Organization and Summary of Signifcant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
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 the development and commercialization of products and product candidates in the areas of specialty urology and rheumatology. The Company’s proprietary drug delivery technology is a permeation enhancer 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 (“DCP”) in Europe. Vitaros® was launched by the Company’s licensee partners in certain territories in Europe in the second half of 2014 and the Company expects that commercial launches will continue to occur throughout 2015. The Company has a second generation Vitaros® product candidate (“Room Temperature Vitaros®”) in development, which is a proprietary stabilized dosage formulation that is expected to be stored at room temperature conditions. RayVa™, the Company’s product candidate which also utilizes its proprietary permeation enhancer for the treatment of Raynaud’s Phenomenon secondary to scleroderma, received clearance from the United States Food and Drug Administration (“FDA”) in May 2014 to begin clinical studies, and the Company’s Phase 2a clinical trial began in December 2014. |
In October 2014, the Company entered into an agreement to license the exclusive United States development and commercialization rights for fispemifene, a tissue-specific selective estrogen receptor modulator (“SERM”) designed to treat secondary hypogonadism, chronic prostatitis and lower urinary tract symptoms in men (see note 3 for further details). |
Basis of Presentation and Principles of Consolidation |
The 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. Certain prior year items have been reclassified to conform to the current year presentation. |
Use of Estimates |
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) 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, accounting for clinical trials, the valuation of stock based compensation, the impairment of long-lived assets 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 $289.9 million as of December 31, 2014, recorded a net loss of approximately $21.8 million for the year ended December 31, 2014 and has principally been financed through the sale of its common stock and other equity securities, debt financing and up-front payments received from commercial partners for the Company’s products under development. Funds raised in recent periods from the sale of common stock include approximately 1) $15.8 million from the Company’s May 2013 follow-on public offering, 2) $3.7 million in net proceeds during 2014 from the sale of common stock from its committed equity financing facility with Aspire Capital Fund, LLC (“Aspire Capital”) (see note 7 for further details) and 3) $2.2 million in net proceeds during 2014 from the sale of common stock via its “at-the-market” (“ATM”) stock selling facility, which was terminated in August 2014. These and other cash-generating activities should not necessarily be considered an indication of the Company’s ability to raise additional funds in the future. |
In February 2015, the Company entered into subscription agreements with certain purchasers pursuant to which it agreed to sell an aggregate of 6,043,955 shares of its common stock and issued warrants to purchase up to an additional 3,021,977 shares of its common stock. Each share of common stock was priced at $1.82 and included one half of a warrant to purchase a share of common stock. The warrants have an exercise price of $1.82 per share, are exercisable beginning six months and one day after the date of issuance and expire on the seventh anniversary of the date of issuance. The total net proceeds from the offering were $10.8 million after deducting expenses of approximately $0.2 million. The subscription agreements require that the Company obtain permission from certain of the purchasers prior to selling shares under its committed equity financing facility. |
Based upon its current operating plan, the access to additional capital under its committed equity financing facility, potential to borrow an additional amount of up to $5.0 million under our credit facility, and the $10.8 million received from the Company’s February 2015 financing, the Company believes it has sufficient cash to fund its on-going operations through the first quarter of 2016. |
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 or debt financings may have a dilutive effect on the holdings of the Company’s existing stockholders. |
Cash and Cash Equivalents |
Cash equivalents represent all highly liquid investments with an original maturity date of three months or less and were not significant as of December 31, 2014 and 2013. |
Restricted Cash |
Short term restricted cash of $0.3 million is primarily restricted cash held in escrow for environmental remediation services to be performed and for taxes in connection with the sale of our New Jersey facility, both of which are the obligation of the Company. The Company has recorded a liability for the environmental remediation as well as tax liabilities, both of which are included in accrued liabilities. These liabilities represent the best estimate of the fair value of the total obligations and are expected to be satisfied within the current year and are therefore classified as current restricted cash and current liabilities, respectively. |
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. Laboratoires Majorelle, Recordati Ireland Ltd., and Hexal AG accounted for approximately 45%, 27%, and 27%, respectively, of total revenues during the year ended December 31, 2014. In addition, one of these companies comprised 75% of the Company’s accounts receivable as of December 31, 2014. |
Inventory Valuation |
Inventories are stated at the lower of cost or estimated realizable value. The Company capitalizes inventory costs associated with its products after regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Otherwise, such costs are expensed as research and development. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes-down such inventories as appropriate. In addition, the Company’s products are subject to strict quality control and monitoring which is performed throughout the manufacturing process, which takes place at its contract manufacturer. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such inventory to its estimated realizable value. |
Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. The Company estimates useful lives as follows: |
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• | Machinery and equipment: three to five years | | | | | | | | | | | |
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• | Furniture and fixtures: ten years | | | | | | | | | | | |
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• | Computer software: five years | | | | | | | | | | | |
Amortization of leasehold improvements and capital lease equipment 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). |
Leases |
Leases are reviewed and classified as capital or operating at their inception. The Company records rent expense associated with operating leases on a straight-line basis over the term of the lease. The difference between rent payments and straight-line rent expense is recorded as deferred rent in accrued liabilities. |
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. |
Revenue Recognition |
The Company generates revenues from the licensing of technology rights and the sale of products, and historically, from the 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, and royalties on the sale 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. |
License Fee Revenue |
Consideration received for the Company’s 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 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. |
Product Sales Revenue |
The Company has supply and manufacturing agreements with certain of its licensee partners for the manufacture and delivery of Vitaros® product. These agreements do not permit the Company’s licensee partners to return product, unless the product sold to the licensee partner is short-dated as defined in each respective license agreement. In those cases, the Company defers revenue recognition on these shipments until the right of return no longer exists, which is the earlier of: (i) evidence that the product has been sold through to the end customer or (ii) the right of return expires. As such, the Company does not have a sales and returns allowance recorded as of December 31, 2014. |
In 2014, the Company commenced shipping of its Vitaros® product to its licensee partners and recognized product sales revenue on certain of these shipments since the criteria for revenue recognition was met. |
Royalty Revenue |
The Company relies on its commercial partners to sell its product, Vitaros®, in approved markets. The Company receives royalties from licensee partners based upon the amount of sales of licensed Vitaros® product consummated by its commercial partners. Royalty revenues are computed based on sales reported to the Company by its licensee partners on a quarterly basis and agreed upon royalty rates for the respective license agreement. |
Contract Service Revenue |
Revenue from contract sales services resulted primarily from the Company’s former subsidiaries, Scomedica SAS, NexMed Europe SAS and NexMed Pharma SAS (the “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 determined the period in which the performance obligation occurred and recognized revenue using the proportional performance method when the level of effort to complete its performance obligations under an arrangement was able to be reasonably estimated. The Company does not anticipate future revenues from contract services. |
Cost of Product Sales |
The Company’s cost of product sales includes direct material and manufacturing overhead associated with the production of inventories. Cost of product sales is also affected by manufacturing efficiencies, allowances for scrap or expired material and additional costs related to initial production quantities of new products. |
Deferred Cost of Product Sales |
Deferred cost of product sales is stated at the lower of cost or net realizable value and includes product sold where title has transferred, but the criteria for revenue recognition have not been met. The Company’s deferred cost of product sales is included in prepaid expenses and other current assets in the consolidated balance sheets. |
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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| | Year Ended December 31, | | | |
| | 2014 | | 2013 | | 2012 | | | |
Outstanding stock options | | 3,955,548 | | | 2,351,237 | | | 2,213,916 | | | | |
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Outstanding warrants | | 6,859,682 | | | 6,185,492 | | | 3,205,492 | | | | |
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Unvested restricted stock | | — | | | 26,728 | | | 112,705 | | | | |
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Convertible notes payable | | — | | | 1,065,891 | | | 1,544,402 | | | | |
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| | 10,815,230 | | | 9,629,348 | | | 7,076,515 | | | | |
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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. |
Segment Information |
The Company operates under one segment which develops pharmaceutical products. |
Geographic Information |
Revenues by geographic area for the Company’s continuing operations are as follows (in thousands): |
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| | Year Ended December 31, |
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France | | $ | 4,150 | | | $ | 921 | | | $ | 2,970 | |
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Europe- Other | | 5,109 | | | 1,590 | | | 2,475 | |
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North America | | — | | | — | | | 2,500 | |
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| | $ | 9,259 | | | $ | 2,511 | | | $ | 7,945 | |
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-1 | Amounts included in Europe-other have not been broken out by country as it is impractical to do so given the nature and structure of the license agreements which cover multiple territories. See note 2 for further details related to these agreements. | | | | | | | | | | | |
All of the Company’s net long-lived assets were located in the United States in 2014 and 2013. |
Recent Accounting Pronouncements |
In November 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. This update clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. In addition, it clarifies that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The effects of initially adopting the new standard should be applied on a modified retrospective basis to existing hybrid financial instruments issued in a form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently in the process of evaluating whether the adoption of this update will have a material effect on its consolidated financial statements and related disclosures. |
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this update will require management to assess, at each annual and interim reporting period, the entity’s ability to continue as a going concern and, if management identifies conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, to disclose in the notes to the entity’s financial statements the principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of their significance, and management’s plans that alleviated or are intended to alleviate substantial doubt about the entity’s ability to continue as a going concern. This new standard is effective for annual periods ending after December 15, 2016 and early application is permitted. The Company is currently in the process of evaluating whether the adoption of this update will have a material effect on its consolidated financial statements and related disclosures. |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires entities to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures. |
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU raises the threshold for a disposal to qualify as discontinued operations and requires new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. Under the new standard, companies report discontinued operations when they have a disposal that represents a strategic shift that has or will have a major impact on operations or financial results. This update will be applied prospectively and is effective for annual periods, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted provided the disposal was not previously disclosed. This update will not have a material impact on the Company's reported results of operations and financial position. |