| Description of Business and Significant Accounting Policies | 1. Description of Business and Significant Accounting Policies Organization Relypsa, Inc. (Relypsa or the Company) is a biopharmaceutical company focused on the discovery, development and commercialization of polymer-based drugs to treat conditions that are often overlooked and undertreated, but that can have a serious impact on patients’ lives and even be life-threatening. On October 21, 2015, the U.S. Food and Drug Administration (FDA) approved the Company’s first drug, Veltassa® (patiromer) for oral suspension, for treatment of hyperkalemia. Hyperkalemia is a life-threatening condition defined as abnormally elevated levels of potassium in the blood. The Company launched Veltassa in December 2015 and it is available for prescription to patients in the United States through a limited number of specialty pharmacies and specialty distributors. The Company commenced operations on October 29, 2007. The Company’s principal operations are based in Redwood City, California and it operates in one segment. On July 20, 2016, the Company entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with Galenica AG, a public limited company existing under the laws of Switzerland (Galenica), and Vifor Pharma USA Inc., a Delaware corporation and an indirect wholly owned subsidiary of Galenica (Merger Sub). Pursuant to the terms of the Merger Agreement, Merger Sub has commenced a tender offer to purchase all of the issued and outstanding shares of common stock of the Company, par value $0.001 per share (the Shares), at a purchase price of $32.00 per Share (the Offer Price), payable to the holder thereof in cash, without interest and less any applicable withholding taxes (the Offer). As soon as practicable following the consummation of the Offer and subject to the satisfaction or waiver of the other conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company and the Company will survive the Merger as a wholly owned subsidiary of Galenica (the Merger). The Merger will be effected in accordance with the Merger Agreement and under Section 251(h) of the General Corporation Law of the State of Delaware (the DGCL), which permits completion of the Merger upon the acquisition by Merger Sub in the Offer of at least such percentage of the Company’s stock as would be required to adopt the Merger Agreement at a meeting of the Company’s stockholders. Accordingly, if, following the Offer, a number of Shares have been tendered such that Merger Sub holds a majority of the outstanding Shares, the Merger Agreement contemplates that the parties will cause the closing of the Merger as soon as practicable without a vote of the Company’s stockholders in accordance with Section 251(h) of the DGCL. At the effective time of the Merger, each outstanding Share (other than Shares held by Galenica, Merger Sub or the Company or their direct or indirect wholly owned subsidiaries, Shares irrevocably accepted for purchase pursuant to the Offer and Shares held by stockholders who are entitled to demand and who have properly and validly perfected their statutory rights of appraisal under Delaware law) will be automatically converted into the right to receive an amount in cash equal to the Offer Price (the Merger Consideration), without interest, less any applicable withholding taxes, upon the surrender of the certificate representing such Share. The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to the satisfaction or waiver of a number of closing conditions set forth in the Merger Agreement, including the tender of a majority of the Shares in the Offer and the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company does not expect there to be a significant period of time between the consummation of the Offer and the consummation of the Merger. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the U.S. Securities Exchange Commission (SEC). Offerings On November 4, 2015, the Company filed a shelf registration statement on Form S-3, which permitted: (a) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $300.0 million of its common stock, preferred stock, debt securities, warrants and/or units; and (b) as part of the $300.0 million, the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $75.0 million of its common stock that may be issued and sold under a sales agreement with Cantor Fitzgerald & Co in one or more at-the-market offerings. During January and February 2016, the Company sold 2,509,372 shares pursuant to its current at-the-market offering at a weighted-average sale price of $18.18 for aggregate offering proceeds of $45.6 million, and the Company received aggregate net proceeds of $44.2 million. Basis of Presentation The unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2016 and 2015 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2015. The consolidated financial statements include all normal recurring adjustments, which the Company considers necessary for a fair presentation of our financial position at such dates and our operating results and cash flows for those periods. Results for the interim periods are not necessarily indicative of the results for the entire year. For more complete financial information, these condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC. Use of Estimates The preparation of these unaudited interim condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States, or Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers In February 2016, the FASB issued 2016-02, Leases . The ASU requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. This ASU requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. This ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting Liquidity The Company has never been profitable and, as of June 30, 2016, the Company has an accumulated deficit of $622.8 million. The Company may continue to incur substantial operating losses even after it begins to generate meaningful revenues from Veltassa. If the Company is unable to achieve the level of revenues from product sales that is contemplated in its operating plan and the Company is unable to raise additional funds through public or private equity, debt financings or other sources, the Company has contingency plans to implement cost cutting actions to reduce its working capital requirements. These reductions in expenditures may have an adverse impact on the Company’s ability to achieve certain of its planned objectives, which could have a material adverse effect on the business, results of operations, and financial condition. The Company will need to generate significant revenues to achieve profitability and may never do so. Inventory Inventory is composed of raw materials, intermediate materials, which are classified as work-in-process and finished goods, which are goods that are available for sale. Inventory costs include amounts related to third-party contract manufacturing, shipping costs, amortization of up-front payments to contract manufacturers, or CMOs, packaging services and manufacturing overhead. Inventory is carried at weighted average cost. The Company has contracted with third party manufacturers that produce the raw and intermediate materials used in the production of Veltassa as well as the finished product. In connection with production of inventory, the Company may be required to provide payments to third party manufacturers in advance of transfer of title or risk of loss. These amounts are included in inventory as raw materials on the accompanying condensed consolidated balance sheets. Inventories are stated at the lower of cost or market. If the Company identifies excess, obsolete or unsalable product, the Company will write down its inventory to its net realizable value in the period it is identified. The Company received FDA approval for Veltassa on October 21, 2015 and began capitalizing inventory starting in October 2015. Cost incurred prior to approval have been recorded as research and development expense in the condensed consolidated statements of operations. Accounts Receivable The Company extends credit to customers for product sales resulting in accounts receivable. Customer accounts are monitored for past due amounts. Past due accounts receivable, determined to be uncollectible, are written off against the allowance for doubtful accounts. Allowances for doubtful accounts are estimated based upon past due amounts, historical losses and existing economic factors, and are adjusted periodically. The accounts receivable are reported in the condensed consolidated balance sheets, net of allowances for doubtful accounts and cash discounts, generally 2% of the sales price, as an incentive for prompt payment. As of June 30, 2016 and December 31, 2015, the Company had a trade accounts receivable balance of $1.3 million and $0.5 million, respectively, related to Veltassa product sales. There was no allowance for doubtful accounts at June 30, 2016 and December 31, 2015. Revenue Recognition Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. The Company exercises judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and on the creditworthiness of the customer. Product Revenue and Net Product Sales The Company’s product revenues consist of U.S. sales of Veltassa and are recognized once the Company meets all four revenue recognition criteria described above. Veltassa was approved by the FDA on October 21, 2015 and the Company commenced shipments of Veltassa to specialty pharmacies and specialty distributors in late December 2015. The Company presently does not have the ability to estimate the extent of rebates or chargebacks or product that may ultimately be returned due to our lack of history with Veltassa product revenues at this time. Accordingly, the price is not considered to be deemed fixed or determinable at the time of the shipment to the specialty pharmacy or specialty distributor. Therefore, the Company recognizes revenue once the specialty pharmacy has filled the patient’s prescription for Veltassa or specialty distributor sells Veltassa. This approach is frequently referred to as the “sell-through” revenue recognition model. Under the sell-through approach, revenue is recognized when the specialty pharmacy provides product to a patient based on the fulfillment of a prescription or specialty distributor sells product to a hospital or other eligible entity. As of June 30, 2016 and December 31, 2015, the Company had a deferred revenue balance of $0.7 million and $0.5 million, respectively, related to Veltassa product sales. The Company recognizes revenues from product sales net of accruals for estimated customer credits, rebates, discounts, distribution services fees, chargebacks and Medicare Part D coverage gap reimbursements at the time of sale, which we refer to as net product sales. Collaboration and License Revenue In August 2015, the Company entered into a collaboration and license agreement (License Agreement) with Vifor Fresenius Medical Care Renal Pharma (VFMCRP), pursuant to which the Company granted to VFMCRP an exclusive, royalty-bearing license to the Company’s patents to develop and commercialize Veltassa outside the United States and Japan (Licensed Territory). The License Agreement sets forth the parties’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities. In exchange for the Company entering into the License Agreement, VFMCRP agreed to pay the Company an upfront cash payment of $40.0 million. The upfront payment was allocated to the 1) license and work on the submission of Marketing Authorization Application (MAA) deliverable, 2) an R&D deliverable and 3) a committee participation deliverable using the relative estimated selling price method. The Company estimated the best estimate of selling price (BESP) of the license based on a probability-adjusted present value of the expected cash flows. The BESP for the other deliverables was estimated by using internal estimates of the cost to perform the specific services plus a normal profit margin for providing the services. The determination of the BESP of the license involved significant judgment regarding the patient populations in the Licensed Territory, the percent of patients that would be treated and receive payment coverage, the duration of treatment of patients, the time and probability to achieve regulatory and pricing approval, and an appropriate discount rate. Embedded Derivatives Related to Debt Instruments Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the debt instrument. Upon the occurrence of a default or a change of control, the Company may prepay (or may be required to prepay) the outstanding amount of the debt. The prepayment premiums are considered a contingent put option liability, as the holder of the debt may exercise the option to prepay, and is considered an embedded derivative. If the Company were required to prepay the debt in September 2016 upon the occurrence of a change of control, the total amount of prepayment premiums would be approximately $50.0 million. The embedded derivative is presented together with the debt instrument and the related debt discount on a combined basis. The fair value of the contingent put option liability was determined by using a risk-neutral valuation model and the assumptions included in the valuation of the embedded derivative as of June 30, 2016 included an assumption of a change of control of 50% in the near term. As of June 30, 2016, the embedded derivative had a carrying value of $25.5 million. Changes in the estimated fair value of the bifurcated embedded derivatives are reported as gains or losses in interest and other (expense) income, net in the condensed consolidated statement of operations. Net Loss per Common Share Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per common share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period using the treasury stock method. The following outstanding shares of common stock equivalents were excluded from the computations of diluted net loss per common share attributable to common stockholders for the periods presented as the effect of including such securities would be antidilutive (in thousands):
June 30,
2016
2015
Warrants to purchase common stock
255
15
Options to purchase common stock
4,815
3,963
Restricted stock units
1,001
122
Common stock subject to repurchase
—
1
6,071
4,101 |
