the alternative financing could be obtained on terms that are not significantly detrimental to us or our stockholders. See the risk factor related to the 2019 Loan Agreement in Part I, Item 1A of the 2021 Form 10-K.
Paycheck Protection Program Loan. On April 22, 2020, we received an approximately $1.8 million loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA, National Association (HSBC) as the lender. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven in its entirety, including interest, on April 16, 2021.
$20.0 million Capital Infusion from Ocumension Transaction
On April 14, 2021, we entered into a Share Purchase Agreement with Ocumension Therapeutics, pursuant to which we offered and sold to Ocumension 1,144,945 shares of our common stock, at a purchase price of $8.734044 per share.share, for aggregate gross proceeds of $10.0 million. The number of shares sold was equal to 19.9% of the number of shares of common stock outstanding immediately before the closing. The aggregate gross proceeds from the sale of the shares were $10.0 million. In addition, we received a nonrefundable upfront license payment of $10.0 million pursuant to the Ocumension License Agreement. For more information aboutUnder that agreement, we granted an exclusive license for the Ocumension transaction, see “Transactions with Ocumension Therapeutics” above, Notes 9development and 16commercialization of our 0.19 mg fluocinolone acetonide intravitreal implant in applicator under Ocumension’s own branded label in China, East Asia and the Interim Financial Statements,Western Pacific.
Series B Preferred Stock Financings
In March 2023, we issued and our Current Report on Form 8-K filed withsold an aggregate of 12,000 shares of Series B Convertible Preferred Stock at a per-share purchase price of $1,000 and warrants to purchase common stock for aggregate gross proceeds of $12.0 million. In May 2023, we issued and sold an aggregate of 67,000 shares of Series B Convertible Preferred Stock at a per-share purchase price of $1,000 and warrants to purchase common stock for aggregate gross proceeds of $67.0 million. On August 1, 2023, we amended the SEC on April 14, 2021.Certificate of Designation of Series B Convertible Preferred Stock to allow for the issuance of the Pre-Funded Warrants. See “—Recent Developments”.
Current Cash Position
As of SeptemberJune 30, 2022,2023, we had approximately $5.5$18.8 million in cash and cash equivalents, a decreasean increase of $11.0$13.5 million from the $16.5$5.3 million in cash and cash equivalents that we reported as of December 31, 2021 and a decrease of approximately $2.4 million from the $7.9 million in cash and cash equivalents that we reported as of June 30, 2022.
In April 2021, we received gross proceeds of $20.0 million in cash from the Ocumension transaction described above. As we have previously disclosed, we have used some of these proceedsour cash and cash equivalents to invest in targeted spending programs in both the U.S. and international markets to drive reengagement with physicians and accelerate our growth. While we believe many of these investments have proven to be successful, we also realize that continuing to spend at those levels in current market conditions is not sustainable. To conserve our cash, we are curtailing some of our spending to address the slower than expected revenue growth coming out of the pandemic, and we expect to continue to monitor our ongoing spending programs closely.
Amortization of principal on our 2019 Loan Agreement is currently scheduled to begin on January 1, 2023, with principal payments of approximately $2.4 million per month, plus interest. We are seeking to refinance this loan by December 31, 2022, before the amortization payments begin. The actual amount of funds that we will need will depend on many factors, some of which are beyond our control. The Company has begun discussions with its current lender to refinance the debt and will engage with other potential lenders if necessary to obtain a refinancing solution. We can provide no assurances regarding the terms or timing of any such refinancing if we are able to accomplish it.
We cannot be sure thatmay need to raise alternative or additional financing to fund our operations and support growth. For example, in March 2023, the Federal Deposit Insurance Corporation (FDIC) took control and was appointed receiver for a number of banks, including Silicon Valley Bank and Signature Bank, and in May 2023 JP Morgan acquired First Republic Bank as part of a controlled FDIC takeover. As of the date of this report, we do not have direct exposure to SVB or Signature, but we cannot predict the broader impact or follow-on effects of these insolvencies. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. The source, timing, and availability of any future financing will depend upon market conditions and other factors that may be outside of our control. Funding may not be available when needed, at all, or that, if it is available, we can obtain the additional financing on terms that are not significantly detrimental to us or our stockholders. acceptable us. If we were to raise additional funds by issuing equity securities, substantial dilution to existing stockholders could result, and the terms of any new equity securities may have a preference over our common stock. If we were to attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under them. If we were to attempt to raise additional funds through debt financing, we would be required to obtain the permission or participation of SLR, which we might not be able to obtain. OurBecause of these factors and the requirement to satisfy the Revenue Covenant and our history of recurring losses and any potential needs to raise capital create substantialnegative cash flow from operations, there may be doubt about our ability to continue as a going concern for the next 12 months followingwithin one year after the issuance of the Interim Financial StatementsStatements. However, we believe the current cash reserves and expected revenue from operations are sufficient to be included in this Quarterly Report on Form 10-Q.fund our operation for at least the next 12 months.
Sources and Uses of Cash for the ninesix months ended SeptemberJune 30, 20222023 compared to the ninesix months ended SeptemberJune 30, 20212022
For the ninesix months ended SeptemberJune 30, 2022,2023, net cash used in our operations was approximately $9.7$8.2 million. The cash used in our operations was impacted by our net loss of approximately $14.3$15.0 million, and ana net increase of approximately $960,000$2.9 million in accounts receivable.receivable, and a net decrease of $1.9 million in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the ninesix months ended SeptemberJune 30, 20222023 was offset by $2.0$2.5 million of non-cash depreciation and amortization, $850,000$1.1 million loss on the extinguishment of debt associated with the Sixth Amendment, an increase in long-term liabilities of $920,000, a decrease of $560,000 in inventory, $490,000 of non-cash interest expense associated with the amortization of our debt discount and deferred financing costs, and $440,000 of non-cash stock-based compensation expense.
For the six months ended June 30, 2022, net cash used in our operations was approximately $7.8 million. The cash used in our operations was impacted by our net loss of approximately $9.1 million, a net increase of $1.7 million in accounts receivable, and a net decrease of $1.1 million in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2022 was offset by $1.4 million of non-cash depreciation and amortization, a decrease of $940,000 in inventory, $580,000 of non-cash stock-based compensation expense, $550,000 of non-cash interest expense associated with the amortization of our debt discount and deferred financing costs, a decrease of $740,000$510,000 in inventory, $720,000 of non-cash stock-based compensation expense, a net increase of $680,000 in accounts payable, accruedprepaid expenses and other current liabilities,assets, and a $600,000 non-cash$330,000 decrease in fair value of our warrant asset and a decrease of $320,000 in prepaid expenses and other current assets.asset.
For the ninesix months ended SeptemberJune 30, 2021,2023, net cash provided byused in our operationsinvesting activities was approximately $1.5 million. The cash provided by our operations$75.4 million, which was impacted by our net lossprimarily due to the acquisition of approximately $270,000, $1.9 million of non-cash depreciation and amortization, a gain on extinguishment of debt of $1.8 million, $970,000 of non-cash consideration received as revenue, $760,000 of non-cash stock-based compensation expense, $720,000 of non-cash interest expense associated with the amortization of our debt discount and a $410,000 changeintangible assets in fair value of warrant asset. Further increasing cash from operations was a decrease of $760,000 in accounts receivable, a net increase of $720,000 in accounts payable, accrued expenses and other current liabilities and a decrease of $400,000 in inventory. These increases were offset by a decrease of $720,000 in long-term liabilities and an increase of $160,000 in prepaid expenses and other current assets.May 2023.
For the ninesix months ended SeptemberJune 30, 2022, net cash used in our investing activities was approximately $170,000, which was primarily due to purchases of furniture and equipment for our new office in Alpharetta, GA.$40,000.
For the ninesix months ended SeptemberJune 30, 2021,2023, net cash used inprovided by our investingfinancing activities was approximately $500,000,$97.1 million, which was primarily due to capital expenditures associatedthe $78.3 million gross proceeds from the closings of our Series B Preferred Stock financings, the $22.5 million received in connection with the transfer of manufacturing from our prior contract manufacturerFifth and Sixth Amendments to the facility at Cadence, Inc.2019 Loan Agreement, and $2.4 million received in connection with common stock issuances. The cash provided was partially offset by $4.1 million of debt issuance costs, the $940,000 repurchase of Series A Preferred Stock, $510,000 in preferred stock issuance costs, and the $310,000 repurchase of common stock.
For the ninesix months ended SeptemberJune 30, 2022, net cash used in our financing activities was approximately $110,000,$170,000, which was primarily due to payments of finance lease obligations.
For the nine months ended September 30, 2021, net cash provided by our financing activities was approximately $9.8 million, which was primarily due to $10.0 million of proceeds from the issuance of common stock, offset by $160,000 of payments of finance lease obligations and $80,000 in common stock issuance costs.
Contractual Obligations and Commitments
2019 Loan Agreement. The outstanding loan under the 2019 Loan Agreement (the SLR Loan) provides for interest only payments until January 1, 2023, followed by 19 monthly payments of approximately $2.4 million principal, plus interest, until the loan matures on July 1, 2024. We estimate that we will be obligated to pay to the Lenders $45.0 million in loan principal and approximately $5.4 million in interest through July 1, 2024 at the current rate of 9.43% per annum (which may be higher as noted above).
The NEW DAY Study. In January 2020, we began entering into agreements with contract research organizations (CROs) and physician clinics in connection with a multicenter, single masked, randomized and controlled trial designed to generate prospective data evaluating ILUVIEN as a baseline therapy in the treatment of DME and demonstrate its advantages over the current standard of care of repeat anti-VEGF injections (the NEW DAY Study). The NEW DAY Study is planned to enroll approximately 300 treatment-naïve, or almost naïve, DME patients in approximately 4240 sites around the U.S. For the three months ended SeptemberJune 30, 20222023 and 2021,2022, we incurred approximately $1.2$1.4 million and $920,000,$1.1 million, respectively, of expense associated with the NEW DAY Study. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, we incurred approximately $3.3$2.8 million and $2.9$2.1 million, respectively, of expense associated with the NEW DAY Study. In connection with the NEW DAY Study, we expect to incur additional expenses of approximately $1.9$4.2 million for the remainder of 2022, $5.6 million in 2023, and $1.3$2.1 million in 2024.
Manufacturing Services Agreement with Alliance. In February 2016, we and Alliance Medical Products Inc., a Siegfried Company (Alliance), a third-party manufacturer, amended and restated the parties’ existing agreement for the manufacture of the ILUVIEN implant, the assembly of the ILUVIEN applicator and the packaging of the completed ILUVIEN commercial product. Under the amended and restated Alliance agreement, its term was extended by five years, at which point the agreement became automatically renewable for successive one-year periods unless either party delivers notice of non-renewal to the other party at least 12 months before the end of the term or any renewal term. We are responsible for supplying the ILUVIEN applicator and the active pharmaceutical ingredient, and we must order at least 80% of the ILUVIEN units required in the U.S., Canada and the EEAcovered territories from Alliance.
Manufacturing Services Agreement with Cadence. On October 30, 2020, we entered into a Manufacturing Services Agreement (the Cadence Agreement) with Cadence, Inc., for the manufacture of certain component parts of the ILUVIEN applicator (the components) at its facility near Pittsburgh, Pennsylvania. Under the Cadence Agreement, we will pay certain per-unit prices based on regularly scheduled shipments of a minimum number of components. The initial term of the Cadence Agreement expires on October 30, 2025. After the expiration of the initial term, the Cadence Agreement will automatically renew for separate, but successive one-year terms unless either party provides written notice to the other party that it does not intend to renew the Cadence Agreement at least 24 months before the end of the term. The Cadence Agreement may be terminated by either party under certain circumstances. We have transferred the manufacturing of component parts of the ILUVIEN inserter to Cadence from our prior manufacturer and have spent cash resources to purchase new equipment, to update clean room facilities and to assist in the regulatory approval process. In connection with the Cadence Agreement, we expect to be invoiced approximately $650,000 in each2023.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of SEC Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
Impact of Recent Accounting Pronouncements
See Note 3 in the Interim Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.
Foreign Exchange
Our international operations are subject to certain opportunities and risks, including currency fluctuations and governmental actions. The impact of fluctuations in foreign currency exchange rates decreased our net product revenue for the three and ninesix months ended SeptemberJune 30, 20222023 by approximately $810,000 and $1.9 million, respectively.$440,000.
We expect foreign currency exchange rate fluctuations will have an unfavorable impact through the end of the year.
Non-GAAP Financial Measure
Adjustments in net product revenueWe are subject to exclude fluctuationsvariability of our reported U.S. dollar results due to changes in foreign currency exchange rates. Those changes have been volatile over the past several years. The adjustment of the effects of foreign currency exchange in our international segment as if foreign exchange rates result inhad remained constant with the prior periods, or what we refer to as adjusted net product revenue, is a non-GAAP financial measure as defined in Regulation G promulgated under the Securities Exchange Act of 1934, as amended. We report our financial results in compliance with GAAP but believe that adjusting our net product revenue to exclude fluctuations in foreign currency exchange rates provides useful informationallows management to investors regardingbetter understand our operating performance.ongoing operations and analyze our financial performance from period to period. We usealso believe this non-GAAP financial measure inprovides additional information to investors that enables enhanced comparison to prior periods and additional insight into the managementunderlying performance of our business.business outside of the U.S. Net product revenue for the three and ninesix months ended SeptemberJune 30, 20222023 has been adjusted in certain instances in this report to exclude the impact of fluctuations in foreign currency exchange rates in the comparisons to GAAP net product revenue for the three and ninesix months ended SeptemberJune 30, 2021.2022. See the table below entitled “Reconciliation of GAAP Net Product Revenue to Non-GAAP Adjusted Net Product Revenue.” GAAP net product revenue is the most directly comparable GAAP financial measure to adjusted net product revenue.
This non-GAAP financial measure, as presented, may not be comparable to a similarly titled measure reported by other companies, including companies in our industry, because not all companies adjust revenue for currency fluctuations in an identical manner.manner or may use other financial measures to evaluate their performance. Therefore, this non-GAAP financial measure is not necessarily an accurate measure ofmay be limited in its usefulness for comparison between companies.
The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for guidanceother financial performance measures prepared in accordance with GAAP.GAAP and should be read only in conjunction with financial information presented on a GAAP basis. The principal limitation of this non-GAAP financial measure is that it excludes significant elements required by GAAP to be recorded in Alimera’sour financial statements. In addition, this non-GAAP financial measure is subject to inherent limitations because it reflects the exercise of judgment by management in determining it.management.
RECONCILIATION OF GAAP NET PRODUCT REVENUE TO NON-GAAP ADJUSTED NET PRODUCT REVENUE
Amounts presented for the three and six-month periods ended June 30, 2022 are our
reported amounts we prepared in accordance with GAAP
Amounts presented for the 2021 periods are our reported amounts we prepared in accordance with GAAP | Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
(unaudited) | (In thousands) | |||||||||||||||||||||||||
GAAP NET PRODUCT REVENUE | $ | 13,598 | $ | 12,153 | $ | 40,100 | $ | 34,022 | $ | 17,538 | $ | 14,604 | $ | 31,084 | $ | 26,502 | ||||||||||
Adjustment to net product revenue: | ||||||||||||||||||||||||||
Foreign currency fluctuations, net | 809 | — | 1,894 | — | 136 | — | (137) | — | ||||||||||||||||||
NON-GAAP ADJUSTED NET PRODUCT REVENUE | $ | 14,407 | $ | 12,153 | $ | 41,994 | $ | 34,022 | $ | 17,674 | $ | 14,604 | $ | 30,947 | $ | 26,502 | ||||||||||
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
NotBecause we are allowed to comply with the disclosure obligations applicable to a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this Quarterly Report on Form 10-Q, we are not required for smaller reporting companies.to provide the information required by this Item.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2022.2023.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended SeptemberJune 30, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, we may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. We currently are not a party to any threatened or pending material pending legal proceedings,litigation and managementdo not have contingency reserves established for any litigation liabilities. However, third parties might allege that we are infringing their patent rights or that we are otherwise violating their intellectual property rights, including trade names and trademarks. Such third parties may resort to litigation. We accrue contingent liabilities when it is not aware of any contemplated proceedings by any governmental authority against us.probable that future expenditures will be made and such expenditures can be reasonably estimated.
ITEM 1A. Risk Factors
In the 20212022 Form 10-K, we identify under Item 1A of Part I important factors that could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors since the filing of the 2021 Form 10-K. However, the risks described in the 20212022 Form 10-K are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations. There have been no material changes in our risk factors since the filing of the 2022 Form 10-K, other than the addition of the text below.
Failure to integrate YUTIQ or any business, product or technology we may acquire in the future, will cause our business, financial condition and operating results to suffer.
Integrating any business, product or technology, including YUTIQ, we acquire is expensive and time-consuming and can disrupt and adversely affect our ongoing business, including product sales, and distract our management. Our ability to successfully integrate any business, product or technology we acquire depends on a number of factors, including, but not limited to, our ability to:
minimize the disruption and distraction of our management and other employees in connection with the integration of any acquired business, product or technology;
maintain and increase sales of our existing products;
establish or manage the transition of the manufacture and supply of any acquired product, including the necessary active pharmaceutical ingredients, excipients and components;
identify and add the necessary sales, marketing, manufacturing, regulatory and other related personnel, capabilities and infrastructure that are required to successfully integrate any acquired business, product or technology;
manage the transition and migration of all commercial, financial, legal, clinical, regulatory and other pertinent information relating to any acquired business, product or technology;
comply with legal, regulatory and contractual requirements applicable to any acquired business, product or technology;
obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third-party payors with respect to any acquired product; and
maintain and extend intellectual property protection for any acquired product or technology.
If we are unable to perform the above functions or otherwise effectively integrate YUTIQ or any businesses, products or technologies we may acquire in the future, our business, financial condition and operating results will suffer.
In addition, we may not to achieve the expected financial performance or synergies from businesses, products or technologies we acquire, including YUTIQ or may experience unexpected delays, challenges and expenses, and unexpected costs associated with integrating and operating the acquired business, product or technology.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
On August 8, 2023, the Compensation Committee of our Board of Directors approved a one-time special cash bonus in the amount of £61,000 and $75,000, respectively, for Philip Ashman, Ph.D., our Chief Operating Officer and Senior Vice President Commercial Operations Europe, and David Holland, our Chief Marketing Officer, Senior Vice President Corporate Communications and Managed Markets. The special bonuses are payable in a lump sum and were awarded in recognition of their leadership and significant contributions to the Company, including in connection with our acquisition of the YUTIQ commercialization rights and the improvement of our capital structure and balance sheet through our recent equity and debt financings. These special bonuses are separate from any annual cash bonuses that may be awarded for the year ended December 31, 2023.
ITEM 6. ExhibitsIT
EM 6. EXHIBITS
Exhibit Number | Description | |
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3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
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10.2 | ||
10.3* | ||
10.4* | ||
10.5* | ||
31.1* | ||
31.2* | ||
32.1* | * | |
101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended | |
104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101). |
*Filed herewith.herewith
**Furnished herewith
***Certain confidential information contained in this agreement has been omitted because it is (i) not material and (ii) something the company actually treats as confidential.
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALIMERA SCIENCES, INC. | ||
| By: | /s/ Richard S. Eiswirth, Jr. |
Richard S. Eiswirth, Jr. | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
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