Organization and Summary of Signifcant Accounting Policies | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Organization and Summary of Significant Accounting Policies | ' |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization |
Apricus Biosciences, Inc. and Subsidiaries (“Apricus” or the “Company”) is a Nevada corporation initially formed in 1987. The Company has operated in the pharmaceutical industry since 1995 with a current primary focus on product development and commercialization in the area of men’s and women’s health. The Company’s proprietary drug delivery technology is called NexACT® and the Company has one approved drug,Vitaros®, which uses the NexACT® delivery system, and is approved for the treatment of erectile dysfunction (“ED”) in Canada and through the European Decentralized Procedure in Europe . The Company has a second generation Vitaros® product (“Room Temperature Vitaros®”) in development, which is a proprietary stabilized dosage formulation that can be stored at room temperature conditions. In the area of women’s health is the Company’s product candidate, Femprox®, for female sexual interest / arousal disorder (“FSIAD”), which the Company is seeking to out-license to one or more partners for future development. |
Basis of Presentation |
The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). Certain prior year items have been reclassified to conform to the current year presentation. |
Use of Estimates |
The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company’s most significant estimates relate to whether revenue recognition criteria have been met, the fair value of its embedded derivatives related to the convertible notes payable, and valuation allowances for the Company’s deferred tax assets. The Company’s actual results may differ from these estimates under different assumptions or conditions. |
Liquidity |
The accompanying consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company had an accumulated deficit of approximately $268.1 million as of December 31, 2013, recorded a net loss of approximately $16.9 million for the year ended December 31, 2013 and has principally been financed through the public offering of our common stock and other equity securities, private placements of equity securities, debt financing and up-front payments received from commercial partners for our products under development. Funds raised in recent periods include approximately $15.8 million and $18.4 million from our May 2013 and February 2012 follow-on public offerings, respectively. Additionally, the Company raised approximately $0.8 million during the year ended December 31, 2013 from the sale of common stock via its “at-the-market” (“ATM”) stock selling facility and approximately $2.0 million from this facility in 2012. In March 2013, the Company completed the sale of its New Jersey Facility to a third-party resulting in net proceeds to the Company of approximately $3.6 million (See Note 5). In March 2013, the Company received $1.5 million in cash, as consideration for the sale of its Totect® assets (See Note 4). In November 2013, the Company received $2.6 million in cash upon sale of securities from an investment previously held and in December 2013, it received $1.8 million as an upfront payment from Laboratoires Majorelle (“Majorelle”). These cash-generating activities should not necessarily be considered an indication of our ability to raise additional funds in any future periods due to the uncertainty associated with raising capital. |
The Company’s cash and cash equivalents as of December 31, 2013 were approximately $21.4 million. In January 2014, the Company received an up-front license payment of $2.0 million from Hexal AG and a regulatory milestone payment of $0.2 million from Majorelle related to marketing approval obtained for France. Based upon its current business plan, the Company believes it has sufficient cash reserves to fund its on-going operations through mid-2015. The Company expects to have net cash outflows from operations in 2014 as it continues to support the market approvals and partner commercialization plans for Vitaros®, further develops Room Temperature Vitaros® and seeks to develop new product candidates through its existing technology. The Company’s $2.75 million in convertible notes are, at the holders’ option, redeemable in cash upon maturity at December 31, 2014, or convertible into shares of common stock. The Company expects the majority of its cash inflows from operations during 2014 will be from licensing and milestone revenues received from existing and potentially new commercial partners for licenses granted for Vitaros®. |
Based on its recurring losses, negative cash flows from operations and working capital levels, the Company will need to raise substantial additional funds to finance its operations. If the Company is unable to maintain sufficient financial resources, including by raising additional funds when needed, its business, financial condition and results of operations will be materially and adversely affected. There can be no assurance that the Company will be able to obtain the needed financing on reasonable terms or at all. Additionally, equity financings may have a dilutive effect on the holdings of the Company’s existing stockholders. |
Principles of consolidation |
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. |
Cash and cash equivalents |
Cash equivalents represent all highly liquid investments with an original maturity date of three months or less and were insignificant as of December 31, 2013 and 2012. |
Restricted cash |
Short term restricted cash is held as security for environmental remediation services to be performed as a result of the sale of the Company’s New Jersey facility in March 2013. |
Concentration of credit risk |
From time to time, the Company maintains cash in bank accounts that exceed the FDIC insured limits. The Company has not experienced any losses on its cash accounts. It performs credit evaluations of its customers, but generally does not require collateral to support accounts receivable. Three global pharmaceutical companies accounted for approximately 44%, 27%, and 26%, of total revenues during the year ended December 31, 2013. In addition, one of these companies comprised 95% of the Company’s accounts receivable as of December 31, 2013. |
Inventories |
Inventories are valued at the lower of cost (first-in, first-out) or market value (net realizable value) considering excess and obsolete inventory based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life and assumptions about the likelihood of obsolescence. |
Fair value of financial instruments |
The Company accounts for assets and liabilities at fair value in accordance with GAAP, which defines fair value and establishes a framework for measuring fair value based on a three-tiered valuation approach. The Company periodically reviews and evaluates the application of these valuation techniques to its assets and liabilities. For details on the assets and liabilities subject to fair value measurements and the related valuation techniques used, refer to Note 14. |
Assets held for sale |
The Company classifies assets as held for sale based on the accounting guidance which states that when the assets’ carrying amounts will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable, the assets designated as held for sale are held at the lower of the net book value or fair value less costs to sell, and reported separately on the balance sheet. Depreciation is not charged against property, plant and equipment classified as held for sale. |
In June 2013, the Company made the decision to sell its BQ Kits business and reclassified this segment to assets held for sale. In July 2013, the business was sold to an unrelated third party. |
In August of 2012 the Company decided to sell its facility in East Windsor, New Jersey, and as a result, the land, building and machinery associated with the facility were reclassified to property held for sale. |
In December of 2012 the Company decided to sell its Apricus Pharmaceutical business, and as a result, the underlying assets and liabilities were reclassified to assets held for sale. In March 2013, the Company sold all of its assets related to its Apricus Pharmaceutical business but retained the related liabilities which were reclassified to continuing operations (See Note 4 for further details). |
Property and equipment |
Property and equipment are stated at cost less accumulated depreciation. Depreciation of equipment and furniture and fixtures is provided on a straight-line basis over the estimated useful lives of the assets, or three to ten years. Amortization of leasehold improvements is provided on a straight-line basis over the shorter of their estimated useful lives or the lease term. The costs of additions and betterments are capitalized, and repairs and maintenance costs are charged to operations in the periods incurred (See Note 5 for further details). |
Impairment of long-lived assets |
The Company reviews for impairment of long-lived assets whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered impaired, the amount of the impairment loss recognized is measured as the amount by which the carrying value of the asset exceeds the fair value of the asset, fair value being determined based upon future cash flows or appraised values, depending on the nature of the asset. |
Debt issuance costs |
Amounts paid related to debt financing activities are capitalized and amortized over the term of the loan. |
Derivative liability |
The Company’s embedded conversion feature on its convertible note payable has a conversion price reset feature, which is treated as a derivative for accounting purposes. The Company estimates the fair value of the embedded conversion features using a Black-Scholes valuation model each reporting period and any resulting increases or decreases in estimated fair value recorded as an adjustment to other income (expense). |
Revenue recognition |
The Company has historically generated revenues from licensing of technology rights, product sales, performance of pre-clinical testing services, and contract sales services. Payments received under commercial arrangements, such as the licensing of technology rights, may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements designated in the agreements, or royalties on sales of products. |
The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the Company’s price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. |
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i. | License Arrangements. License arrangements may consist of non-refundable upfront license fees, various performance or sales milestones, royalties upon sales of product, and the delivery of product and/or research services to the licensor. The Company considers a variety of factors in determining the appropriate method of accounting under its license agreements, including whether the various elements can be separated and accounted for individually as separate units of accounting. Deliverables under the arrangement will be separate units of accounting, provided (i) a delivered item has value to the customer on a standalone basis; and (ii) if the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered item is considered probable and substantially in the Company’s control. The Company accounts for revenue arrangements with multiple elements entered into or materially modified after January 1, 2011, by separating and allocating consideration in a multiple-element arrangement according to the relative selling price of each deliverable. If an element can be separated, an amount is allocated based upon the relative selling price of each element. The Company determines the relative selling price of a separate deliverable using the price it charges other customers when it sells that product or service separately; however, if the product or service is not sold separately and third party pricing evidence is not available, the Company will use its best estimate of selling price. The Company defers recognition of non-refundable upfront fees if it has continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of its performance under the other elements of the arrangement. Non-refundable, up-front fees that are not contingent on any future performance by the Company and require no consequential continuing involvement on its part are recognized as revenue when the license term commences and the licensed data, technology and/or compound is delivered. The specific methodology for the recognition of the revenue is determined on a case-by-case basis according to the facts and circumstances of the applicable agreement. | | | | | | | | |
There have been no royalties or sales milestones received during the years ended December 31, 2013, 2012 or 2011. |
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ii. | Contract Service Revenue. Revenue from contract sales services resulted primarily from the Company’s former French Subsidiaries. The revenue was based on the number of medical visits plus an incentive based on the sales growth of the targeted pharmaceutical products. Revenue associated with medical visits was recognized in the accounting period in which services were rendered. For research services, the Company determines the period in which the performance obligation occurs and recognizes revenue using the proportional performance method when the level of effort to complete its performance obligations under an arrangement can be reasonably estimated. | | | | | | | | |
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iii. | Milestone Revenue. The Company evaluates milestone payments on an individual basis and revenues are recognized upon achievement of the associated milestone, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement and (ii) the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the milestone event. | | | | | | | | |
Research and development |
Research and development costs are expensed as incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct research and development on the Company’s behalf, pursuant to development and consulting agreements in place. |
Income taxes |
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. |
The Company also follows the provisions of accounting for uncertainty in income taxes which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. |
Loss per common share |
Basic and diluted net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding for the respective period, without consideration of common stock equivalents as they would have an anti-dilutive effect on per share amounts. |
The following securities that could potentially decrease net loss per share in the future are not included in the determination of diluted loss per share as they are anti-dilutive and are as follows: |
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| | FOR THE YEAR ENDED |
DECEMBER 31, |
| | 2013 | | 2012 | | 2011 |
Outstanding stock options | | 2,351,237 | | | 2,213,916 | | | 840,833 | |
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Outstanding warrants | | 6,185,492 | | | 3,205,492 | | | 777,284 | |
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Unvested restricted stock | | 26,728 | | | 112,705 | | | 257,063 | |
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Convertible notes payable | | 1,065,891 | | | 1,544,402 | | | 658,979 | |
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Stock-based Compensation |
The estimated grant date fair value of stock options granted to employees and directors is calculated based upon the closing stock price of the Company’s common stock on the date of the grant and recognized as stock-based compensation expense over the expected service period. The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option pricing model. |
Comprehensive income |
Comprehensive income and accumulated other comprehensive income includes unrealized foreign currency translation adjustments that are excluded from the consolidated statements of operations and reported as a separate component in stockholders’ equity. |
Segment Information |
The Company operates under one segment which designs and develops pharmaceutical products using its NexACT® technology. |
Geographic Information |
Revenues by geographic area for the Company’s continuing operations are as follows (in thousands): |
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| | December 31, |
| | 2013 | | 2012 | | 2011 |
United States | | — | | | — | | | 2,361 | |
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North America- Other | | — | | | 2,500 | | | 162 | |
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France | | 921 | | | 2,970 | | | — | |
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Europe- Other | | 1,590 | | | 2,475 | | | 887 | |
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Rest of the World | | — | | | — | | | 193 | |
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| | 2,511 | | | 7,945 | | | 3,603 | |
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Net long-lived assets by geographic area for the Company’s continuing operations are as follows (in thousands): |
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| | 2013 | | 2012 | | | |
United States | | 955 | | | 491 | | | | |
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France | | — | | | 110 | | | | |
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| | 955 | | | 601 | | | | |
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Recent Accounting Pronouncements |
In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in Foreign Entity, which addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The amendments are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013 (early adoption is permitted). The Company does not expect the adoption to have a material impact on the consolidated financial position and results of operations. |
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, that requires an unrecognized tax benefit be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward (collectively referred to as a “tax attribute carryforward”), unless the jurisdiction from which the tax attribute carryforward arose does not allow for such treatment. To the extent that a company does not have a tax attribute carryforward as of the reporting date, the unrecognized tax benefit is to be reported as a liability. The Company will adopt this ASU in the first quarter of 2014. The Company does not expect the adoption to have a material impact on the consolidated financial position and results of operations. |