SPECTRUM PHARMACEUTICALS, INC.
Pro Forma Consolidated Financial Statements
(Unaudited)
On March 1, 2019, Spectrum Pharmaceuticals, Inc. (the “Company”), completed the sale of its seven commercialized drugs, including FUSILEV ®, KHAPZORY™, FOLOTYN ®, ZEVALIN ®, MARQIBO ®, BELEODAQ ®, and EVOMELA ® (the “Product Portfolio”), to Acrotech Biopharma LLC, a Delaware limited liability company (the "Buyer"). Upon transaction closing, the Company received $158.8 million in an upfront cash payment (of which $4 million will be held in escrow for six months), and is entitled to receive up to an aggregate of $140 million for the Buyer's achievement of certain regulatory and sales-based milestones relating to this product portfolio (the "Acrotech Transaction").
The unaudited Pro Forma Consolidated Balance Sheet is presented below and was derived from the Company's historical consolidated financial statements, in order to give effect to the Acrotech Transaction as if it occurred on December 31, 2018. The unaudited Pro Forma Statements of Operations were derived from the historical consolidated financial statements in order to give effect to the Acrotech Transaction as if it occurred on January 1, 2016. The pro forma adjustments remove all of the assets, liabilities, and results of operations attributable to the Product Portfolio, and give effect to an adjustment to reflect the net cash proceeds, restricted cash, and gain from the Acrotech Transaction. The unaudited Pro Forma Consolidated Balance Sheet and the unaudited Consolidated Statements of Operations do not purport to be indicative of the results as of such date, or for such periods, nor are they necessarily indicative of future results that would have been obtained if the sale had been completed as of the dates indicated in the notes to these Pro Forma Consolidated Financial Statements.
The pro forma adjustments are based on the best information currently available and various assumptions that management believes are factually supportable, reasonable, and directly attributable to the Acrotech Transaction. These adjustments are expected to have a continuing impact on the Company's consolidated results; however, such adjustments are subject to change with additional information and analysis. The unaudited Pro Forma Consolidated Balance Sheet and the unaudited Pro Forma Consolidated Statements of Operations should be read in conjunction with the historical financial statements and notes thereto contained in the Company's 2018 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on February 28, 2019.
SPECTRUM PHARMACEUTICALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2018
(In thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | |
| | Historical | | Pro Forma Adjustments | | Pro Forma |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $ | 157,480 |
| | $ | 154,764 |
| (a) | $ | 312,244 |
|
| Restricted cash | — |
| | 4,000 |
| (a) | 4,000 |
|
| Marketable securities | 46,508 |
| | — |
| | 46,508 |
|
| Accounts receivable, net of allowance for doubtful accounts of $67 | 29,873 |
| | — |
| | 29,873 |
|
| Other receivables | 3,698 |
| | — |
| | 3,698 |
|
| Inventories | 3,550 |
| | (3,550 | ) | (b) | — |
|
| Prepaid expenses and other assets | 9,579 |
| | (2,006 | ) | (b) | 7,573 |
|
| Total current assets | 250,688 |
| | 153,208 |
| | 403,896 |
|
| Property and equipment, net of accumulated depreciation | 385 |
| | — |
| | 385 |
|
| Intangible assets, net of accumulated amortization | 111,594 |
| | (111,594 | ) | (b) | — |
|
| Goodwill | 18,061 |
| | (18,061 | ) | (b) | — |
|
| Other assets | 10,158 |
| | (2,970 | ) | (b) | 7,188 |
|
| Total assets | $ | 390,886 |
| | $ | 20,583 |
| | $ | 411,469 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| Current liabilities: | | | | | |
| Accounts payable and other accrued liabilities | $ | 69,460 |
| | $ | — |
| | $ | 69,460 |
|
| Accrued payroll and benefits | 9,853 |
| | — |
| | 9,853 |
|
| Contract liabilities | 4,850 |
| | — |
| | 4,850 |
|
| FOLOTYN development liability | 2,311 |
| | (2,311 | ) | (b) | — |
|
| Total current liabilities | 86,474 |
| | (2,311 | ) | | 84,163 |
|
| FOLOTYN development liability, less current portion | 9,686 |
| | (9,686 | ) | (b) | — |
|
| Acquisition-related contingent obligations | 4,345 |
| | (4,345 | ) | (b) | — |
|
| Deferred tax liabilities | 1,469 |
| | (1,469 | ) | (e) | — |
|
| Other long-term liabilities | 5,650 |
| | — |
| | 5,650 |
|
| Total liabilities | 107,624 |
| | (17,811 | ) | | 89,813 |
|
| Commitments and contingencies | | | | | |
| Stockholders’ equity: | | | | | |
| Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding | — |
| | — |
| | — |
|
| Common stock, $0.001 par value; 300,000,000 shares authorized; 110,525,141 issued and outstanding at December 31, 2018 | 110 |
| | — |
| | 110 |
|
| Additional paid-in capital | 886,740 |
| | — |
| | 886,740 |
|
| Accumulated other comprehensive loss | (3,702 | ) | | — |
| | (3,702 | ) |
| Accumulated deficit | (599,886 | ) | | 38,394 |
| (c) | (561,492 | ) |
| Total stockholders’ equity | 283,262 |
| | 38,394 |
| | 321,656 |
|
| Total liabilities and stockholders’ equity | $ | 390,886 |
| | $ | 20,583 |
| | $ | 411,469 |
|
SPECTRUM PHARMACEUTICALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2018
(In thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | |
| | Historical | | Pro Forma Adjustments | | Pro Forma |
| | | | (d) | | |
| Revenues: | | | | | |
| Product sales, net | $ | 104,466 |
| | $ | (104,466 | ) | | $ | — |
|
| License fees and service revenue | 4,867 |
| | (4,867 | ) | | — |
|
| Total revenues | 109,333 |
| | (109,333 | ) | | — |
|
| Operating costs and expenses: | | | | | |
| Cost of sales (excludes amortization of intangible assets) | 26,756 |
| | (26,756 | ) | | — |
|
| Selling, general and administrative | 90,700 |
| | (28,010 | ) | | 62,690 |
|
| Research and development | 94,956 |
| | (19,799 | ) | | 75,157 |
|
| Amortization of intangible assets | 28,098 |
| | (28,098 | ) | | — |
|
| Total operating costs and expenses | 240,510 |
| | (102,663 | ) | | 137,847 |
|
| Loss from continuing operations | (131,177 | ) | | (6,670 | ) | | (137,847 | ) |
| Other income (expense): | | | | | |
| Interest expense, net | (340 | ) | | — |
| | (340 | ) |
| Change in fair value of contingent consideration related to acquisitions | 1,927 |
| | (1,927 | ) | | — |
|
| Other income, net | 9,580 |
| | — |
| | 9,580 |
|
| Total other income | 11,167 |
| | (1,927 | ) | | 9,240 |
|
| Loss from continuing operations before income taxes | (120,010 | ) | | (8,597 | ) | | (128,607 | ) |
| (Provision) benefit for income taxes from continuing operations | (1 | ) | | 30 |
| (e) | 29 |
|
| Net loss from continuing operations | $ | (120,011 | ) | | $ | (8,567 | ) | | $ | (128,578 | ) |
| | | | | | |
| Net loss per share from continuing operations: | | | | | |
| Basic | $ | (1.16 | ) | | $ | (0.08 | ) | | $ | (1.24 | ) |
| Diluted | $ | (1.16 | ) | | $ | (0.08 | ) | | $ | (1.24 | ) |
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 103,305,911 |
| | | | 103,305,911 |
|
| Diluted | 103,305,911 |
| | | | 103,305,911 |
|
SPECTRUM PHARMACEUTICALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2017
(In thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | |
| | Historical | | Pro Forma Adjustments | | Pro Forma |
| Revenues: | | | (d) | | |
| Product sales, net | $ | 116,178 |
| | $ | (116,178 | ) | | $ | — |
|
| License fees and service revenue | 12,189 |
| | (12,189 | ) | | — |
|
| Total revenues | 128,367 |
| | (128,367 | ) | | — |
|
| Operating costs and expenses: | | | | | |
| Cost of sales (excludes amortization of intangible assets) | 42,859 |
| | (42,859 | ) | | — |
|
| Cost of service revenue | 4,359 |
| | (4,359 | ) | | — |
|
| Selling, general and administrative | 84,267 |
| | (19,508 | ) | | 64,759 |
|
| Research and development | 65,895 |
| | (14,370 | ) | | 51,525 |
|
| Amortization of intangible assets | 27,647 |
| | (27,647 | ) | | — |
|
| Total operating costs and expenses | 225,027 |
| | (108,743 | ) | | 116,284 |
|
| Loss from continuing operations | (96,660 | ) | | (19,624 | ) | | (116,284 | ) |
| Other (expense) income: | | | | | |
| Interest expense, net | (6,798 | ) | | — |
| | (6,798 | ) |
| Change in fair value of contingent consideration related to acquisitions | (4,957 | ) | | 4,957 |
| | — |
|
| Other income, net | 389 |
| | — |
| | 389 |
|
| Total other income (expenses) | (11,366 | ) | | 4,957 |
| | (6,409 | ) |
| Loss from continuing operations before income taxes | (108,026 | ) | | (14,667 | ) | | (122,693 | ) |
| Benefit for income taxes from continuing operations | 16,778 |
| | (5,233 | ) | (e) | 11,545 |
|
| Net loss from continuing operations | $ | (91,248 | ) | | $ | (19,900 | ) | | $ | (111,148 | ) |
| | | | | | |
| Net loss per share from continuing operations: | | | | | |
| Basic | $ | (1.07 | ) | | $ | (0.24 | ) | | $ | (1.31 | ) |
| Diluted | $ | (1.07 | ) | | $ | (0.24 | ) | | $ | (1.31 | ) |
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 85,115,592 |
| | | | 85,115,592 |
|
| Diluted | 85,115,592 |
| | | | 85,115,592 |
|
SPECTRUM PHARMACEUTICALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2016
(In thousands, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | |
| | Historical | | Pro Forma Adjustments | | Pro Forma |
| Revenues: | | | (d) | | |
| Product sales, net | $ | 128,596 |
| | $ | (128,596 | ) | | $ | — |
|
| License fees and service revenue | 17,848 |
| | (17,848 | ) | | — |
|
| Total revenues | 146,444 |
| | (146,444 | ) | | — |
|
| Operating costs and expenses: | | | | | |
| Cost of sales (excludes amortization of intangible assets) | 27,953 |
| | (27,953 | ) | | — |
|
| Cost of service revenue | 7,890 |
| | (7,890 | ) | | — |
|
| Selling, general and administrative | 88,418 |
| | (28,096 | ) | | 60,322 |
|
| Research and development | 59,123 |
| | (16,688 | ) | | 42,435 |
|
| Amortization of intangible assets | 25,946 |
| | (25,946 | ) | | — |
|
| Total operating costs and expenses | 209,330 |
| | (106,573 | ) | | 102,757 |
|
| Loss from continuing operations | (62,886 | ) | | (39,871 | ) | | (102,757 | ) |
| Other (expense) income: | | | | | |
| Interest expense, net | (9,435 | ) | | — |
| | (9,435 | ) |
| Change in fair value of contingent consideration related to acquisitions | (649 | ) | | 649 |
| | — |
|
| Other income, net | 887 |
| | — |
| | 887 |
|
| Total other (expense) income | (9,197 | ) | | 649 |
| | (8,548 | ) |
| Loss from continuing operations before income taxes | (72,083 | ) | | (39,222 | ) | | (111,305 | ) |
| Benefit for income taxes from continuing operations | 2,313 |
| | (96 | ) | (e) | 2,217 |
|
| Net loss from continuing operations | $ | (69,770 | ) | | $ | (39,318 | ) | | $ | (109,088 | ) |
| | | | | | |
| Net loss per share from continuing operations: | | | | | |
| Basic | $ | (0.96 | ) | | $ | (0.54 | ) | | $ | (1.50 | ) |
| Diluted | $ | (0.96 | ) | | $ | (0.54 | ) | | $ | (1.50 | ) |
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 72,824,070 |
| | | | 72,824,070 |
|
| Diluted | 72,824,070 |
| | | | 72,824,070 |
|
SPECTRUM PHARMACEUTICALS, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Description of the Transaction and Basis of Presentation
The unaudited Pro Forma Consolidated Balance Sheet and the unaudited Pro Forma Consolidated Statements of Operations are derived from the historical Consolidated Financial Statements of the Company, which were included in its Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019. In accordance with SEC rules and regulations, the unaudited Pro Forma Consolidated Balance Sheet was derived from the Company's historical consolidated financial statements in order to give effect to the Acrotech Transaction, as if it occurred on December 31, 2018. The unaudited Pro Forma Consolidated Statements of Operations were derived from the historical consolidated financial statements in order to give effect to the Acrotech Transaction as if it occurred on January 1, 2016.
Pro Forma Adjustments
(a) Represents cash proceeds received at the closing of Acrotech Transaction, of which $4 million is held in escrow.
(b) Represents the removal of the assets and liabilities related to the Product Portfolio from the unaudited Pro Forma Consolidated Balance Sheet.
(c) Represents the non-recurring estimated gain that would have been recorded if we had completed the Acrotech Transaction on December 31, 2018.
(d) Amounts reflect the pro forma effect of eliminating the results of operations of the Product Portfolio for the years ended December 31, 2018, 2017, and 2016, respectively, from the presentation of continuing operations in these unaudited Pro Forma Consolidated Statements of Operations.
(e) The pro forma benefit for income taxes from continuing operations for the years ended December 31, 2018, 2017, and 2016, respectively, was computed under the “with-and-without” approach. Under the “with-and-without” approach, the pro forma income tax expense or benefit was determined by excluding the tax effects of tax adjustments solely attributable to the assets and liabilities of the Product Portfolio. The pro forma adjustments represent the removal of these amounts for the years ended December 31, 2018, 2017, and 2016, respectively, from the unaudited Pro Forma Consolidated Statements of Operations, and the removal of deferred tax liabilities from the unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2018, associated with intangible assets of the Product Portfolio.
