UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 20162017

Commission File Number 1-32302

 

ANTARES PHARMA, INC.

 

 

A Delaware Corporation

 

IRS Employer Identification No. 41-1350192

100 Princeton South, Suite 300

Ewing, New Jersey 08628

(609) 359-3020

 

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

 

 

 

Non–accelerated filer

 

o  (do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Emerging growth company

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.      

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

The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of August 5, 20161, 2017 was 155,058,159156,407,319.

 

 

 

 


 

ANTARES PHARMA, INC.

INDEX

 

 

 

 

 

 

 

PAGE

 

 

 

 

 

 

 

PART I.

 

 

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets, as of June 30, 20162017 (Unaudited) and December 31, 20152016

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 20162017 and 20152016

 

4

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 30, 20162017 and 20152016

 

5

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 20162017 and 20152016

 

6

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

1314

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

2324

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

2324

 

 

 

 

 

 

 

PART II.

 

 

 

OTHER INFORMATION

 

2425

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

2425

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

2425

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

 

 

 

 

 

 

 

 

Item 3.

 

Default Upon Senior Securities

 

25

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

25

 

 

 

 

 

 

 

 

 

Item 5.

Other Information

25

Item 6.

 

Exhibits

 

2526

 

 

 

 

 

 

 

 

 

 

 

SIGNATURES

 

2627

 

 

 


PART I – FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

ANTARES PHARMA, INC.

CONSOLIDATED BALANCE SHEETS

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

(Unaudited)

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

27,559,208

 

 

$

32,898,676

 

Cash and cash equivalents

 

$

33,418,393

 

 

$

27,714,588

 

Short-term investments

 

 

9,004,427

 

 

 

15,012,225

 

 

 

9,960,479

 

 

 

 

Accounts receivable

 

 

10,295,347

 

 

 

7,952,478

 

 

 

9,067,689

 

 

 

9,073,173

 

Inventories

 

 

7,458,933

 

 

 

5,724,397

 

 

 

7,845,547

 

 

 

5,326,962

 

Deferred costs

 

 

2,141,280

 

 

 

1,199,217

 

 

 

893,619

 

 

 

1,773,446

 

Prepaid expenses and other current assets

 

 

2,716,391

 

 

 

3,274,254

 

 

 

1,690,036

 

 

 

1,376,299

 

Total current assets

 

 

59,175,586

 

 

 

66,061,247

 

 

 

62,875,763

 

 

 

45,264,468

 

Equipment, molds, furniture and fixtures, net

 

 

17,356,620

 

 

 

14,793,084

 

 

 

17,550,876

 

 

 

17,867,412

 

Patent rights, net

 

 

2,224,881

 

 

 

2,434,542

 

 

 

1,766,830

 

 

 

2,044,608

 

Goodwill

 

 

1,095,355

 

 

 

1,095,355

 

 

 

1,095,355

 

 

 

1,095,355

 

Other assets

 

 

153,762

 

 

 

177,943

 

 

 

53,847

 

 

 

53,607

 

Total Assets

 

$

80,006,204

 

 

$

84,562,171

 

 

$

83,342,671

 

 

$

66,325,450

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,825,215

 

 

$

5,187,703

 

 

$

8,478,038

 

 

$

7,884,983

 

Accrued expenses and other liabilities

 

 

6,958,452

 

 

 

6,488,032

 

 

 

6,172,077

 

 

 

5,872,846

 

Deferred revenue

 

 

6,494,770

 

 

 

5,143,825

 

 

 

3,483,297

 

 

 

6,149,087

 

Total current liabilities

 

 

24,278,437

 

 

 

16,819,560

 

 

 

18,133,412

 

 

 

19,906,916

 

Long-term debt

 

 

24,724,304

 

 

 

 

Deferred revenue – long term

 

 

1,200,000

 

 

 

700,000

 

 

 

200,000

 

 

 

1,200,000

 

Total liabilities

 

 

25,478,437

 

 

 

17,519,560

 

 

 

43,057,716

 

 

 

21,106,916

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock: $0.01 par, authorized 3,000,000 shares, none outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock: $0.01 par; 300,000,000 shares authorized; 155,058,159 and

154,848,512 issued and outstanding at June 30, 2016 and

December 31, 2015, respectively

 

 

1,550,582

 

 

 

1,548,485

 

Common Stock: $0.01 par; 300,000,000 shares authorized; 156,332,319 and

155,167,677 issued and outstanding at June 30, 2017 and

December 31, 2016, respectively

 

 

1,563,323

 

 

 

1,551,677

 

Additional paid-in capital

 

 

296,503,498

 

 

 

295,292,414

 

 

 

300,537,059

 

 

 

297,826,433

 

Accumulated deficit

 

 

(242,824,075

)

 

 

(229,106,502

)

 

 

(261,118,353

)

 

 

(253,445,306

)

Accumulated other comprehensive loss

 

 

(702,238

)

 

 

(691,786

)

 

 

(697,074

)

 

 

(714,270

)

 

 

54,527,767

 

 

 

67,042,611

 

 

 

40,284,955

 

 

 

45,218,534

 

Total Liabilities and Stockholders’ Equity

 

$

80,006,204

 

 

$

84,562,171

 

 

$

83,342,671

 

 

$

66,325,450

 

 

See accompanying notes to consolidated financial statements.

 

 


ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

8,690,002

 

 

$

5,840,034

 

 

$

19,531,049

 

 

$

10,463,164

 

 

$

7,344,413

 

 

$

8,690,002

 

 

$

17,381,225

 

 

$

19,531,049

 

Development revenue

 

 

3,267,397

 

 

 

3,027,445

 

 

 

4,365,771

 

 

 

5,415,848

 

 

 

4,787,672

 

 

 

3,267,397

 

 

 

6,409,549

 

 

 

4,365,771

 

Licensing revenue

 

 

38,721

 

 

 

5,186,372

 

 

 

89,422

 

 

 

6,069,381

 

 

 

1,019,040

 

 

 

38,721

 

 

 

1,037,718

 

 

 

89,422

 

Royalties

 

 

232,270

 

 

 

366,540

 

 

 

560,920

 

 

 

820,035

 

 

 

265,034

 

 

 

232,270

 

 

 

595,126

 

 

 

560,920

 

Total revenue

 

 

12,228,390

 

 

 

14,420,391

 

 

 

24,547,162

 

 

 

22,768,428

 

 

 

13,416,159

 

 

 

12,228,390

 

 

 

25,423,618

 

 

 

24,547,162

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

5,216,527

 

 

 

2,540,178

 

 

 

11,464,083

 

 

 

4,497,751

 

 

 

3,633,218

 

 

 

5,216,527

 

 

 

9,081,509

 

 

 

11,464,083

 

Cost of development revenue

 

 

2,101,571

 

 

 

2,167,916

 

 

 

2,629,756

 

 

 

3,885,072

 

 

 

1,983,171

 

 

 

2,101,571

 

 

 

2,754,646

 

 

 

2,629,756

 

Total cost of revenue

 

 

7,318,098

 

 

 

4,708,094

 

 

 

14,093,839

 

 

 

8,382,823

 

 

 

5,616,389

 

 

 

7,318,098

 

 

 

11,836,155

 

 

 

14,093,839

 

Gross profit

 

 

4,910,292

 

 

 

9,712,297

 

 

 

10,453,323

 

 

 

14,385,605

 

 

 

7,799,770

 

 

 

4,910,292

 

 

 

13,587,463

 

 

 

10,453,323

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,948,020

 

 

 

4,568,732

 

 

 

9,596,049

 

 

 

8,946,713

 

 

 

3,159,363

 

 

 

3,948,020

 

 

 

6,245,644

 

 

 

9,596,049

 

Selling, general and administrative

 

 

7,014,520

 

 

 

6,605,030

 

 

 

14,617,698

 

 

 

13,642,320

 

 

 

7,360,010

 

 

 

7,014,520

 

 

 

14,827,265

 

 

 

14,617,698

 

Total operating expenses

 

 

10,962,540

 

 

 

11,173,762

 

 

 

24,213,747

 

 

 

22,589,033

 

 

 

10,519,373

 

 

 

10,962,540

 

 

 

21,072,909

 

 

 

24,213,747

 

Operating loss

 

 

(6,052,248

)

 

 

(1,461,465

)

 

 

(13,760,424

)

 

 

(8,203,428

)

 

 

(2,719,603

)

 

 

(6,052,248

)

 

 

(7,485,446

)

 

 

(13,760,424

)

Other income (expense)

 

 

(9,215

)

 

 

(45,181

)

 

 

42,851

 

 

 

(90,892

)

 

 

(120,341

)

 

 

(9,215

)

 

 

(90,415

)

 

 

42,851

 

Net loss

 

$

(6,061,463

)

 

$

(1,506,646

)

 

$

(13,717,573

)

 

$

(8,294,320

)

 

$

(2,839,944

)

 

$

(6,061,463

)

 

$

(7,575,861

)

 

$

(13,717,573

)

Basic and diluted net loss per common share

 

$

(0.04

)

 

$

(0.01

)

 

$

(0.09

)

 

$

(0.06

)

 

$

(0.02

)

 

$

(0.04

)

 

$

(0.05

)

 

$

(0.09

)

Basic and diluted weighted average common shares outstanding

 

 

154,936,096

 

 

 

144,650,269

 

 

 

154,897,089

 

 

 

138,233,155

 

 

 

155,926,149

 

 

 

154,936,096

 

 

 

155,572,562

 

 

 

154,897,089

 

 

See accompanying notes to consolidated financial statements.

 

 


ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(6,061,463

)

 

$

(1,506,646

)

 

$

(13,717,573

)

 

$

(8,294,320

)

 

$

(2,839,944

)

 

$

(6,061,463

)

 

$

(7,575,861

)

 

$

(13,717,573

)

Foreign currency translation adjustment

 

 

(5,755

)

 

 

16,145

 

 

 

(10,452

)

 

 

28,209

 

 

 

12,855

 

 

 

(5,755

)

 

 

17,196

 

 

 

(10,452

)

Comprehensive loss

 

$

(6,067,218

)

 

$

(1,490,501

)

 

$

(13,728,025

)

 

$

(8,266,111

)

 

$

(2,827,089

)

 

$

(6,067,218

)

 

$

(7,558,665

)

 

$

(13,728,025

)

 

See accompanying notes to consolidated financial statements.

 

 


ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Six Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,717,573

)

 

$

(8,294,320

)

 

$

(7,575,861

)

 

$

(13,717,573

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,277,277

 

 

 

1,650,918

 

 

 

1,283,592

 

 

 

1,277,277

 

Depreciation and amortization

 

 

891,388

 

 

 

768,931

 

 

 

971,489

 

 

 

891,388

 

Loss on disposal of equipment

 

 

17,785

 

 

 

167,097

 

 

 

 

 

 

17,785

 

Amortization of premiums and discounts

 

 

7,798

 

 

 

3,824

 

Write-off of capitalized patent costs

 

 

45,600

 

 

 

 

Accretion of interest expense

 

 

13,980

 

 

 

 

Amortization of debt issuance costs

 

 

3,863

 

 

 

 

Amortization of premiums and discounts on investment securities

 

 

(133

)

 

 

7,798

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,358,302

)

 

 

(2,932,698

)

 

 

9,663

 

 

 

(2,358,302

)

Inventories

 

 

(1,734,536

)

 

 

394,356

 

 

 

(2,518,585

)

 

 

(1,734,536

)

Prepaid expenses and other assets

 

 

582,241

 

 

 

(508,362

)

 

 

(309,507

)

 

 

582,241

 

Deferred costs

 

 

(942,063

)

 

 

969,988

 

 

 

879,827

 

 

 

(942,063

)

Accounts payable

 

 

5,073,875

 

 

 

(4,052,526

)

 

 

721,038

 

 

 

5,073,875

 

Accrued expenses and other current liabilities

 

 

369,693

 

 

 

76,220

 

 

 

48,877

 

 

 

369,693

 

Deferred revenue

 

 

1,849,291

 

 

 

(8,106,486

)

 

 

(3,668,284

)

 

 

1,849,291

 

Net cash used in operating activities

 

 

(8,683,126

)

 

 

(19,863,058

)

 

 

(10,094,441

)

 

 

(8,683,126

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of investment securities

 

 

(9,963,978

)

 

 

 

Purchases of equipment, molds, furniture and fixtures

 

 

(2,555,174

)

 

 

(4,091,319

)

 

 

(529,239

)

 

 

(2,555,174

)

Additions to patent rights

 

 

(39,019

)

 

 

(960,260

)

 

 

(56,970

)

 

 

(39,019

)

Proceeds from maturities of investment securities

 

 

6,000,000

 

 

 

6,000,000

 

 

 

 

 

 

6,000,000

 

Purchases of investment securities

 

 

 

 

 

(15,037,675

)

Net cash provided by (used in) investing activities

 

 

3,405,807

 

 

 

(14,089,254

)

 

 

(10,550,187

)

 

 

3,405,807

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

 

 

 

43,115,000

 

Proceeds from issuance of long-term debt

 

 

25,000,000

 

 

 

 

Payment of debt issuance costs

 

 

(241,431

)

 

 

 

Proceeds from exercise of stock options

 

 

1,590,204

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(64,096

)

 

 

(67,924

)

 

 

 

 

 

(64,096

)

Net cash provided by (used in) financing activities

 

 

(64,096

)

 

 

43,047,076

 

 

 

26,348,773

 

 

 

(64,096

)

Effect of exchange rate changes on cash

 

 

1,947

 

 

 

982

 

 

 

(340

)

 

 

1,947

 

Net increase (decrease) in cash

 

 

(5,339,468

)

 

 

9,095,746

 

 

 

5,703,805

 

 

 

(5,339,468

)

Cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

32,898,676

 

 

 

34,028,889

 

 

 

27,714,588

 

 

 

32,898,676

 

End of period

 

$

27,559,208

 

 

$

43,124,635

 

 

$

33,418,393

 

 

$

27,559,208

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of equipment, molds, furniture and fixtures recorded in accounts payable

and accrued expenses

 

$

1,293,346

 

 

$

423,360

 

 

$

271,959

 

 

$

1,293,346

 

Additions to patent rights recorded in accounts payable and accrued expenses

 

$

32,586

 

 

$

47,287

 

 

$

18,313

 

 

$

32,586

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses incurred in connection with issuance of common stock recorded in accounts

payable and accrued expenses

 

$

 

 

$

323,087

 

Tax witholding on net settled equity awards included in accrued liabilities

 

$

248,709

 

 

$

 

Debt issuance costs included in accounts payable and accrued expenses

 

$

52,108

 

 

$

 

 

See accompanying notes to consolidated financial statements.

 

 

 


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1.

Description of Business

Antares Pharma, Inc. (“Antares” or the “Company”) is an emerging, specialty pharmaceutical company focusingfocused on the development and commercialization of self-administered parenteral pharmaceutical products and technologies.  The Company has multiple internal product development programs as well as numerous partnership arrangementsdevelops and manufactures, for itself or with several industry leading pharmaceutical companies.partners, novel therapeutic products using its advanced drug delivery technology to enhance the existing drug compounds and delivery methods. The subcutaneous injection technology platforms include the VIBEX® pressure-assisted auto injector system suitable for branded and generic injectable drugs in unit dose containers, reusable needle-free spring-action injector devices, and disposable multi-dose pen injectors for use with standard cartridges. The Company has a portfolio of proprietary and partnered products, including approved commercial products and several product candidates in advanced stages of development and under active review by the U.S. Food and Drug Administration (“FDA”).  The Company has formed significant strategic alliances with Teva Pharmaceutical Industries, Ltd. (“Teva”), AMAG Pharmaceuticals, Inc. (“AMAG”), Ferring Pharmaceuticals Inc. and Ferring B.V. (together “Ferring”), JCR Pharmaceuticals Co., Ltd. (“JCR”) and AMAG Pharmaceuticals, Inc. (“AMAG”).  Through these relationships, the Company develops and applies its drug delivery systems in collaborations with the pharmaceutical partners to enhance the partners' drug compounds and delivery methods.

The Company developsmarkets and manufactures, for itself and withsells its partners, novel, pressure-assisted injector devices, with and without needles,proprietary product OTREXUP® (methotrexate) injection in the U.S., which allow patients to self-inject drugs. It makes a reusable, needle-free spring action injection device which is marketed through its partners for use with human growth hormone (hGH).  The Company has also developed variations of the needle-free injector by adding a small shielded needle to a pre-filled, single-use disposable injector, called the VIBEXwas launched in February 2014.  OTREXUP® pressure assisted auto injection system. This system is an alternative to the needle-free system for use with injectable drugs in unit dose containers and is suitable for branded and generic injectables.  Additionally, the Company developed a disposable multi-dose pen injector for use with standard cartridges, and has a portfolio of gel-based products which are commercialized through various partners.

In February 2014, the Company launched its product OTREXUP™ (methotrexate) injection, which is the first subcutaneous methotrexate for once weekly self-administration with an easy-to-use, single dose, disposable auto injector approved by the U.S. Food and Drug Administration (“FDA”).  OTREXUP™FDA.  OTREXUP® is indicated for adults with severe active rheumatoid arthritis (“RA”), children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis.  

The Company, with its commercialization partner Teva, launched Sumatriptan Injection USP, indicated in the U.S. for the acute treatment of migraine and cluster headache in adults, in June 2016.  In December 2015, the Company received FDA approval for an Abbreviated New Drug Application (ANDA)(“ANDA”) for 4 mg/0.5 mL and 6 mg/0.5 mL single-dose prefilled syringe auto-injectors, a generic equivalent to Imitrex® STATdose Pen®.  Sumatriptan Injection USP in adults for the acute treatment of migraine and cluster headache. Sumatriptan Injection USP isrepresents the Company’s first ANDA approval of a complex generic and second product approved using the VIBEX® auto injector platform.  The Company previously entered into a license, supply and development agreement with Teva pursuant to which Teva is responsible for the commercialization of the sumatriptan product, and in June 2016, the Company and Teva announced the launch of the generic equivalent to Imitrex® (sumatriptan succinate) injection, 4mg and 6 mg single-dose prefilled syringe auto-injectors in the United States.

Antares also has a pipeline of proprietary and partnered products at various stages of development.  The Company is currently conducting clinical studies of VIBEXdeveloping XYOSTED®TM QuickShot® Testosterone,(testosterone enanthate) injection for testosterone replacement therapy, and submitted a 505 (b) (2) New Drug Application (“NDA”) to the FDA in December 2016. The NDA submission was accepted for standard review by the FDA and assigned a Prescription Drug User Fee Act (“PDUFA”) target date for completion of its review by October 20, 2017. The Company also has initiated manufacturingmultiple ongoing product development for a combination product for an undisclosed central nervous system indication.programs with its partners Teva and AMAG.

 

 

2.

Basis of Presentation and Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission's Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.  Operating results for the three and six months ended June 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.2017.

Investments

AllThe primary objectives of the Company’s investment policy are to protect principal, maintain adequate liquidity and maximize returns.  The Company’s investments areconsist of U.S. Treasury bills or U.S. Treasuryand government agency notes that are classified as held-to-maturity because of the Company’s positiveCompany has the intent and ability to hold the securities to maturity. Investments with maturities of one year or less are classified as short-term.  The securities are carried at their amortized cost and the fair value of all securities is determined by quoted market prices.  At June 30, 2016 and December 31, 2015,2017, the Company’s investments had a carrying value of $9,004,427 and $15,012,225, respectively.$9,960,479, which approximated fair value. The fair value of the Company’sCompany held no investments approximated their carrying value as of June 30, 2016 and December 31, 2015.2016.   


Inventories

Inventories

Inventories are stated at the lower of cost or market.net realizable value. Cost is determined on a first-in, first-out basis. Certain components of the Company’s products are provided by a limited number of vendors, and the Company’s production, assembly, warehousing and distribution operations are outsourced to third-parties where substantially all of the Company’s inventory is located.  Disruption of supply from key vendors or third-party suppliers may have a material adverse impact on the Company’s


operations.  The Company provides a reserve for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales, which was $725,000$750,000 and $800,000$900,000 at June 30, 20162017 and December 31, 2015,2016, respectively.  Inventories consist of the following:

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

Inventories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw material

 

$

144,123

 

 

$

305,149

 

 

$

85,344

 

 

$

142,491

 

Work in process

 

 

3,606,070

 

 

 

1,539,319

 

 

 

5,656,453

 

 

 

2,429,075

 

Finished goods

 

 

3,708,740

 

 

 

3,879,929

 

 

 

2,103,750

 

 

 

2,755,396

 

 

$

7,458,933

 

 

$

5,724,397

 

 

$

7,845,547

 

 

$

5,326,962

 

 

OTREXUPTM® Revenue Recognition

In February 2014, theThe Company began detailing OTREXUP™OTREXUP® to health care professionals in the U.S. and began shippingFebruary 2014. OTREXUP® is sold in packages of four pre-filled, single-dose disposable auto injectors to wholesale pharmaceutical distributors, its customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration.  Given

Prior to the limited sales historyfirst quarter of OTREXUP™,2017, the Company currently cannotcould not reliably estimate expected returns of the productOTREXUP® at the time of shipment.shipment given its limited sales history of the product. Accordingly, the recognition of revenue iswas deferred on product shipments of OTREXUP™ until the rightrights of return no longer exists,existed, which occursoccurred at the earlier of the time OTREXUP™OTREXUP® units arewere dispensed through patient prescriptions or expiration of the right of return. Units dispensed are generally not subject to return except inof the rare cases where the product malfunctions or the product is damaged in transit.product. Patient prescriptions dispensed arewere estimated using third-party market prescription data.  These third-party sources poll pharmacies, hospitals, mail order and other retail outlets for OTREXUP™ prescriptions and project this sample on a national level. The Company uses this third party prescription data, among other information, as a basis for revenue recognition in each reporting period.  If patient prescriptions dispensed for a given period are underestimated or overestimated, adjustments to revenue may be necessary in future periods.

The Company will continue to recognize revenue uponIn the earlier to occurfirst quarter of prescription units dispensed or expiration of the right of return until it can reliably estimate product returns, at which time2017, the Company will record a one-time increase indetermined it had developed sufficient historical information to reasonably estimate future returns of OTREXUP® and began recognizing revenue, net revenue relatedof estimated returns, upon delivery to the recognition of revenue previously deferred. In addition, the costs of manufacturing OTREXUP™ associated with the deferred revenue are recorded as deferred costs, which are included in inventory, until such time as the related deferred revenue is recognized.

distributors. The Company recognized $3,810,291 and $7,120,065$8,487,163 in OTREXUP™ product sales revenue for OTREXUP® for the three and six months ended June 30, 2016, respectively,2017, which included $1,297,054 for product shipped to distributors in previous periods but not recognized as compared to $3,346,094 and $6,350,403 forrevenue at the three andtime of shipment, net of the returns allowance established in the first quarter of 2017. The Company also recognized $254,425 of related product costs in the six months ended June 30, 2015, respectively, which 2017 that had been previously deferred.  The net impact of these changes resulted in a decrease in net loss of $1,042,629, less than $0.01 per share, for the six months ended June 30, 2017.

Product sales revenue for OTREXUP® is presented net of estimated returns and product sales allowances for estimated wholesaler discounts, prompt pay discounts, chargebacks, rebates and patient discount programs. The Company had deferred revenue balancesestimated product returns reserve was $630,000 as of $982,017 and $1,064,874 at June 30, 20162017 and zero at December 31, 2015, respectively, for OTREXUP™ product shipments, which is net of product2016.  Product sales allowances discussed below.were $2,081,476 as of June 30, 2017 and $1,540,488 as of December 31, 2016.

Product Sales Allowances

The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with customers and third-party payors and the levels of inventory within the distribution channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, it may be necessary to adjust these estimates, which could have an effect on product revenue in the period of adjustment. Product sales allowances include:

Wholesaler Distribution Fees. Distribution fees are paid to certain wholesale distributors based on contractually determined rates. The Company accrues the fee on shipment to the respective wholesale distributors and recognizes the fee as a reduction of revenue in the same period the related revenue is recognized.


Prompt Pay Discounts. The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Chargebacks. The Company provides discounts to authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid contracts and regulations. These entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current wholesale acquisition cost and the price the entity paid for the product. The Company estimates and accrues chargebacks based on


estimated wholesaler inventory levels, current contract prices and historical chargeback activity. Chargebacks are recognized as a reduction of revenue in the same period the related revenue is recognized.

Rebates. The Company participates in certain rebate programs, which provide discounted prescriptions to qualified insured patients.  Under these rebate programs, the Company will pay a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. The Company estimates and accrues for these rebates based on current contract prices, historical and estimated percentages of product sold to qualified patients.  Rebates are recognized as a reduction of revenue in the same period the related revenue is recognized.

Patient Discount Programs. The Company offers discount card programs to patients for OTREXUP™OTREXUP® in which patients receive discounts on their prescriptions that are reimbursed by the Company. The Company estimates the total amount that will be redeemed based on historical redemption experience and on estimated levels of inventory in the distribution and retail channels and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Revenue Recognition – Sumatriptan

Under a license, supply and distribution agreement with Teva for an auto-injector product containing sumatriptan, the Company produces devices and assembles final product for shipment to Teva, and Teva is responsible for commercial distribution of the product.  The Company is compensated, and recognizes revenue, at cost for shipments of product delivered to Teva.  The Company is also entitled to receive 50 percent of the future net profits from commercial sales made by Teva.  Revenues from the profit sharing arrangement will be recognized in future periods when amounts are fixed and determinable and are payable to the Company within 45 days after the end of each fiscal quarter in which commercial sales are made.

 

3.

Stockholders’ EquityLong-Term Debt

On June 6, 2017, the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc., for a term loan of up to $35,000,000 (the “Term Loan”), the proceeds of which are to be used for working capital and general corporate purposes. The Company’s Boardfirst advance of Directors unanimously approved, and recommended$25,000,000 was funded upon execution of the Loan Agreement on June 6, 2017. Under the terms of the Loan Agreement, the Company may, but is not obligated to, request one or more additional advances of at least $5,000,000 not to exceed $10,000,000 in the aggregate, subject to the stockholdersCompany achieving certain corporate milestones and satisfying customary conditions. The Company must exercise its option to approverequest additional advances prior to September 30, 2018.

The Term Loan is secured by substantially all of the Company’s assets, excluding intellectual property, and adopt, an amendmentwill mature on July 1, 2022. The Term Loan accrues interest at a calculated prime-based variable rate with a maximum interest rate of 9.50%. As of June 30, 2017, the interest rate was 8.75%. Payments under the Loan Agreement are interest only until the first principal payment is due on August 1, 2019, provided that the interest only period may be extended to February 1, 2020 if the Company achieves certain corporate milestones. The Loan Agreement also requires the Company to pay a fee equal to 4.25% of the total original principal amount of all term loan advances (“End of Term Charge”), which is due upon repayment of the Term Loan at either maturity or earlier repayment, and imposes a prepayment fee of 1.0% to 3.0% if any or all of the balance is prepaid prior to the Company’s Certificatematurity date.

As of Incorporation to increaseJune 30, 2017, the number of authorized shares of capital stockcarrying value of the Company from 203,000,000 to 303,000,000 in order to increase the number of authorized shares of common stock, par value $0.01 per share,Term Loan was $24,724,304, which consisted of the $25,000,000 principal balance outstanding and the End of Term Charge accrual of $13,980, less unamortized debt issuance costs of $289,676.  The Company from 200,000,000 sharesincurred debt issuance costs that, along with the End of Term Charge, are being amortized/accrued to 300,000,000 shares.  The amendment was approved and adopted by a voteinterest expense over the term of the stockholders atTerm Loan using the Company’s Annual Meetingeffective interest method.

Future principal payments under the term loan, including the End of Stockholders heldTerm Charge, are as follows:

 

 

June 30,

 

 

 

2017

 

2017

 

$

 

2018

 

 

 

2019

 

 

3,086,729

 

2020

 

 

7,883,810

 

2021

 

 

8,595,931

 

Thereafter

 

 

6,496,030

 

 

 

$

26,062,500

 

The Company believes that the carrying value of the Term Loan approximates its fair value based on June 2, 2016.

the borrowing rates currently available for loans with similar terms.  

 

4.

Share-Based Compensation

The Company’s 2008 Equity Compensation Plan (the “Plan”) was amended and restated pursuant to stockholder approval on June 2, 2016 in order to increase the number of shares available for issuance under the Plan, extend the term of the Plan, impose a one-year minimum vesting requirement and provide for double trigger vesting for certain awards in the event of a change in control.  The Plan allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards.  All of the Company’s officers, directors, employees, consultants and advisors are eligible to receive grants under the Plan.  The maximum number of shares authorized for issuance under the amended and restated Plan is 32,200,000 and the maximum number of shares of stock that may be granted to any one employee for qualified performance-based compensation during a calendar year


is 4,000,000 shares.  Options to purchase shares of common stock are granted at exercise prices not less than 100% of fair market value on the dates of grant.  The term of each option is ten years and the options typically vest in quarterly installments over a three-year period with a minimum vesting period of one year.  As of June 30, 20162017, the Plan had approximately 8,000,0006,500,000 shares available for grant. Stock option exercises are satisfied through the issuance of new shares.


Stock Options

The following is a summary of stock option activity under the Plan as of and for the six months ended June 30, 2016:2017:   

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Shares

 

 

Price ($)

 

 

Term (Years)

 

 

Value ($)

 

 

Shares

 

 

Price

 

 

Term (Years)

 

 

Value

 

Outstanding at December 31, 2015

 

 

9,480,497

 

 

 

2.19

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

11,313,909

 

 

$

1.84

 

 

 

 

 

 

 

 

 

Granted

 

 

3,767,500

 

 

 

1.10

 

 

 

 

 

 

 

 

 

 

 

2,803,667

 

 

 

2.65

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(969,108

)

 

 

1.64

 

 

 

 

 

 

 

 

 

Cancelled/Forfeited

 

 

(922,124

)

 

 

1.90

 

 

 

 

 

 

 

 

 

 

 

(674,619

)

 

 

2.49

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2016

 

 

12,325,873

 

 

 

1.88

 

 

 

7.5

 

 

 

466,844

 

Exercisable at June 30, 2016

 

 

7,255,500

 

 

 

2.20

 

 

 

6.1

 

 

 

409,712

 

Outstanding at June 30, 2017

 

 

12,473,849

 

 

 

2.01

 

 

 

7.4

 

 

$

15,597,050

 

Exercisable at June 30, 2017

 

 

7,614,437

 

 

$

1.94

 

 

 

6.2

 

 

$

10,232,347

 

 

The per share weighted average fair values of all options granted during the six months ended June 30, 20162017 and 20152016 were estimated as $0.54$1.37 and $1.10,$0.54, respectively, on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the table below.  Expected volatilities are based on the historical volatility of the Company’s stock price.  The weighted average expected life is based on both historical and anticipated employee behavior.

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

Risk-free interest rate

 

 

1.3

%

 

 

1.3

%

 

 

1.8%

 

 

 

1.3%

 

Annualized volatility

 

 

51.6

%

 

 

53.8

%

 

 

53.4%

 

 

 

51.6%

 

Weighted average expected life, in years

 

 

6.00

 

 

 

6.00

 

 

 

6.0

 

 

 

6.0

 

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0%

 

 

 

0.0%

 

 

There were noDuring the six months ended June 30, 2017, stock option exercises resulted in cash proceeds to the Company of $1,590,204 and the issuance of 969,108 shares of common stock. No stock options were exercised during the six months ended June 30, 2016 and 2015, respectively.2016.

The Company recognized $987,603 and $1,067,047 and $1,411,005 inof compensation expense related to stock options for the six months ended June 30, 20162017 and 2015,2016, respectively, and stock compensation expense of$520,161 and $504,814 and $770,214 for the three months ended June 30, 20162017 and 2015,2016, respectively.  As of June 30, 2016,2017, there was approximately $3,080,000$4,900,000 of total unrecognized compensation cost related to nonvestednon-vested outstanding stock options that is expected to be recognized over a weighted average period of approximately 2.192.2 years.

Long Term Incentive Program (LTIP)

The Company’s Board of Directors has approved a long term incentive program (“LTIP”) for the benefit of the Company’s senior executives.  Pursuant to the LTIP, the Company’s senior executives have been awarded stock options, restricted stock units (“RSU”) and performance stock units (“PSU”) with targeted values based on values granted to similarly situated senior executives in the Company’s peer group.

The stock options have a ten-year term, have an exercise price equal to the closing price of the Company’s common stock on the date of grant, vest in quarterly installments over three years, were otherwise granted on the same standard terms and conditions as other stock options granted pursuant to the Plan and are included in the stock options table above. The RSUs vest in three equal annual installments.  The PSU awards made to the senior executives vest and convert into shares of the Company’s common stock based on the Company’s attainment of certain performance goals as established by the Company’s Board of Directors over a performance period, which is typically three to five years.


The performance stock unit awards and restricted stock unit awards granted under the long termlong-term incentive program are summarized in the following table:

 

 

Performance Stock Units

 

 

Restricted Stock Units

 

 

Performance Stock Units

 

 

Restricted Stock Units

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value ($)

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value ($)

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value

 

Outstanding at December 31, 2015

 

 

956,178

 

 

 

2.40

 

 

 

714,828

 

 

 

2.32

 

Outstanding at December 31, 2016

 

 

1,347,289

 

 

$

1.50

 

 

 

822,658

 

 

$

1.39

 

Granted

 

 

750,500

 

 

 

1.12

 

 

 

750,500

 

 

 

1.12

 

 

 

649,180

 

 

 

2.81

 

 

 

649,180

 

 

 

2.66

 

Vested/settled

 

 

(11,223

)

 

 

3.96

 

 

 

(264,001

)

 

 

2.41

 

 

 

 

 

 

 

 

 

 

(287,508

)

 

 

1.49

 

Forfeited/expired

 

 

(11,224

)

 

 

3.96

 

 

 

(194,142

)

 

 

2.31

 

 

 

(502,308

)

 

 

2.16

 

 

 

(67,464

)

 

 

1.70

 

Outstanding at June 30, 2016

 

 

1,684,231

 

 

 

1.82

 

 

 

1,007,185

 

 

 

1.41

 

Outstanding at June 30, 2017

 

 

1,494,161

 

 

$

2.04

 

 

 

1,116,866

 

 

$

2.08

 

 

In 2017, 2016 and 2015, the LTIP awards include PSUs that may be earned based on the Company’s total shareholder return (“TSR”) relative to the Nasdaq Biotechnology Index (“NBI”) at the end of the performance period, whichperiod.  The performance period is January 1, 2015 to December 31, 2017 for the 2015 award, and January 1, 2016 to December 31, 2018 for the 2016 award and January 1, 2017 to December 31, 2019 for the 2017 award.  Depending on the outcome of the performance goal, a recipient may ultimately earn a number of shares greater or less than their target number of shares granted, ranging from 0% to 150% of the PSUs granted. The fair values of the TSR PSUs granted in June 2016 and May 2015 was determined using a Monte Carlo simulation and utilized the following inputs and assumptions: 

 

 

2016 Award

 

 

2015 Award

 

 

2017 Award

 

 

2016 Award

 

 

2015 Award

 

Closing stock price on grant date

 

$

1.12

 

 

$

2.18

 

 

$

2.66

 

 

$

1.12

 

 

$

2.18

 

Performance period starting price

 

$

1.29

 

 

$

2.52

 

 

$

2.17

 

 

$

1.29

 

 

$

2.52

 

Term of award (in years)

 

 

2.58

 

 

 

2.59

 

 

 

2.57

 

 

 

2.58

 

 

 

2.59

 

Volatility

 

 

70.1

%

 

 

60.5

%

 

 

54.6

%

 

 

70.1

%

 

 

60.5

%

Risk-free interest rate

 

 

0.97

%

 

 

0.83

%

 

 

1.39

%

 

 

0.97

%

 

 

0.83

%

Expected dividend yield

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

Fair value per TSR PSU

 

$

1.25

 

 

$

1.71

 

 

$

3.10

 

 

$

1.25

 

 

$

1.71

 

 

The performance period starting price is measured as the average closing price over the last 20 trading days prior to the performance period start. The Monte Carlo simulation model also assumed correlations of returns of the prices of the Company’s common stock and the common stocks of the NBI companies and stock price volatilities of the NBI companies.  The fair value of the target number of shares that can be earned under the TSR PSUs is being recognized as compensation expense over the performance period.

Total compensation expense recognized in

In connection with PSU awards, wasthe Company recognized compensation expense of $88,296 and $8,294 and $62,638 for the six months ended June 30, 20162017 and 2015,2016, respectively.  Compensation expense recognized in connection with RSU awards was $201,936$207,693 and $177,275$201,936 for the six months ended June 30, 20162017 and 2015,2016, respectively.

Some of the sharesShares issued in connection with RSULTIP awards that vested in the six months ended June 30, 20162017 and 20152016 were net-share settled such that the Company withheld shares with a value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld to satisfy tax obligations were 65,57597,586 and 29,91465,575 in the six months ended June 30, 20162017 and 2015,2016, respectively, and were based on the fair value of the shares on their vesting date as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to the taxing authorities were $64,096$248,709 and $67,924$64,096 in the six months ended June 30, 20162017 and 2015,2016, respectively, and are reflected as a financing activity within the consolidated statements of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

 

 


5.

Significant Customers and Concentrations of Risk

Revenues by customer location are summarized as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

United States of America

 

$

11,024,136

 

 

$

13,552,664

 

 

$

21,594,742

 

 

$

20,315,440

 

 

$

12,167,166

 

 

$

11,024,136

 

 

$

22,835,189

 

 

$

21,594,742

 

Europe

 

 

1,047,250

 

 

 

828,651

 

 

 

2,614,591

 

 

 

2,300,067

 

 

 

1,112,185

 

 

 

1,047,250

 

 

 

2,267,629

 

 

 

2,614,591

 

Other

 

 

157,004

 

 

 

39,076

 

 

 

337,829

 

 

 

152,921

 

 

 

136,808

 

 

 

157,004

 

 

 

320,800

 

 

 

337,829

 

 

$

12,228,390

 

 

$

14,420,391

 

 

$

24,547,162

 

 

$

22,768,428

 

 

$

13,416,159

 

 

$

12,228,390

 

 

$

25,423,618

 

 

$

24,547,162

 

 

Significant customers comprisingfrom which the Company derived 10% or more of total revenue are as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Teva

 

$

6,505,126

 

 

$

4,796,402

 

 

$

12,990,976

 

 

$

7,129,217

 

McKesson(1)

 

 

1,846,255

 

 

 

1,435,196

 

 

 

3,555,549

 

 

 

3,334,901

 

Ferring

 

 

1,055,767

 

 

 

828,651

 

 

 

2,714,389

 

 

 

2,300,067

 

AmerisourceBergen(1)

 

 

1,354,801

 

 

 

1,393,527

 

 

 

2,501,887

 

 

 

2,268,672

 

LEO Pharma (2)

 

 

 

 

 

5,142,857

 

 

 

 

 

 

6,000,000

 

(1)

Represents estimated revenue based on OTREXUP™ shipments, a portion of which has not been recognized as revenue but is recorded in deferred revenue at the end of each period as discussed in Note 2 to the Consolidated Financial Statements.

(2)

The licensing agreement with LEO Pharma A/S was terminated effective June 23, 2015 and accordingly no revenue was recognized or received from this customer for the three and six months ended June 30, 2016.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Teva

 

$

4,417,179

 

 

$

6,505,126

 

 

$

9,380,253

 

 

$

12,990,976

 

AMAG

 

 

3,803,460

 

 

 

410,919

 

 

 

4,570,573

 

 

 

905,882

 

McKesson

 

 

1,769,827

 

 

 

1,846,255

 

 

 

3,993,842

 

 

 

3,555,549

 

Ferring

 

 

987,103

 

 

 

1,055,767

 

 

 

2,294,597

 

 

 

2,714,389

 

AmerisourceBergen

 

 

1,444,397

 

 

 

1,354,801

 

 

 

2,852,745

 

 

 

2,501,887

 

 

 

6.

Net Loss Per Share

Basic loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted loss per common share reflects the potential dilution from the exercise or conversion of securities into common stock.  Potentially dilutive stock options and other share-based awards excluded from dilutive loss per share because their effect was anti-dilutive totaled 12,325,87315,084,876 and 9,876,24115,017,289 at June 30, 2017 and 2016, and 2015, respectively.

 

 

7.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In February 2016,July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”, which is intended2015-11, Simplifying the Measurement of Inventory. The new standard changed the measurement principle for inventory from the lower of cost or market to increase transparencylower of cost and comparability among organizations by recognizing all lease transactions (with terms in excessnet realizable value. The Company adopted this standard during the first quarter of 12 months)2017, and the adoption did not have an impact on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted.  Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on itsconsolidated results of operations, cash flows andor financial position.position of the Company.

In March 2016, the FASB issued ASU No. 2016-09, “ImprovementsCompensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, as part of its simplification initiative.Accounting (ASU 2016-09”). The areas of simplification involvenew standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted ASU 2016-09 effective January 1, 2017, and the adoption did not have a significant impact on the Company’s consolidated financial statements. As required under previous GAAP, the Company had estimated forfeitures in determining its periodic compensation costs related to share-based awards. Upon adoption of the new standard, the Company has elected to recognize forfeitures as they occur, and recorded a cumulative effect adjustment to accumulated deficit and additional paid-in capital of $97,000, the net of which had no impact on the Company’s consolidated results of operations, cash flows or financial position.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This new standard eliminates Step 2 from the goodwill impairment test. ASU 2017-04 requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 still allows the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company early adopted this standard effective January 1, 2017 and will apply the standard prospectively for its annual goodwill impairment tests.  The adoption of the standard did not have an impact on the Company’s consolidated financial statements.


Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2016-092014-09, Revenue from Contracts with Customers (“ASU No. 2014-09”).  This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The standard creates a five-step model that requires a company to identify customer contracts, identify the separate performance obligations, determine the transaction price, allocate the transaction price to the separate performance obligations and recognize revenue when each performance obligation is effective for annualsatisfied.  This guidance also requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and interim periods beginning after December 31, 2016. uncertainty of revenue and cash flows arising from contracts with customers.  Qualitative and quantitative information is required about contract balances and remaining performance obligations, significant judgments made in determining the timing of satisfaction of performance obligations (over time or at a point in time), and estimates made in determining the transaction price and amounts allocated to performance obligations.

The Company is currently assessingcontinues to monitor and evaluate the impact that the adoption of this standard will have on its resultsconsolidated financial statements and has performed an initial review of operations, cash flowsits major contracts with customers. Based on the initial reviews, the Company believes the adoption of the new standard may accelerate the timing of revenue recognition for product sales and financial position.development revenue under certain license, development and supply agreements, and will require management to estimate and potentially recognize certain variable revenue streams such as royalties and profit sharing arrangements earlier at an amount it believes will not be subject to significant reversal.

The Company anticipates adopting the new revenue recognition standard on the effective date of January 1, 2018 utilizing the modified retrospective method of adoption, under which the cumulative effect of the change is recognized as an adjustment to the opening balance of the accumulated deficit within the consolidated balance sheet, and prior reporting periods are not retrospectively adjusted. No significant changes to business processes or systems are currently expected to be necessary.

In MarchFebruary 2016, the FASB issued ASU No. 2016-08 “Principal Agent Considerations (Reporting Revenue Gross versus Net)”2016-02, Leases (Topic 842) (“ASU 2016-02”). This new standard requires entities to recognize on its balance sheet assets and in April 2016, FASB issued ASU No. 2016-10 “Identifying Performance Obligationsliabilities associated with the rights and Licensing.” These updates amend, clarify and provide implementation guidance on theobligations created by leases with terms greater than twelve months. This new revenue recognition standard ASU No. 2014-09, Revenue from Contract with Customers, which is effective for annual and interimreporting periods beginning after December 15, 2017.2018, and interim periods within those annual periods and early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements and currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets in the statement of financial position upon adoption of these standards will have on its results of operations, cash flows and financial position.  ASU 2016-02.

 


Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements in this report, including statements in the management’s discussion and analysis section set forth below, may be considered “forward-looking statements” as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by the words “expect,” “estimate,” “plan”, “project,” “anticipate,” “should,” “intend,” “may,” “will,” “believe,” “continue” or other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development.  In particular, these forward-looking statements include, among others, statements about:

 

·

our expectations regarding commercialization and sales of OTREXUP™OTREXUP® (methotrexate) injection for subcutaneous use;injection;

our expectations regarding the ability of our partner Teva Pharmaceutical Industries, Ltd.’s (“Teva”) to successfully commercialize Sumatriptan Injection USP;

 

·

our expectations regarding product development including clinical trial results, and potential approval by the United States Food and Drug Administration (“FDA”) of VIBEXXYOSTED®TM QuickShot®(testosterone enanthate) injection for Testosterone injection (“QST”);testosterone replacement therapy;

 

·

our expectations regarding continued product development with Teva, Pharmaceutical Industries, Ltd.’s (“Teva”), and potential FDA approval of the VIBEX® Epinephrine Pen (“epinephrine auto injector”), teriparatide disposable pen injector and exenatide disposable pen injector, and Teva’s ability to successfully commercialize each of those products;

 

·

our expectations regarding our and our partner Teva’s ability to successfully commercialize VIBEX® Sumatriptan (sumatriptan injection);

·

our expectations regarding continued product development with our partners, including Teva andpartner AMAG Pharmaceuticals, Inc. (“AMAG”), and the pursuit ofpotential FDA approval of products developed with such partners;an auto injector for Makena®;

·

our expectations regarding trends in pharmaceutical drug delivery characteristics;

our expectations regarding trends in pharmaceutical drug delivery characteristics;

·

our anticipated continued reliance on third party contract manufacturers to manufacture our products;

our anticipated continued reliance on third-party contract manufacturers to manufacture our products;

·

our anticipated continued reliance on third parties to provide certain services for our products including logistics, warehousing, distribution, invoicing, contract administration and chargeback processing;

our anticipated continued reliance on third parties to provide certain services for our products including logistics, warehousing, distribution, invoicing, contract administration and chargeback processing;

·

our sales and marketing plans;

our sales and marketing plans;

·

product development and commercialization plans regarding our other products and product candidates;

our product development and commercialization plans regarding our other products and product candidates;

·

timing and results of our clinical trials;

the timing and results of our clinical trials, research and development projects;

·

our future cash flow and our ability to support our operations;

our future cash flow and our ability to support our operations;

·

the impact of new accounting pronouncements and our expectations and estimates with regard to current accounting practices, including estimates of OTREXUP™ prescription data provided by third-party sources, which are used in our revenue recognition methods; and

our estimates and expectations regarding the sufficiency of our cash resources, anticipated capital requirements and our need for and ability  to obtain additional financing;

·

our expectations regarding the year ending December 31, 2016.

the impact of new accounting pronouncements and our expectations and estimates with regard to current accounting practices; and

our expectations regarding our financial and operating results for the year ending December 31, 2017.

Forward-looking statements are based on assumptions that we have made in light of our industry experience as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of performance results. Forward-looking statements involve known and unknown risks, uncertainties and assumptions, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.  While we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and projections of the future about which we cannot be certain.  Many factors may affect our ability to achieve our objectives, including:

·

delays in product introduction and marketing or interruptions in supply;

delays in product introduction and marketing or interruptions in supply;

a decrease in business from our major customers and partners;

our inability to compete successfully against new and existing competitors or to leverage our research and development capabilities and our marketing capabilities;


 

·

a decrease in business from our major customers and partners;

·

our inability to compete successfully against new and existing competitors or to leverage our research and development capabilities and our marketing capabilities;

·

our inability to effectively market our products and services or obtain and maintain arrangements with our customers, partners and manufacturers;


our inability to obtain adequate third-party payor coverage of our marketed products;

·

our inability to effectively protect our intellectual property;

our inability to effectively protect our intellectual property;

·

costs associated with future litigation and the outcome of such litigation;

costs associated with future litigation and the outcome of such litigation;

·

our inability to attract and retain key personnel;

our inability to attract and retain key personnel;

·

changes or delays in the regulatory process;

changes or delays in the regulatory process;

·

adverse economic and political conditions; and

adverse economic and political conditions; and

·

our ability to obtain additional financing, reduce expenses or generate funds when necessary.

our ability to obtain additional financing, reduce expenses or generate funds when necessary.

In addition, you should refer to the “Risk Factors” sections of this report and of our Annual Report on Form 10-K for the year ended December 31, 2015 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 for a discussion of other factors that may cause our actual results to differ materially from those described by our forward-looking statements.  As a result of these factors, we cannot assure you that the forward-looking statements contained in this report will prove to be accurate and, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material.

We encourage readers of this report to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance.  Forward-looking statements speak only as of the date they are made.  We do not intend to update publicly any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events except as required by law.  In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all.

The following discussion and analysis, the purpose of which is to provide investors and others with information that we believe to be necessary for an understanding of our financial condition, changes in financial condition and results of operations, should be read in conjunction with the financial statements, notes thereto and other information contained in this report.

Overview

Company and Product Overview

Antares Pharma, Inc. (“Antares,” “we,” “our,” “us” or the “Company”) is an emerging, specialty pharmaceutical company that focuses on developingthe development and commercializingcommercialization of self-administered parenteral pharmaceutical products and technologies. Our strategy is to identify new or existing approved drug formulations and apply our drug delivery technology to enhance the drug compounds and delivery methods.  We develop, manufacture and commercialize, for ourselves or with partners, novel therapeutic products using our advanced drug delivery systems that are designed to help improve safety and efficacy, reduce side effects, and enhance patient comfort and adherence. Our subcutaneous injection technology platforms include the VIBEX® pressure-assisted auto injector system suitable for branded and generic injectable drugs in unit dose containers, reusable needle-free spring-action injector devices, and disposable multi-dose pen injectors for use with standard cartridges. We have multiple internala portfolio of proprietary and partnered products, including approved commercial products and several product candidates in advanced stages of development programs as well as numerousand under active FDA review. We have formed significant strategic alliances and partnership arrangements with several industry leading pharmaceutical companies. We have formed strategic alliances withcompanies including Teva, AMAG, and Ferring Pharmaceuticals Inc. and Ferring B.V. (together “Ferring”), JCR Pharmaceuticals Co., Ltd. (“JCR”) and AMAG.  We develop and apply our drug delivery systems in collaborations with these pharmaceutical partners to enhance our partners' drug compounds and delivery methods..

We developmarket and manufacture for ourselves and with partners, novel, pressure-assisted injectors, with and without needles, which allow patients to self-inject drugs.  We make a reusable, needle-free spring action injection device which is marketed throughsell our partners for use with human growth hormone (“hGH)”.  We have developed variations of the needle-free injector by adding a small shielded needle to a pre-filled, single-use disposable injector, called the VIBEXproprietary product OTREXUP® pressure assisted auto(methotrexate) injection, system. This system is an alternative towhich was launched in the needle-free system for use with injectable drugsU.S. in unit dose containers and is suitable for branded and generic injectables.  Additionally, we have developed a disposable multi-dose pen injector for use with standard cartridges, and have a portfolio of gel-based products that are commercialized through various partners.

We launched our product OTREXUP™, whichFebruary 2014. OTREXUP® is the first FDA approvedFDA-approved subcutaneous methotrexate for once weekly self-administration with an easy-to-use, single dose, disposable auto injector, in February 2014.  OTREXUP™ is indicated for adults with severe active rheumatoid arthritis, children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis.   We previouslyTo date, we have received FDA approval for dosage strengths of 7.5 mg, 10 mg, 12.5 mg, 15 mg, 17.5 mg, 20 mg, 22.5 mg and 25 mg of OTREXUP™,OTREXUP®.

With our commercialization partner Teva, we launched Sumatriptan Injection USP, indicated in the U.S. for the acute treatment of migraine and recentlycluster headache in adults, in June 2016.  We received FDA approval of three new dosage strengths (12.5 mg, 17.5 mg and 22.5 mg) in the first quarter of 2016.  

In December 2015, the FDA approved our Abbreviated New Drug Application (ANDA)(“ANDA”) for 4 mg/0.5 mL and 6 mg/0.5 mL Sumatriptan Injection USP, indicated for adults for the acute treatment of migraine and cluster headache.single-dose prefilled syringe auto-injectors, a generic equivalent to Imitrex® STATdose Pen®, in December 2015.  Sumatriptan Injection USP represents the Company’s first ANDA approval of a complex generic and second product approved using the VIBEX® auto injector platform.  Underplatform and is commercialized and distributed by Teva under the terms of a license, supply and distribution arrangement, the VIBEX® Sumatriptan product will be distributed by Teva.  We and our partner Teva announced the launch of the generic equivalent to Imitrex® (sumatriptan succinate) injection, 4mg and 6 mg single-dose prefilled syringe auto-injectors in the U.S. in June 2016.arrangement.


We also make reusable, needle-free injection devices that administer injectable drugs, which are currently marketed primarily through our partner Ferring, for use with human growth hormone, and have two gel-based products that are commercialized through our partners pursuant to licensing arrangements.

Overview of Clinical, Regulatory and Product Development Activities

We are developing XYOSTEDTM (testosterone enanthate) injection for testosterone replacement therapy, and submitted a 505 (b) (2) New Drug Application (“NDA”) to the FDA in December 2016.  The NDA submission was accepted for standard review by the FDA and assigned a Prescription Drug User Fee Act (“PDUFA”) target date for completion of its review by October 20, 2017. We conducted a multi-center, phase 3 clinical study (“QST-13-003”) evaluating the efficacy and safety of testosterone enanthate administered once-weekly by subcutaneous injection using the QuickShot® auto injector in adult males diagnosed with testosterone deficiency, and we previously announced positive top-line pharmacokinetic results that showed that the primary endpoint for this study was achieved.  Based upon a written response we received from the FDA related to our clinical development program for XYOSTEDTM, we conducted an additional supplemental safety study QST-15-005. The study included a screening phase, a treatment titration phase and a treatment phase for evaluation of safety and tolerability assessments, including laboratory assessments, adverse events and injection site assessments.  In September 2016, we announced the successful completion of the QST-15-005 study.  The results of these two studies formed the clinical basis of our NDA submission for XYOSTEDTM and are further discussed in the “Research and Development Programs” section below.

We are collaborating with Teva on a combination product development project for a VIBEX® auto injector pen containing epinephrine used for the treatment of severe allergic reactions (anaphylaxis).  Teva submitted an amendment to the VIBEX® epinephrine pen ANDA in December 2014 and received a Complete Response Letter (“CRL”) from the FDA onin February 23, 2016 in which, according to Teva, the FDA identified certain major deficiencies.  Teva is evaluatinghas advised us that they submitted a response to the CRL and intends to submitare targeting a response. However, due to the major deficiencies identifiedlaunch in the CRL, Teva expects that its epinephrine product will be substantially delayed from their previously anticipated launch date in the second half of 2016 and that any launch will not take place before 2017.early 2018.

Our other combination product development projects in collaboration with Teva include a VIBEXmulti-dose pen for a generic form of BYETTA® exenatide multi-dose pen(exenatide injection) for the treatment of type 2 diabetes, and another previously undisclosed multi-dose pen which has now been disclosed asfor a generic form of Forteo® (teriparatide [rDNA origin] injection) for the treatment of osteoporosis. Teva filed an ANDA for exenatide, which was accepted by the FDA in October 2014 and is currently under FDA review.  We recentlyIn 2016, we announced that Teva had settled the patent litigation with AstraZeneca Pharmaceuticals, LP, AstraZeneca AB, and Amylin Pharmaceuticals, LLC (“AstraZeneca”(collectively “AstraZeneca”), relating to certain AstraZeneca U.S. patents and their drug, BYETTA® (exenatide).  AstraZeneca and Teva entered into a settlement and license agreement pursuant to which AstraZeneca granted Teva a license to manufacture and commercialize the generic version of BYETTA® described in Teva’s ANDA.  The settlement allows Teva to commercialize their exenatide product in the U.S. beginning October 15, 2017 or earlier under certain circumstances. Teva also filed an ANDA for a generic version of Forteo® (teriparatide [rDNA origin] injection), which was accepted by the FDA in February 2016 and is currently under review.  In response to Teva’s paragraph IV certification contained in Teva’s ANDA for teriparatide, Eli Lilly and Company& Co (“Lilly”) filed a lawsuit against Teva alleging infringement of six U.S. patents related to Forteo® (teriparatide [rDNA origin] injection) resulting in a 30-month stay in FDA approval of the ANDA.  The stay will expire in August 2018 unless the litigation is resolved sooner.

We are currently conducting clinical studies of QST Teva also successfully concluded a decentralized procedure registration process in Europe.  According to Teva, the Public Assessment Report for testosterone replacement therapy. In February 2015, we announced positive top-line pharmacokinetic results that showed that the primary endpointdecentralized procedure has been published and the product was achievedfiled in 17 countries, which addresses the Company’s ongoing, multi-center, phase 3 clinical study (QST-13-003) evaluating the efficacy and safety of testosterone enanthate administered once-weekly by subcutaneous injection using the QuickShot® auto injector in testosterone deficient adult males.  In October 2015, we announced that the last patient in study QST-13-003 received their week 52 treatment, which marked the endmajority of the treatment and follow up phase of this study, andmarket value in March 2016, we announced the results of the 52 week safety follow-up for the QST-13-003 trial. Based upon a written response we received from the FDA related to our clinical development program for QST, we are currently conducting an additional study, QST-15-005, to support the filing of our expected 505 (b) (2) New Drug Application (“NDA”) for QST.  The study includes a screening phase, a treatment titration phase and a treatment phase for evaluation of safety and tolerability assessments, including laboratory assessments, adverse events and injection site assessments.  We completed enrollment in study QST-15-005 in October 2015 and announced on June 1, 2016 that the last patient had completed their treatment under the 26-week safety and pharmacokinetic phase 3 study. We expect to file the NDA for QST in late 2016.Europe.

In partnership with AMAG, Pharmaceuticals, Inc., we are currently developing a variation of our VIBEX® QuickShot® subcutaneous auto injector for use with AMAG’s progestin hormone drug Makena® (hydroxy-progesterone(hydroxyprogesterone caproate injection) for the preventiontreatment of pre-term labor in pregnant women.birth.  Under a license, development and supply agreement, AMAG is responsible for the clinical development and preparation, submission and maintenance of all regulatory applications, manufacturingthe manufacture and supplyingsupply of the drug, and the marketing, sellingsale and distributingdistribution of the final product.  We are responsible for the design and development of the auto-injection device, the manufacturing and supplyingsupply of the device, and assembly and packaging of the final product.  AMAG initiated a pharmacokinetic (“PK”) study in October 2016 and disclosed positive top line results of the study in February 2017.  According to AMAG, the study successfully demonstrated comparable bioavailability between subcutaneous injection of Makena® compared to intra muscular injection. AMAG submitted its sNDA for the Makena® subcutaneous auto injector in April 2017, which was accepted by the FDA and given a PDUFA target action date of February 14, 2018.


Critical Accounting Policies

Our management’s discussion and analysis of our results of operations and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”.) The preparation of our financial statements in accordance with GAAP requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. We have identified certain of our significant accounting policies that we believe to be the most critical to the understanding our results of operations and financial condition because they require the most subjective and complex judgments. The following supplements our critical accounting policies, which are fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016.

Revenue Recognition—OTREXUP®

We sell OTREXUP® in packages of four pre-filled, single-dose disposable auto injectors to wholesale pharmaceutical distributors, our customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. We began detailing OTREXUP® to health care professionals in February 2014.

Prior to the first quarter of 2017, we could not reliably estimate expected returns of OTREXUP® at the time of shipment given our limited sales history of the product. Accordingly, the recognition of revenue was deferred on product shipments until the rights of return no longer existed, which occurred at the earlier of the time that OTREXUP® units were dispensed through patient prescriptions or expiration of the right of return of the product. Patient prescriptions dispensed were estimated using third-party market prescription data.

In the first quarter of 2017, we determined we had developed sufficient historical information to reasonably estimate future returns of OTREXUP® and began recognizing revenue upon delivery to the distributors, net of estimated returns. Accordingly, we recognized $1,297,054 in revenue for product shipped to distributors in previous periods but not previously recognized as revenue at the time of shipment, net of the returns allowance established during the first quarter of 2017. We also recognized $254,425 of related product costs in the first quarter of 2017.  The net impact of these changes resulted in a decrease to net loss of $1,042,629, or less than $0.01 per share, for the six months ended June 30, 2017.

Results of Operations

We reported net losses of $2,839,944 and $6,061,463 for the three months ended June 30, 2017 and 2016, respectively, and $7,575,861 and $13,717,573 for the three and six months ended June 30, 2017 and 2016, respectivelyrespectively. Net loss per share was $0.02 for the three months ended June 30, 2017 as compared to net losses of $1,506,646 and $8,294,320$0.04 for the three months ended June 30, 2016, and $0.05 and $0.09 for the six months ended June 30, 2015,2017 and 2016, respectively.  Operating results for the three and six months ended June 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.2017.  The following is an analysis and discussion of our operations for the three and six months ended June 30, 20162017 as compared to 2015.the same periods in 2016.


Revenues

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

OTREXUP™

 

$

3,810,291

 

 

$

3,346,094

 

 

$

7,120,065

 

 

$

6,350,403

 

OTREXUP®

 

$

3,923,042

 

 

$

3,810,291

 

 

$

8,487,163

 

 

$

7,120,065

 

Auto injector and pen injector devices

 

 

3,913,505

 

 

 

1,768,958

 

 

 

9,892,393

 

 

 

1,967,026

 

 

 

2,435,216

 

 

 

3,913,505

 

 

 

6,543,526

 

 

 

9,892,393

 

Needle-free injector devices and components

 

 

966,206

 

 

 

724,982

 

 

 

2,518,591

 

 

 

2,145,735

 

 

 

986,155

 

 

 

966,206

 

 

 

2,350,536

 

 

 

2,518,591

 

Total product sales

 

 

8,690,002

 

 

 

5,840,034

 

 

 

19,531,049

 

 

 

10,463,164

 

 

 

7,344,413

 

 

 

8,690,002

 

 

 

17,381,225

 

 

 

19,531,049

 

Development revenue

 

 

3,267,397

 

 

 

3,027,445

 

 

 

4,365,771

 

 

 

5,415,848

 

 

 

4,787,672

 

 

 

3,267,397

 

 

 

6,409,549

 

 

 

4,365,771

 

Licensing revenue

 

 

38,721

 

 

 

5,186,372

 

 

 

89,422

 

 

 

6,069,381

 

 

 

1,019,040

 

 

 

38,721

 

 

 

1,037,718

 

 

 

89,422

 

Royalties

 

 

232,270

 

 

 

366,540

 

 

 

560,920

 

 

 

820,035

 

 

 

265,034

 

 

 

232,270

 

 

 

595,126

 

 

 

560,920

 

Total revenue

 

$

12,228,390

 

 

$

14,420,391

 

 

$

24,547,162

 

 

$

22,768,428

 

 

$

13,416,159

 

 

$

12,228,390

 

 

$

25,423,618

 

 

$

24,547,162

 

 

Total revenue for the three months ended June 30, 2017 and 2016 was $13,416,159 and 2015$12,228,390, respectively, representing an increase in total revenue of 10% on a comparative basis. Revenue for the six months ended June 30, 2017 was $12,228,390 and $14,420,391, respectively.  Total revenue$25,423,618 as compared to $24,547,162 for the six months ended June 30, 2016, was $24,547,162 as compared to $22,768,428 for the six months ended June 30, 2015.representing an increase of 4%.  The following is a detailed discussion of the components of and changes in revenue.


OTREXUP™

We sell OTREXUP™ in a package of four pre-filled, single-dose disposable auto injectors to wholesale pharmaceutical distributors, our customers.  Sales to our customers are subject to specified rights of return. We currently defer recognition of revenue on product shipments of OTREXUP™ to our customers until the right of return no longer exists, which occurs at the earlier of the time OTREXUP™ units are dispensed through patient prescriptions or expiration of the right of return. Patient prescriptions dispensed are estimated using third-party market prescription data.  These third-party sources poll pharmacies, hospitals, mail order and other retail outlets for OTREXUP™ prescriptions and project this sample on a national level.  We use this third party prescription data, among other information, as a basis for revenue recognition in each reporting period.OTREXUP®

For the three months ended June 30, 20162017 and 2015,2016, we recognized revenue of $3,810,291$3,923,042 and $3,346,094,$3,810,291, respectively, from OTREXUP™ sales of OTREXUP®, which is presented net of estimated product returns and sales allowancesallowances. We believe the increase in revenue for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 was driven by an increase in shipments to distributors and an underlying growth in prescriptions dispensed. However, as discussed in our “Critical Accounting Policies” above, we began recognizing revenue upon delivery to distributors, net of estimated wholesaler discounts, prompt pay discounts, chargebacks, rebatesreturns, in the first quarter of 2017.  Prior to the first quarter of 2017, due to lack of sufficient sales and patient discount programs.  Forreturns history, revenue was initially deferred upon shipment to distributors and recognized based on estimated prescriptions dispensed or expiration of customer right of return.  This change in estimation and recognition method may affect the comparability of revenues on a period over period basis.

We recognized revenues of $8,487,163 and $7,120,065 from OTREXUP® sales for the six months ended June 30, 2017 and 2016, and 2015, we recognizedrespectively. The increase in OTREXUP® revenue from OTREXUP™ sales of $7,120,065 and $6,350,403, respectively. Sales of OTREXUP™ increased by $464,197, or 14%, and $769,662 or 12% for the three and six months ended June 30, 2016, respectively,2017 as compared with sales in the same periodsperiod in 2015.  We believe the increase in sales is a direct result of an increase in our sales force and marketing efforts.

We had deferred revenue of $982,017 and $1,064,874 at June 30, 2016 and December 31, 2015, respectively, for OTREXUP™ product shipments to wholesalers, which is net of product sales allowances. We will continue to recognize revenue upon the earlier to occur of prescription units dispensed or expiration of the right of return until we can reliably estimate product returns, at which time we will record a one-time increase in net revenue related toincluded the recognition of $1,297,054 in previously deferred revenue.   If we underestimate or overestimate product returns for a given period, adjustments to revenue previously deferred.may be necessary in future periods.  

Auto injector and pen injector devices

Product sales of auto injector devices were $2,435,216 and pen$3,913,505 for the three months ended June 30, 2017 and 2016, respectively, and $6,543,526 and $9,892,393 for the six months ended June 30, 2017 and 2016, respectively.  The decrease in revenue for the three and six months ended June 30, 2017 as compared to 2016 was primarily due to the reduction in sales of pre-launch quantities of auto injector devices were $3,913,505for use with Teva’s generic epinephrine product.  The net decrease in revenue for the six months ended June 30, 2017 compared to 2016 was partially offset by an increase in sales of Sumatriptan Injection USP, which was launched in June 2016 and $1,768,958discussed in more detail below.

Revenue from auto injector sales for the three months ended June 30, 2017 was principally attributable to sumatriptan product sold to Teva, including the profit sharing payment received during the quarter.  Revenue for the three months ended June 30, 2016 included $967,000 of pre-launch quantities of auto injector devices sold to Teva for use with their generic epinephrine product, and 2015, respectively, representing an overall increase of 121% on a year over year basis.  This increase is principally due to the sale of approximately $2.9 million$2,947,000 in pre-launch quantities of sumatriptan injection drug/device combination product to Teva during the second quarter of 2016. On June 23, 2016, we announced the launch of the generic equivalent of Imitrex® (sumatriptan succinate) injection in the U.S. with Teva.at cost. Under a license, supply and distribution agreement with Teva for the sumatriptan product, we produce the devices, assemble and assemblesupply the final combination product, and Teva is responsible for distribution of the product.distribution.  We are compensated at cost for shipments of product to Teva and are entitled to receive 50 percent of the future net profits from commercial sales made by Teva.  There were no profit sharing revenues recognized on shipments of sumatriptan product during the three months ended June 30, 2016.  Revenues from the profit sharing arrangement, if any, will be recognized in future periods, likely beginning in the fourth quarter of 2016, when amounts are fixed and determinable and will beTeva, which is payable to us within 45 days after the end of each fiscal quarter in which commercial sales are made.  

Sales fromFor the six months ended June 30, 2017, approximately $5,889,000 or 90% of the auto injector revenue was attributable to sales of sumatriptan product and pen injector devices were $9,892,393 and $1,967,026 forrelated profit sharing received under the distribution agreement with Teva.  For the six months ended June 30, 2016, and 2015, respectively. The significant increase inapproximately $2,947,000 or 30% of the auto injector sales for the six months ended June 30, 2016 as compared to June 30, 2015 is partiallyrevenue was attributable to thepre-launch quantities of sumatriptan sales discussed above,product sold to Teva at cost, and to the$6,946,000 or 70% derived from sales of pre-launch quantities of auto injector devices sold to Teva for use with their generic epinephrine product, whichproduct. As previously discussed, Teva’s ANDA for the epinephrine auto injector is currently under FDA review in anticipation of a potential launch.  However, as discussed above, Teva received a CRL fromby the FDA citing certain major deficiencies related to its ANDA for its


epinephrine product.  Asand Teva is targeting a result, Teva expects that its epinephrine product will be substantially delayed from their previously anticipated launch date in the second half of 2016 and that any launch will not take place before 2017.  Accordingly, this delay may impact our future sales of epinephrine devices to Teva.  The trend in increased revenue from auto injector devices may not be sustained, and may not be indicative of revenues in future quarters or for the year ending December 31, 2016.early 2018.

Needle-free injector devices and components

Our revenue from reusable needle-free injector devices and disposable components was $966,206$986,155 and $724,982$966,206 for the three months ended June 30, 20162017 and 2015,2016, respectively, and $2,518,591$2,350,536 and $2,145,735$2,518,591 for the six months ended June 30, 20162017 and 2015,2016 respectively.  These revenues were relatively consistent on a period over period basis and are generated primarily from sales to Ferring, which sells our needle-free injector for use with their 4 mg and 10 mgits hGH formulationsproducts in Europe, Asia and Asia.  the U.S.  We do not control our partners’ sales volume or inventory levels of our injectors and components, which can cause fluctuations in our product sales in comparative periods.

Development revenue

Development revenuesrevenue typically representrepresents amounts earned under arrangements with partners for which we develop new products on their behalf.  Frequently, we receive up-front and milestone payments from our partners that are initially deferred and recognized as revenue over a development period or upon completion of defined deliverables.  Development revenue was $3,267,397$4,787,672 and $3,027,445$3,267,397 for the three months ended June 30, 20162017 and 2015,2016, respectively, and $4,365,771was $6,409,549 and $5,415,848$4,365,771 for the six months ended June 30, 20162017 and 2015,2016, respectively.  The increase in development revenue recognized for each period presented included revenue recognized upon completionthe comparative three and six-month periods was primarily a result of certain deliverablesincreases in development activities with AMAG for the TevaMakena® auto injector product and


with Teva for the exenatide and teriparatide pen injector programs, as well as additionalproducts, offset by a reduction in revenue for development activities forwith Teva in connection with the AMAGepinephrine auto injector in 2016.injector.

Licensing Revenue

Licensing revenue represents amounts recognized in connection withreceived from partners for the right to use certain intellectual property.  Generally, the up-front or milestone payments received from partners that arewere initially deferred.deferred and recognized in revenue over the license period. We recognized $38,721$1,019,040 and $5,186,372$38,721 for the three months ended June 30, 20162017 and 2015,2016, respectively and $89,422$1,037,718 and $6,069,381$89,422 for the six months ended June 30, 20162017 and 2015,2016, respectively.  The significant increase in licensing revenue recognized in 2015 was principally attributable to our license and promotion agreement with LEO Pharma A/S (“LEO”), which was terminated effective June 23, 2015.  The upfront and milestone payments received from LEO totaling $10.0 million were being recognized into revenue over a 35-month period.  As a result of the termination of the agreement, we recognized the remaining unamortized balance of the deferred revenue in the second quarter of 2015.  No additional revenue related to this arrangement has been or is expected to be recognized in subsequent or future periods, which resulted in the decrease in licensing revenue for the three and six months ended June 30, 2016 as compared2017 is due to the same periodrecognition of $1,000,000 in 2015.licensing fees previously received and initially deferred due to potential contractual refund rights of the customer under certain circumstances.  During the second quarter of 2017, the License, Supply and Distribution Agreement with Teva for Sumatriptan Injection USP was amended such that the refund provisions relating to the licensing fee was removed.  Accordingly, we recognized the deferred revenue in income, as the license had been delivered and there were no remaining obligations related to the license granted.

Royalties

Royalty revenue was $232,270$265,034 and $366,540$232,270 for the three months ended June 30, 20162017 and 2015,2016, respectively and $560,920$595,126 and $820,035$560,920 for the six months ended June 30, 20162017 and 2015,2016, respectively.  We receive royalties from Ferring related to needle-free injector device sales from Meda Pharmaceuticals, Inc.and on sales of ElestrinZOMACTON®TM in the U.S., and from Actavis plc on sales of Gelnique®.  gel-based products commercialized through partners.

Cost of Revenue and Gross Profit

The following table summarizes our total revenue, cost of revenue and gross profit:

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Total revenue

 

$

12,228,390

 

 

$

14,420,391

 

 

$

24,547,162

 

 

$

22,768,428

 

 

$

13,416,159

 

 

$

12,228,390

 

 

$

25,423,618

 

 

$

24,547,162

 

Total cost of revenue

 

 

7,318,098

 

 

 

4,708,094

 

 

 

14,093,839

 

 

 

8,382,823

 

 

 

5,616,389

 

 

 

7,318,098

 

 

 

11,836,155

 

 

 

14,093,839

 

Gross profit

 

$

4,910,292

 

 

$

9,712,297

 

 

$

10,453,323

 

 

$

14,385,605

 

 

$

7,799,770

 

 

$

4,910,292

 

 

$

13,587,463

 

 

$

10,453,323

 

Gross profit percentage

 

 

40

%

 

 

67

%

 

 

43

%

 

 

63

%

 

 

58

%

 

 

40

%

 

 

53

%

 

 

43

%

 


Our gross profit was $7,799,770 and $13,587,463 for the three and six months ended June 30, 2017, respectively, as compared to $4,910,292 and $10,453,323 for the three and six months ended June 30, 2016, respectively as compared to  $9,712,297 and $14,385,605respectively.  The increase in our gross profit for the three months ended June 30, 2017 was primarily attributable to the increase in profit recognized on development activities completed during the period and the recognition of $1,000,000 in licensing revenue previously deferred, for which there was no associated costs.  The increase in gross profit for the six months ended June 30, 2015, respectively.  The decrease2017 compared to the same period in our gross profit is principally2016 was also attributable to the terminationrecognition of the LEO agreementpreviously deferred revenue related to OTREXUP® sales and other changes in our product revenue and cost of sales, which is summarized in the second quarter of 2015, during which we recognized the remaining balance of the deferred revenue received under the agreement of approximately $5.1 million, which had no associated cost.  In addition, product sales recognizedfollowing table and discussed below.

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Product sales

 

$

7,344,413

 

 

$

8,690,002

 

 

$

17,381,225

 

 

$

19,531,049

 

Cost of product sales

 

 

3,633,218

 

 

 

5,216,527

 

 

 

9,081,509

 

 

 

11,464,083

 

Product gross profit

 

$

3,711,195

 

 

$

3,473,475

 

 

$

8,299,716

 

 

$

8,066,966

 

Product gross margin percentage

 

 

51

%

 

 

40

%

 

 

48

%

 

 

41

%

Product gross profit increased in the three months ended June 30, 2017 as compared to the three months ended June 30, 2016, primarily due to sales of Sumatriptan Injection USP, which is initially sold at cost to Teva, and profit recognized from the margin sharing arrangement in trailing periods.  The increase in product gross profit for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 include approximately $2.9 millionincluded the $1,042,629 net impact of recognizing previously deferred revenue and related product costs for OTREXUP® as described in generic sumatriptan injection“Critical Accounting Policies” above, and sales of Sumatriptan Injection USP, which was launched in June 2016. These increases were offset by the reduction in epinephrine auto injector device sales and the associated cost of sales. The cost of product sold to Teva at cost, for which any profit sharing will be recognized in future periods following commercial sale.   sales includes product acquisition costs from third-party manufacturers and internal manufacturing overhead expenses.


Other variations in revenue, cost of revenue and gross profit are attributable to our development activities, which fluctuate depending on the mix of development projects in progress and stages of completion in each period, as discussed in more detail below.

The following table summarizes the revenue, cost of sales and gross margin associated with our product sales:

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Product sales

 

$

8,690,002

 

 

$

5,840,034

 

 

$

19,531,049

 

 

$

10,463,164

 

Cost of product sales

 

 

5,216,527

 

 

 

2,540,178

 

 

 

11,464,083

 

 

 

4,497,751

 

Product gross profit

 

$

3,473,475

 

 

$

3,299,856

 

 

$

8,066,966

 

 

$

5,965,413

 

Product gross margin percentage

 

 

40

%

 

 

57

%

 

 

41

%

 

 

57

%

The cost of product sales includes product acquisition costs from third-party manufacturers and internal manufacturing overhead expenses. The product gross profit increased in the three and six months ended June 30, 2016 compared to 2015 as the result of an increase in sales of pre-launch quantities of our auto injector devices to Teva for use with their generic epinephrine product, as well as an increase in OTREXUP™ sales. The reduction in our product gross margin percentage was caused primarily by the sale of  approximately $2.9 million of generic sumatriptan product at cost with no corresponding gross margin to be recognized until commercial sales are made by Teva in future periods.  Our profit sharing arrangement with Teva for generic sumatriptan injection may create fluctuation in revenues and cost of sales recognized in a given period depending upon the timing of product shipments to Teva and the subsequent commercial sales by Teva into the distribution channel.

period. The cost of development revenue consists primarily of direct external costs, some of which may have been previously incurred and deferred.  The cost of development revenue in each period was primarily related to revenue recognized under the Teva auto injector and pen injector programs.  Development gross profits can vary significantly from period to period depending onprograms and development of the mix of development projects in progress and stages of completion in each period.Makena® auto injector with AMAG.  

Research and Development

Research and development expenses consist of external costs for clinical studies and analysis activities, design work and prototype development, FDA fees, personnel costs and other general operating expenses associated with our research and development.development activities.  Research and development expenses were $3,948,020$3,159,363 and $4,568,732$3,948,020 for the three months ended June 30, 20162017 and 2015,2016, respectively, and were$6,245,644 and $9,596,049 and $8,946,713 for the six months ended June 30, 20162017 and 2015,2016, respectively.  The costs primarily relate to external expenses incurred in connection with the development of VIBEX® QST for testosterone replacement therapy.  The reduction in research and development costs for the three months ended June 30, 2016 as compared to the same period in 2015 was due mainly to a credit of approximately $900,000 received from the contract research organization we use for our VIBEX® QST clinical studies for unused prefunded expenses, as the study costs were less than originally anticipated. The increasedecrease in research and development costs on a year to datecomparative basis is attributableprimarily due to an overall increasea decrease in external clinical studyand development costs related to XYOSTEDTM for testosterone replacement therapy. We completed clinical trials and personnel costs.submitted our NDA for XYOSTEDTM to the FDA in the fourth quarter of 2016.

Selling, General and Administrative

Selling, general and administrative expenses were $7,014,520$7,360,010 and $6,605,030$7,014,520 for three months ended June 30, 20162017 and 2015,2016, respectively and $14,617,698$14,827,265 and $13,642,320$14,617,698 for the six months ended June 30, 20162017 and 2015,2016, respectively.  The overall increase iswas primarily attributable to an increase in personnel costs primarily as a result of the growth in ourpre-launch sales force alongand marketing expenses associated with severance costs related to our CEO transition, partially offset by a reduction in litigation fees which were incurred in the prior year in connection with litigation settled in early 2015.XYOSTEDTM.

Liquidity and Capital Resources

At June 30, 2016, our2017, we had cash and cash equivalents of $33,418,393 and short-term investments totaled $36,563,635, which consisted of $27,559,208 in$9,960,479.  Our principal liquidity needs are to fund our research and development activities and for the payment of other operating expenses.   We have not historically generated, and do not currently expect to generate, enough revenue or operating cash flow to support or grow our operations and $9,004,427 in short-term investments.  All investmentswe continue to operate primarily by raising capital.  Our primary sources of liquidity are U.S. Treasury bills or U.S. Treasury notes which we intend to hold to maturity.


proceeds from equity offerings and debt issuance. We believe that the combination of our current cash and cash equivalents, short-term investments, balances and projected product sales, product development revenues, milestone paymentsrevenue milestones and royalties will provide us with sufficient funds to meet our obligations and support operations.  We dooperations through at least the next twelve months from the date of this report.

Long-Term Debt Financing

On June 6, 2017, we entered into a loan and security agreement for a term loan of up to $35,000,000 (the “Term Loan”), the proceeds of which are to be used for working capital and general corporate purposes. The first advance of $25,000,000 was funded upon execution of the Loan Agreement on June 6, 2017. Under the terms of the Loan Agreement, we may, but are not currently have any bank credit lines.  Ifobligated to, request one or more additional advances of at least $5,000,000 not to exceed $10,000,000 in the future we do not turn profitable or generate cash from operations as anticipatedaggregate, subject to the company achieving certain corporate milestones and satisfying customary conditions. The option to request additional capitaladvances must be exercised prior to September 30, 2018.  Payments under the Loan Agreement are interest only until the first principal payment is needed to support operations, we may raise additional funds through public or private equity offerings, debt financings or from other sources.  Wedue on August 1, 2019, provided that the interest only period may be unableextended to obtain such financing,February 1, 2020 if certain corporate milestones are achieved. The Loan Agreement also requires us to pay a fee equal to 4.25% of the total original principal amount of all term loan advances (“End of Term Charge”), which is due upon repayment of the Term Loan at either maturity or obtain it on favorable terms, in which case we may be required to curtail development of new products, limit expansion of operations or accept financing terms that are not as attractive as we may desire.

Cash Flowsearlier repayment.

Net Cash Flow FromFlows from Operating Activities

Operating cash inflows are generated primarily from product sales, license and development fees and royalties.  Operating cash outflows consist principally of expenditures for manufacturing costs, personnel costs, general and administrative costs,expenses, research and development projects, including clinical studies, and sales and marketing activities. Fluctuations in cash used in operating activities are primarily a result of the timing of cash receipts and disbursement.disbursements. Net cash used in operating activities was $10,094,441 for the six months ended June 30, 2017 and $8,683,126 for the six months ended June 30, 2016 as compared to $19,863,058 for the six months ended June 30, 2015.  The decrease in cash used in operating activities in the first six months of 2016 as compared to 2015 was primarily the result of a growth in accounts payable as of June 30, 2016, which conserved cash, as compared to greater cash used to pay down accounts payable and accrued expenses during the first half of 2015.2016.  For the six months ended June 30, 2016,2017, the net cash used in operating activities was primarily driven by our net loss, adjusted for non-cash operating costs such as depreciation, amortization and share-based compensation, plus increaseschanges in accounts receivable and inventories,payable, offset by additional inventory purchases and the growthrelease of OTREXUP® deferred revenues in our accounts payable and deferred revenue.connection with the change in revenue recognition method.

Net Cash FlowFlows from Investing Activities

Net cash provided byused in investing activities for the six months ended June 30, 20162017 was $3,405,807$10,550,187 as compared to net cash used inprovided by investing activities $14,089,254of $3,405,807 for the six months ended June 30, 2015.2016.  The net cash outflow for the six months ended June 30,


2017, was attributable to purchases of investment securities of $9,963,978 and payments for capital expenditures and patent acquisition costs totaling $586,209, while the net cash inflow for the six months ended June 30, 2016 was attributable to maturities of investment securities of $6,000,000, offset by payments for capital expenditures and patent acquisition costs.   The net cash outflowcosts totaling $2,594,193.  

Net Cash Flows from Financing Activities

Cash flow provided by financing activities was $26,348,773 for the six months ended June 30, 2015 included2017, attributable to the purchasereceipt of $15,037,000 in investments with$25,000,000 proceeds from our commondebt issuance and $1,590,204 cash proceeds received from the exercise of stock offering in May 2015 and the payment of $4,091,000 for capital expenditures and $960,000 in patent legal defense costs related to litigation settled in 2015,options offset by maturitiespayments of investment securitiesdebt issuance costs and tax withholding payments in connection with settlement of $6,000,000.

Netshare-based awards.  Cash Flow from Financing Activities

Net cash used in financing activities was $64,096 for the six months ended June 30, 2016, and was related to amounts withheld andcash remitted to the appropriate taxing authorities in connection with net-share settled awards for an employee’swhich we withheld shares equivalent to the value of the employees’ minimum statutory obligation for the applicable income and other employment taxes in connection withtaxes.

Contractual Obligations

The following table presents our contractual obligations and the net settlementrelated payments, including interest, due by period as of restricted stock awards that vested. Net cash provided by financing activities was $43,047,076 for the six months ended June 30, 2015 and was principally attributable to the receipt of cash proceeds of $43,115,000 in gross proceeds from the offering and sale of our common stock in May 2015.2017:

 

 

Payments Due by Period

 

 

 

 

 

 

 

Less than

 

 

1 - 3

 

 

3 - 5

 

 

More than

 

 

 

Total

 

 

1 year

 

 

years

 

 

years

 

 

5 years

 

Long-Term Debt Obligations

 

$

34,000,014

 

 

$

2,127,778

 

 

$

11,012,670

 

 

$

18,940,522

 

 

$

1,919,044

 

Operating Lease Obligations

 

 

2,034,993

 

 

 

626,688

 

 

 

993,745

 

 

 

414,560

 

 

 

 

Total

 

$

36,035,007

 

 

$

2,754,466

 

 

$

12,006,415

 

 

$

19,355,082

 

 

$

1,919,044

 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, including any arrangements with any structured finance, special purpose or variable interest entities.

Research and Development Programs

We conduct clinical, regulatory, formulation development, parenteral device development and commercial development activities for internal and partnered products.  The following is a discussion of our significant research and development programs.

XYOSTEDTM(Formerly referred to as VIBEX® QuickShot® Testosterone (“QST”or “QST”).  We are developing QSTXYOSTEDTM for self-administered weekly injections of testosterone enanthate in a preservative free formulation for clinically diagnosed testosterone deficient men requiring testosterone replacement.replacement therapy.  

On December 5, 2012, we conducted a pre-IND (Investigational New Drug application) meeting with the FDA as part of preparing to initiate clinical development of QST,XYOSTEDTM, establishing an agreed upon clinical path forward.  In September 2013, we announced that the first patients were dosed in a clinical study evaluating the pharmacokineticsPK profile of testosterone enanthate administered weekly by subcutaneous injection at doses of 50 mg and 100 mg via the QSTXYOSTEDTM auto injector device in testosterone deficient adult males with testosterone deficiency.males. The study enrolled 39 patients at nine investigative sites in the U.S.  We announced our top-linetop line results of this study in a press release on February 20, 2014.  TheWe believe that the results are considered positive in that QSTXYOSTEDTM treatment resulted in most patients achieving average levels of testosterone within the normal range from the first dose onward.  QSTXYOSTEDTM was also safe and well-toleratedwell tolerated by all dosed patients.

On November 3, 2014, we announced that the last patient hashad been enrolled in a double-blind, multiple-dose, phase III study (QST-13-003) to evaluate the efficacy and safety of  QSTXYOSTEDTM administered subcutaneously once each week to testosterone-deficient adult males.  Patients enrolled in this study had a documented diagnosis of hypogonadism or testosterone deficiency defined as having testosterone levels below 300 ng/dL.  The study includes a screening phase, a treatment titration and efficacy phase and an extended


treatment phase.  One hundred fifty patients arewere enrolled in this study.  Patients meeting all eligibility criteria were assigned to receive a starting dose of QSTXYOSTEDTM once weekly for six weeks.  Adjustments to dose could be made at week seven based upon the week six pre-dose blood level.  The efficacy of QSTXYOSTEDTM and dose adjustment to regulate testosterone levels were evaluated after 12 weeks of treatment.


On February 25, 2015, we announced positive top-line pharmacokinetic results that showed that the primary endpoint was achieved in QST-13-003. The protocol for the study required that at the week 12 endpoint: (i) at least 75% of all patients’ Cavg are within the normal range of 300 to 1100 ng/dL, with a lower limit of a 95% 2-sided confidence interval of greater than or equal to 65%, (ii) at least 85% of patients’ Cmax are less than1500 ng/dL and (iii) no more than 5% of patients had a Cmax greater than 1800 ng/dL. The primary endpoint of the population that received one or more doses of QSTXYOSTEDTM was met by 139 out of 150 patients, equating to 92.7% with a 95% confidence interval of 87.3% to 96.3%.  Among the 137 patients that completed all 12 weeks of dosing and pharmacokineticPK sampling, 98.5% were within the pre-defined range.  The top-line results of the PK study are summarized in the table below.

 

 Population/Analysis

 

Cavg Lower

limit of the

95% 2-sided

C. I.

 

 

Cavg % in range

300 – 1100 ng/dL

n (%)

 

 

Cmax <1500

ng/dL

n (%)

 

 

Cmax >1800

ng/dL

n (%)

 

Primary analysis* N=150

 

 

87.3

%

 

139 (92.7

%)

 

137 (91.3

%)**

 

 

0

%

Completers N=137

 

 

94.8

%

 

135 (98.5

%)

 

137 (100

%)

 

 

0

%

Protocol-Required Outcomes

 

 

≥65

%

 

75

%

 

≥85

%

 

 

≤5

%

 

*

All patients with 1 or more doses, Cavg 0-168 hours post week 12 injection or last measured concentration carried forward

**

Patients without a Cmax determination at week 12 are assigned above 1500 ng/dL

Overall, the regimen demonstrated a mean (± standard deviation) steady state concentration of testosterone of 553.3 ± 127.3 ng/dL at 12 weeks.

Participants in the study remained on QSTXYOSTEDTM and were followed for an additional 40 weeks for the collection of safety data.  On

After we initiated study QST-13-003, but before we announced positive top-line pharmacokinetic results in February 2015, we received written recommendations from the FDA related to our clinical development program for XYOSTEDTM.  The recommendations received were in response to various clinical, chemistry, manufacturing and controls and user study submissions that we made through November 2014.  We believe that we had already factored many of the recommendations cited in the advice letter into the protocol of the ongoing QST-13-003 study and into the protocols for planned human use studies as a result of guidance provided by the FDA at the May 2014 Type C meeting.  Based on a single reported occurrence of hives in our phase 2 study, the FDA recommended that we create a larger safety database, including approximately 350 subjects exposed to XYOSTEDTM with approximately 200 subjects exposed for six months and approximately 100 subjects exposed for a year.  We assessed the FDA’s comments in the advice letter and their impact on the timing of the filing of a NDA for XYOSTEDTM with the FDA.  Based on the number of subjects in previous studies and in the current QST-13-003 study, we concluded that we would need additional subjects exposed to XYOSTEDTM for six months.  The timing and design of the study to obtain the additional subjects and data required was determined based on further discussion with the FDA. We submitted our response to the FDA’s written recommendations in early March 16,2015.

In October 2015, we announced that the last patient in study QST-13-003 received their week 52 treatment, which marked the end of the treatment phase of this study.  In March 2016, we announced that the pharmacokinetic results of QST-13-003 were final and reported the results from the 52-week safety study.  The safety population, defined as patients who received at least one dose of study drug, was comprised of 150 patients.  The most common adverse reactions (incidence ≥5%) in this Phasephase 3 study were increased hematocrit, hypertension, increased prostate-specific antigen, Upper Respiratory Tract Infection,upper respiratory tract infection, sinusitis, injection site bruising and headache. Serious adverse events (SAE’s) reported included one case each of worsening depression, vertigo and suicide.  None of the SAE’s were considered to be related to the study drug by the investigators, however the Company determined that the case of suicide could not be ruled out as potentially being related to study drug.  There have been no reported adverse events consistent with urticaria (hives), POME,pulmonary oil micro embolism (“POME”), anaphylaxis or major adverse cardiovascular events in this study.

After we initiated study QST-13-003, but before we announced positive top-line pharmacokinetic results in February 2015, we received written recommendations from the FDA related to our clinical development program for QST.  The recommendations received were in response to various clinical, Chemistry, Manufacturing and Controls and user study submissions that we made through November 2014.  We believe that we had already factored many of the recommendations cited in the advice letter into the protocol of the ongoing QST-13-003 study and into the protocols for planned human use studies as a result of guidance provided by the FDA at the May 2014 Type C meeting.  Based on a single reported occurrence of hives in our phase II study, the FDA recommended that we create a larger safety database, including approximately 350 subjects exposed to QST with approximately 200 subjects exposed for six months and approximately 100 subjects exposed for a year.  We assessed the FDA’s comments in the advice letter and their impact on the timing of the filing of a New Drug Application (“NDA”) for QST with the FDA.  Based on the number of subjects in previous studies and in the current QST-13-003 study, we concluded that we would need additional subjects exposed to QST for six months.  The timing and design of the study to obtain the additional subjects and data required was determined based on further discussion with the FDA. We submitted our response to the FDA’s written recommendations in early March 2015.


In May 2015, we received aan additional written update from the FDA related to our clinical development program for QST. We believe, basedXYOSTEDTM. Based on thethat update received from the FDA, we concluded there iswas an agreed upon path forward for the completion of an additional study to support the filing of a NDA for QST.XYOSTEDTM.  In June 2015, we finalized and submitted the protocol for the study, and in August 2015, we enrolled the first patients in the study, which is known as QST-15-005. The study includeswas a dose-blind, multiple-dose, concentration controlled 26-week supplemental safety and pharmacokinetic study of XYOSTEDTM, which included a screening phase, a treatment titration phase, and a treatment phase for evaluation of safety and tolerability assessments including laboratory assessments, adverse events and injection site assessments.  The study is a dose-blind, multiple-dose, concentration controlled 26-week supplemental safety and pharmacokinetic study of QuickShot® Testosterone.assessment.  Patients meeting all eligibility criteria will bewere assigned to receive 75 mg of QSTXYOSTEDTM once weekly for six weeks.  According to the protocol, adjustments to dose maycould be made at week seven based upon the week six Ctrough value.  QST will beXYOSTEDTM was provided to clinical sites at dosage strengths of 100 mg, 75 mg and 50 mg to be utilized in dose titration.


In October 2015, we announced that the last patient in study QST-13-003 received their week 52 treatment, which marked the end of the treatment phase of this study.  In early November 2015, the Company also announced that enrollment was complete in study QST-15-005. At that time, 108The safety population, defined as patients hadwho received aat least one dose of QST.  Following completionthe study drug, consisted of screening, 133 patients were dosed with QST.  The Company believes that upon successful completion of this study we should be able to satisfy the FDA’s recommendation for the larger safety database as discussed above.  OnXYOSTEDTM.  In June 1, 2016, we announced that the last patient had completed their treatment under the 26-week safety and pharmacokinetic phase 3 study QST-15-005.

In addition toQST-15-005, and in September 2016 we announced the clinical trial program, there is an ongoing Human Factors program to demonstrate safe and reliable at-home usability of QST.  Study populations include trained and untrained subjects, including patients, non-patient caregivers and health care providers.  The goalsresults of the program are to optimize and document reliable and proper administration in study subjectsstudy. The most common adverse reactions (incidence ≥5%) in the settingQST-15-005 study were increased hematocrit, upper respiratory tract infection and injection site ecchymosis.  There were four patients with treatment emergent SAE’s, which included one patient with transient visual impairment determined not to be drug related, one patient with appendicitis that was not drug related and one patient with deep vein thrombosis (“DVT”).  The investigator attributed DVT as possibly drug related, which is consistent with known testosterone class SAE’s.  The fourth patient had multiple hospitalizations related to septic arthritis and coronary artery disease, with a complicated clinical course post-angioplasty. These multiple reported events from the fourth patient were deemed not to be drug related.  There were no reported adverse events consistent with urticaria, POME or anaphylaxis.  The safety data collected also included an assessment of at-home use in order to supportpain.  Of the approvability965 injections assessed, pain was reported one time.  In that instance, the pain reported was classified as mild.

Based upon the completion of our clinical and development work and the results of the product. We are presently preparing our NDAstudies detailed above, we submitted a 505 (b) (2) New Drug Application for QST for submissionXYOSTEDTM to the FDA in December 2016. The NDA submission was accepted for standard review by the FDA and expect to file in late 2016.assigned a PDUFA target date for completion of its review by October 20, 2017.

Device Development Projects.  We, along with our pharmaceutical partners, are engaged in research and development activities related to our VIBEX® disposable pressure assisted auto injectors, our QuickShot® (“QS”) auto injectors and our disposable pen injectors.  We have signed license agreements with Teva for our VIBEX® system for a product containing epinephrine and for our pen injector devices for a product containing exenatideuse with generic versions of BYETTA® (exenatide) and a product containing teriparatide.Forteo® (teriparatide). We also have a license, development and supply agreement with AMAG for our QSauto injector device containingfor use with its drug Makena® indicated for reduced risk of preterm birth. Our pressure assisted auto injectors are designed to deliver drugs by injection from single dose prefilled syringes.  The disposable pen injector device is designed to deliver drugs by injection through needles from multi-dose cartridges.. The development programs consist of determination of the device design, development of prototype tooling, production of prototype devices for testing and clinical studies, and development of commercial tooling and assembly equipment.assembly.  We expect development related to these products to continue, however, the development timelines are generally controlled by our partners and the extent of near-term and future development will be dependent on decisions made by our partners. The following is a summary of the development stagestages for each of the four products in development with Teva and the development stage of our product with AMAG.

VIBEX® with Epinephrine

We have designed the VIBEX® device for a product containing epinephrine and have scaled up the commercial tooling and molds for this product.  From a regulatory standpoint Teva filed this product as an ANDA, and the FDA accepted the filing as such.  Currently, Teva is conducting its own development work on the drug product (epinephrine).  An amendment to the ANDA was filed with the FDA in December 2014.  Teva received a complete response letter on February 23, 2016 relating to its epinephrine ANDA in which, according to Teva, the FDA identified certain major deficiencies. Teva is evaluating the CRL and intends to submit a response. Due to the major deficiencies identified in the CRL, Teva expects that its epinephrine product will be substantially delayed from the previously anticipated launch date in the second half of 2016 and that any launch will not take place before 2017.

Teriparatide disposable pen injector

We have developed, produced and provided clinical supplies for a previously undisclosed pen injector product, which was referred to as “Pen 1”.  In April 2016, we disclosed that the “Pen 1” project with Teva relates to a generic form of Forteo® (teriparatide [rDNA origin] injection) (“Teriparatide”), marketed by Eli Lilly and Company (“Lilly”).  Forteo® is an injectable treatment for osteoporosis in postmenopausal women and men at high risk for fracture and for glucocorticoid induced osteoporosis in men and postmenopausal women.  Teva previously filed an ANDA for Teriparatide, which was accepted by the FDA and is currently under review.  On March 16, 2016, Lilly filed a lawsuit against Teva alleging patent infringement in response to Teva’s Paragraph IV notice and filing contained in their ANDA for Teriparatide, resulting in a thirty-month stay on FDA’s approval of the ANDA.  The stay will expire in August 2018 unless the litigation is resolved prior to that time.  Based on available information, we believe that Teva may be the "first applicant" to file an ANDA for a generic equivalent of Forteo® and, should Teva’s ANDA be approved, may be entitled to 180 days of generic market exclusivity. The ANDA for Teriparatide represents the fourth ANDA for which the Company is the device developer and the third drug device combination product with first-to-file status using one of our devices.


Exenatide disposable pen injector

We have designed and produced pen injectors for the exenatide pen injector product (“Exenatide”).  Teva initiated drug stability and completed the device development program and filed an ANDA with the FDA in the second half of 2013.  The ANDA was accepted by the FDA in October 2014 and is currently under FDA review.  In December 2014, AstraZeneca Pharmaceuticals, LP, AstraZeneca AB, and Amylin Pharmaceuticals, LLC (“AstraZeneca”) filed a lawsuit alleging patent infringement against Teva with respect to certain patents related to their generic version of BYETTA® (exenatide).  Teva settled the patent litigation with AstraZeneca and entered into a settlement and license agreement pursuant to which AstraZeneca granted Teva a license to manufacture and commercialize Teva’s generic version of BYETTA® in the U.S. beginning October 15, 2017 or earlier under certain circumstances. Based on available information, we believe that Teva may be the "first applicant" to file an ANDA for Exenatide as a generic equivalent of BYETTA® and, should Teva’s ANDA be approved, may be entitled to 180 days of generic market exclusivity.

VIBEX® QS with Makena® (hydroxyprogesterone caproate injection) Auto Injector

We are in the process of developing a variation of our VIBEX® QuickShot® auto injector for use with the progestin hormone drug Makena® under a license, development and supply agreement with AMAG.  Under this arrangement, AMAG is responsible for the clinical development and preparation, and submission and maintenance of all regulatory applications.  We are responsible for the design and development of the auto-injection device.

AMAG initiated a PK study for the Makena® auto injector in October 2016 and announced positive top-line results of the study in February 2017.  According to AMAG, the study successfully demonstrated comparable bioavailability between subcutaneous injection of Makena® compared to intra muscular injection.  AMAG submitted its sNDA for the Makena® subcutaneous auto injector in April 2017, which was accepted by the FDA and given a PDUFA target action date of February 14, 2018.

VIBEX® with epinephrine

We, in collaboration with Teva, have developed a VIBEX® auto injector device for a product containing epinephrine. Teva is responsible for development work on the drug epinephrine, and we are responsible for development of the device.  Teva filed an ANDA for the VIBEX® epinephrine pen as a generic substitute of Mylan’s branded product, EpiPen®, which was accepted by the FDA, and amended in December 2014.  We have scaled up the commercial tooling and molds for this product and delivered pre-launch quantities of the product in anticipation of a potential approval and launch.  However, Teva received a CRL from the FDA in February 2016 in which, according to Teva, the FDA identified certain major deficiencies.  Teva has advised us that they submitted a response to the CRL and are targeting a launch in early 2018.

Exenatide disposable pen injector

We have designed and produced a pen injector product for use with exenatide for Teva.  Teva filed an ANDA for a generic version of BYETTA®, which was accepted by the FDA in October 2014 and is currently under review.  Teva settled patent litigation with AstraZeneca relating to certain AstraZeneca U.S. patents and their drug, BYETTA® (exenatide).  AstraZeneca and Teva entered into a settlement and license agreement pursuant to which AstraZeneca granted Teva a license to manufacture and commercialize the generic version of BYETTA® described in Teva’s ANDA.  The settlement allows Teva to commercialize their exenatide product in the U.S., assuming FDA approval, beginning October 15, 2017 or earlier under certain circumstances.


Teriparatide disposable pen injector

We have designed and produced a multi-dose disposable pen injector for use with teriparatide for Teva and have delivered devices for a drug stability program to support a regulatory filing.  Teva is developing this product for use in both Europe and the U.S. with the European clinical/regulatory team leading the development.  

Teva filed an ANDA for a generic version of Forteo® (teriparatide [rDNA origin] injection), which was accepted by the FDA and is currently under review.  In response to Teva’s paragraph IV certification contained in Teva’s ANDA for teriparatide, Lilly filed a lawsuit against Teva alleging infringement of six U.S. patents related to Forteo® (teriparatide [rDNA origin] injection) resulting in a 30-month stay in FDA approval of the ANDA.  The stay will expire in August 2018 unless the litigation is resolved sooner.  Teva also successfully concluded a decentralized procedure registration process in Europe.  According to Teva, the Public Assessment Report for the decentralized procedure has been published and the product was filed in 17 countries, which addresses the majority of the market value in Europe.

Other Research and Development Costs.  In addition to our QST projectdevelopment of XYOSTEDTM and our device development projects with Teva and AMAG, we incur direct costs in connectionassociated with other internal research and development projects related to our technologies and indirect costs that include personnel costs, administrative and other operating costs related to managing our research and development projects.activities.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, including any arrangements with any structured finance, special purpose or variable interest entities.

Critical Accounting Policies

We have identified certain of our significant accounting policies that we consider particularly important to the portrayal of our results of operations and financial position and which may require the application of a higher level of judgment by management and, as a result, are subject to an inherent level of uncertainty.  These policies are characterized as “critical accounting policies” and address revenue recognition, inventory valuation, valuation of long-lived and intangible assets, and share-based compensation and are more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2015.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”, which is intended to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted.  Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. We are currently assessing the effect that ASU No. 2016-02 will have on our results of operations, cash flows and financial position.

In March 2016, FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”, as part of its simplification initiative. The areas of simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU No. 2016-09 is effective for annual and interim periods beginning after December 31, 2016. We are currently assessing the impact that the standard will have on our results of operations, cash flows and financial position.

In March 2016, the FASB issued ASU No. 2016-08 “Principal Agent Considerations (Reporting Revenue Gross versus Net)” and in April 2016, FASB issued ASU No. 2016-10 “Identifying Performance Obligations and Licensing.” These updates amend, clarify and provide implementation guidance on the new revenue recognition standard ASU No. 2014-09, Revenue from Contract with Customers, which is effective for annual and interim periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of these standards will have on our results of operations, cash flows and financial position.


Item 3.

QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure isWe are exposed to foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar as the financial position and operating results of our subsidiaries in Switzerland are translated into U.S. dollars for consolidation. Our exposure to foreign exchange rate fluctuations also arises from transferring funds to our Swiss subsidiaries in Swiss Francs.  In addition, we have exposure to exchange rate fluctuations between the Euro and the U.S. dollar in connection with a licensing agreement with Ferring, under which certain products sold to Ferring and royalties are denominated in Euros.  Most of our product sales, including a portion of our product sales to Ferring, and our development and licensing fees and royalties are denominated in U.S. dollars, thereby significantly mitigating the risk of exchange rate fluctuations on trade receivables. We do not currently use derivative financial instruments to hedge against exchange rate risk.  The effect of foreign exchange rate fluctuations on our financial results for the periods ended June 30, 20162017 was not material.

We also have limited exposure to market risk due to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because a significant portion of our investments are in debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal. To minimize market risk, we have in the past and, to the extent possible, will continue in the future, to hold debt securities to maturity at which time the debt security willmay be redeemed at its stated or face value. Due to the nature of our marketable securities, we believe that we are not exposed to any material market interest rate risk relatedand interest rate fluctuations as a result of our long-term debt financing we obtained on June 6, 2017.  Our Term Loan, with a current outstanding principal of $25,000,000, accrues interest at a calculated prime-based variable rate with a maximum interest rate of 9.50%. The calculated prime-based variable rate was 8.75% at June 30, 2017.  An increase to our investment portfolio.the maximum interest rate of 9.50% would result in additional incremental annual interest expense of $187,500.

Item 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  The evaluation was performed to determine whether the Company’s disclosure controls and procedures have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were effective.

Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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, within the Company have been detected.  The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that


any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 


PART II - OTHEROTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

None.

Item 1A.

RISK FACTORS

In addition to the other information contained in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A.  Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, which could materially affect our business, financial condition or future results.  There have been no material changes to these risk factors other than the supplemental information and risk factors discussed below.  The risks described in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 are not the only risks facing us.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Risks Related to our Common Stock

Our common stock is listed on The NASDAQ Capital Market and if we do not maintain compliance with NASDAQ Marketplace Rules our common stock may be delisted from the NASDAQ Capital Market.

To keep our listing on The NASDAQ Capital Market, we are required to maintain: (i) a minimum bid price of $1.00 per share, (ii) a certain public float, (iii) a certain number of round lot shareholders and (iv) one of the following: a net income from continuing operations (in the latest fiscal year or two of the three last fiscal years) of at least $500,000, a market value of listed securities of at least $35 million or a stockholders’ equity of at least $2.5 million. On April 12, 2016, we were notified by the NASDAQ Listing Qualifications Department that we do not comply with the $1.00 minimum bid threshold as our common stock has traded below the $1.00 minimum bid price for 30 consecutive business days. We were automatically provided with a 180-calendar day period within which to regain compliance.  On June 15, 2016, we received a notification letter from the NASDAQ Stock Market advising us that we had regained full compliance with the $1.00 minimum bid price threshold because our stock had closed above $1.00 for at least ten consecutive trading days and that NASDAQ considered this matter closed.  In the future, our common stock could again trade below the $1.00 minimum bid price for 30 consecutive days and we could become non-compliance with The NASDAQ Marketplace Rules.

We are also required to maintain certain corporate governance requirements. In the event that in the future we are notified that we no longer comply with NASDAQ’s corporate governance requirements, and we fail to regain compliance within the applicable cure period, our common stock could be delisted from The NASDAQ Capital Market.

If our common stock is delisted, trading of the stock will most likely take place on an over-the-counter market established for unlisted securities, such as the Pink Sheets or the OTC Bulletin Board. An investor is likely to find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors may not buy or sell our common stock due to difficulty in accessing over-the-counter markets, or due to policies preventing them from trading in securities not listed on a national exchange or other reasons. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified executives and employees and to raise capital.


Item 2.

UNREGISTERED SALESALES OF EQUITYEQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3.

DEFAULT UPON SENIOR SECURITIES

None.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

Item 5.

OTHER INFORMATION

None.


Item 6.

EXHIBITSEXHIBITS

(a)

(a) Exhibit Index

 

Exhibit No.

 

Description

 

 

 

10.1#+  10.1

 

AmendedLoan and Restated EmploymentSecurity Agreement dated as of June 30, 2016 between6, 2017, by and among Antares Pharma, Inc., Hercules Capital, Inc., and James E. Fickenscher

10.2#+  

Amendedthe several banks and Restated Employmentother financial institutions or entities from time to time party to the Loan Agreement dated as of June 30, 2016 between Antares Pharma, Inc. and Peter J. Graham

10.3#  

Certificate of Amendment to Certificate of Incorporation of Antares Pharma, Inc.

10.4#+  

Form of Nonqualified Stock Option Grant Agreement

10.5#+  

Form of Restricted Stock Unit Grant Agreement

10.6#+  

Form of Restricted Stock Grant Agreement

10.7+  

Antares Pharma, Inc. 2008 Equity Compensation Plan, as amended and restated (Filed(filed as Exhibit 4.110.1 to Form S-88-K on June 2, 20167, 2017 and incorporated herein by reference.)

 

 

 

31.1#

 

Certificate of the Chief Executive Officer of Antares Pharma, Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2#  

 

Certificate of the Chief Financial Officer of Antares Pharma, Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1## 

 

Certificate of the Chief Executive Officer of Antares Pharma, Inc. required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.amended, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2## 

 

Certificate of the Chief Financial Officer of Antares Pharma, Inc. required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.amended, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS#

 

XBRL Instance Document

 

 

 

101.SCH#

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL#

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.LAB#

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE#

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101.DEF#

 

XBRL Taxonomy Extension Definition Document

 

#  

Filed herewith.

##

Furnished herewith.

+

Indicates management contract or compensatory plan or arrangement.

 


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.

 

 

 

ANTARES PHARMA, INC.

 

 

 

August 9, 20168, 2017

 

/s/ Robert F. Apple

 

 

Robert F. Apple

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

August 9, 20168, 2017

 

/s/ James E. FickenscherFred M. Powell

 

 

James E. FickenscherFred M. Powell

 

 

Senior Vice President and Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

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