| Description of Business and Summary of Significant Accounting Policies | Description of Business and Summary of Significant Accounting Policies CTI BioPharma Corp., also referred to in these interim financial statements as “we,” “us,” “our,” the “Company” and “CTI,” is a biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies for blood-related cancers where there is a significant unmet medical need. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We have one commercially approved product, VONJO™ (pacritinib), which received accelerated approval on February 28, 2022 from the U.S. Food and Drug Administration, or FDA, in the United States, for the treatment of adult patients with intermediate or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis with a platelet count below 50 x 10 9 /L. We commercially launched VONJO in March 2022. We operate in a highly regulated and competitive environment. The manufacturing and marketing of pharmaceutical products requires approval from, and is subject to, ongoing oversight by the FDA, the European Medicines Agency, or the EMA, in the EU, and comparable agencies in other countries. Obtaining approval for a new therapeutic product is never certain, may take many years and may involve the expenditure of substantial resources. Basis of Presentation The accompanying unaudited financial information as of and for the three months ended March 31, 2022 and 2021 has been prepared in accordance with accounting principles generally accepted in the U.S., or U.S. GAAP, for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SEC on March 31, 2022. The condensed balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of loss contingencies in the condensed financial statements and accompanying notes. Estimates are used for, but not limited to, net product sales, clinical accruals, intangible assets, interest expense on royalty financing obligation, income taxes, commitments and contingencies, equity-based compensation forfeiture rates and the collectability of receivables. Given the global economic climate and additional or unforeseen effects from the ongoing COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from those estimates. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in this Quarterly Report on Form 10-Q for further information. Liquidity The accompanying condensed financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the condensed financial statements are issued. Our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Over the next year and in the normal course of business, we expect to increase our spend on our VONJO commercialization efforts as well as conduct research, development, testing and regulatory compliance activities with respect to other development pathways for pacritinib. While we expect revenues from VONJO to increase after its initial launch, we cannot accurately predict the market acceptance or growth trajectory of VONJO's revenues. Further, we will incur selling, general and administrative expenses. Additional anticipated business activities include procuring clinical drug supplies and establishing commercial supplies of our product, the costs of which, together with our projected selling, general and administrative expenses, when offset against our projected revenues, are expected to result in operating losses for the foreseeable future. We have incurred a net operating loss every year since our formation. As of March 31, 2022, we had an accumulated deficit of $2.5 billion, and we expect to continue to incur net losses for the foreseeable future. Our available cash and cash equivalents were $96.9 million as of March 31, 2022. We expect that our present financial resources, along with expected cash receipts from receivables arising from historical net product sales of VONJO (but excluding any cash receipts from future net product sales of VONJO), will be sufficient to meet our obligations as they come due and to fund our operations into the first quarter of 2023. In accordance with applicable accounting standards, our evaluation of our expected cash runway considers only relevant conditions and events that are known or reasonably knowable at the date that the financial statements are issued. As a result, our cash runway evaluation did not include VONJO sales that we may recognize in the future. We expect to include future net product sales of VONJO in our cash runway evaluation once we have an established history of such sales. Based on our evaluation completed pursuant to Accounting Standards Update 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 , these factors raise substantial doubt about our ability to continue as a going concern. We will require additional capital in order to pursue our strategic objectives. We expect to satisfy our capital needs through existing capital balances, revenue from VONJO, and some combination of public or private equity financings, partnerships, collaborations, joint ventures, debt financings or restructurings, bank borrowings or other sources of financing. However, we have a limited number of authorized shares of common stock available for issuance and additional funding may not be available on favorable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If we fail to obtain additional capital when needed, our ability to operate as a going concern will be harmed, and we may be required to delay, scale back or eliminate some or all of our research and development programs and commercialization efforts and/or reduce our selling, general and administrative expenses, be unable to attract and retain highly-qualified personnel, be unable to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms, be unable to or elect to refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Our future capital requirements will depend on many factors, including: our ability to generate sales of VONJO; the cost and timing of establishing our commercial infrastructure and distribution capabilities; our ability to reach milestones triggering payments to be made or received under certain of our contractual arrangements; the cost of manufacturing VONJO; the cost of manufacturing clinical supplies of our product candidates or of establishing commercial supplies of any products that we may develop in the future; developments in and expenses associated with our research and development activities; our clinical development plans and any changes that we may initiate or that may be requested by the FDA or other regulators as we seek product approval for products that we may develop in the future; acquisitions or collaborations with respect to compounds or other assets; competitive market developments; disruptions or other delays to our business and clinical trials resulting from ongoing worldwide current events; and other unplanned business developments. In addition, our ability to comply with covenants under our Credit Agreement, or the Credit Agreement, with Drug Royalty III LP 2, or DRI, may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants, including a material adverse change in our business, operations or condition (financial or otherwise), could result in an event of default under the Credit Agreement, which could cause all of the outstanding indebtedness under the facility to become immediately due and payable. The accompanying condensed financial statements do not include adjustments, if any, that may result from the outcome of this uncertainty. See Part II, Item 8, “Notes to Consolidated Financial Statements, Note 7. Debt Financing Arrangements” of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the Credit Agreement with DRI. Cash and Cash Equivalents As of March 31, 2022 and December 31, 2021, our cash and cash equivalents consisted of cash and money market funds. Cash equivalents are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. There are three levels of inputs used to measure fair value, with Level 1 having the highest priority and Level 3 having the lowest: • Level 1—Valuations based on unadjusted quoted prices for identical assets and liabilities in active markets. • Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Valuations based on unobservable inputs that are supported by little or no market activity, reflecting our own assumptions. These valuations require significant judgment or estimation. We measure the fair value of money market funds based on the closing price reported by the fund sponsor from an actively traded exchange. We value all other securities using broker quotes that utilize observable market inputs. We did not hold cash and cash equivalents categorized as Level 3 assets as of March 31, 2022 and December 31, 2021. The following table summarizes, by major security type, our cash and cash equivalents that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands): March 31, 2022 December 31, 2021 Cost or Amortized Cost Gross Unrealized Gains / Losses Total Estimated Fair Value Total Estimated Cash $ 235 $ — $ 235 $ 137 Level 1 securities: Money market funds 96,667 — 96,667 65,309 Total cash, cash equivalents and short-term investments $ 96,902 $ — $ 96,902 $ 65,446 Concentrations of Credit Risk and Uncertainties Cash, cash equivalents and accounts receivables are financial instruments which potentially subject us to concentrations of credit risk. All of our accounts receivable relate to VONJO product sales. We have not experienced any significant credit losses on cash, cash equivalents or accounts receivables to date and do not require collateral on accounts receivables. To estimate credit losses for accounts receivable, we consider our historical experience and other currently available information including customer financial condition, as well as current and forecasted economic conditions affecting our customers. We consider the risk of potential credit losses to be low at this time in light of creditworthiness of our customers who are specialty distributors and specialty pharmacies. We source our drug products for commercial operations and clinical trials from a concentrated group of third-party contractors. If we are unable to obtain sufficient quantities of source materials, manufacture or distribute our products to customers from existing suppliers and service providers, or obtain the materials or services from other suppliers or manufacturers, certain sales and research and development activities may be delayed. Accounts Receivable Accounts receivable, net consists of amounts due from customers, net of customer allowances for prompt-pay discounts, chargebacks, rebates and product returns as well as distribution service fees. Accounts receivable are stated at amortized cost less allowance for credit losses. Our standard credit terms range from 30 days to 66 days, and all arrangements are payable within one year of the transfer of control of the product; as such, we do not adjust our revenues for the effects of a significant financing component. We analyze past due accounts for collectability and periodically evaluate the creditworthiness of our customers. As of March 31, 2022, we determined that an allowance for credit losses was not required based on our review of customer accounts and individual circumstances. Inventories Prior to regulatory approval, we expense costs related to the production of inventories as research and development expenses in the period in which they are incurred since product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. Subsequent to regulatory approval, we capitalize costs incurred to manufacture our products as inventories when the related costs are expected to be recoverable through the commercialization of the product. VONJO inventory that is deployed into clinical, research or development use is charged to research and development expense. As of March 31, 2022, $0.1 million of manufacturing costs, primarily related to shipping, packaging and labeling costs incurred subsequent to FDA approval of VONJO, were capitalized as inventories, all of which were classified as work-in-progress. As of March 31, 2022, we had $19.2 million of previously-expensed VONJO inventory and related material on-hand. Inventories are recorded at the lower of cost and net realizable value with the cost of inventories determined on a specific identification basis in a manner that approximates the first-in, first-out method. We perform an assessment of the recoverability of capitalized inventory during each reporting period and write down any excess and obsolete inventories to their net realizable value in the period in which the impairment is first identified. Intangible Assets Intangible assets as of March 31, 2022 consist of a capitalized milestone payment incurred upon FDA approval and commercialization of VONJO during the first quarter of 2022. See “Note 6. Milestone Payments - S*BIO Pte Ltd. ” for additional details. Intangible assets are amortized on a straight-line basis over the patent life of the VONJO product compound, which was 11.9 years upon FDA approval, with a remaining amortization period of 11.8 years as of March 31, 2022. For the three months ended March 31, 2022, we recognized $0.2 million of amortization expense, which was included in Cost of sales . The gross carrying amount and accumulated amortization were $25.0 million and $0.2 million as of March 31, 2022, respectively. We review for impairment when events or circumstances indicate that the carrying value of intangible assets may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. Such estimated undiscounted future cash flows are derived from projected sales of VONJO and other competitive factors. The amount of impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. Long-term Debt All amounts due under the Credit Agreement with DRI, which include a term loan in the principal amount of $50.0 million and the end-of-facility lender fee of $1.0 million, have been recorded in current liabilities on the condensed balance sheet as of March 31, 2022 due to the considerations discussed in Liquidity above and the assessment that the events of default clause, which includes a material adverse effect provision under the Credit Agreement, is not within our control. We have not been notified of an event of default by DRI as of the date of the filing of this Quarterly Report on Form 10-Q. In addition, the Credit Agreement contains a minimum liquidity covenant requiring us to maintain at least $10.0 million of unrestricted cash and cash equivalents, subject to certain exceptions. See Part II, Item 8, “Notes to Consolidated Financial Statements, Note 7. Debt Financing Arrangements” of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the Credit Agreement with DRI. Royalty Financing Obligation We evaluated the terms of the Royalty Financing Agreement with DRI and concluded that the features of the funding from DRI are similar to those of a debt instrument. Accordingly, the funding from DRI is recorded as Royalty Financing Obligation on our consolidated balance sheet. The Royalty Financing Agreement does not contain subjective acceleration clauses or provisions that would require repayment of funding; as such, the funding received under the Royalty Financing Agreement is classified in long-term liabilities. See Part I, Item 1, “Notes to Condensed Financial Statements, Note 4. Debt Financing Arrangements” of this Quarterly Report on Form 10-Q for additional details. Revenue Recognition ASC 606 Revenue from Contracts with Customers applies to all contracts with customers, except for contracts that are within the scope of other authoritative literature. Under ASC 606, we recognize revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. We apply the five-step model to arrangements that meet the definition of a contract under ASC 606 including when it is probable that we will collect the consideration we are entitled to in exchange for goods or services we transfer to the customer. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. Prior to recognizing revenue, we make estimates of the transaction price, including any variable consideration that is subject to a constraint. Variable consideration is included in the transaction price to the extent that it is probable that there will not be a significant reversal in the amount of cumulative revenue recognized and when the uncertainty associated with the variable consideration is subsequently resolved. We recognize revenue for the amount of the transaction price that is allocated to the respective performance obligation as the performance obligation is satisfied. Net Product Sales On February 28, 2022, the FDA granted accelerated approval of VONJO for the treatment of adult patients with intermediate or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis with a platelet count below 50 x 10 9 /L. We commercially launched VONJO in March 2022. We entered into a limited number of distribution arrangements with specialty distributors and specialty pharmacies in the United States to distribute VONJO . Our specialty pharmacy customers resell VONJO directly to patients while our specialty distributor customers resell VONJO to healthcare entities, who then resell to patients. Such specialty distributors and specialty pharmacies are referred to as our customers in the context of ASC 606. We recognize revenue for product sales when our customers obtain control of the product, which generally occurs upon delivery. Upon receipt of the product by our customers, we recognize revenues, net of variable consideration which relates to allowances for customer credits, distribution service fees, product returns, chargebacks, rebates and co-payment assistance programs as discussed below. The reserves for these allowances are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than the customer). Taxes collected from the customer relating to product sales and remitted to governmental authorities are excluded from product sales. Customer Credits and Distribution Service Fees : Our customers are offered prompt payment discounts. We expect our customers will pay timely enough to utilize prompt payment discounts and therefore we deduct the full amount of these discounts from total product sales when revenues are recognized. In addition, we pay a fee to our customers for their sales order management, data, and distribution services to us. Distribution service fees are also deducted from total product sales as they are incurred. Returns : We offer our customers and other indirect purchasers a limited right of return for purchased units of VONJO for damage, defect, in-dated or expired product beginning six months prior to the product’s expiration date and ending 12 months after the product’s expiration date. We estimate the amount of product returns initially based on data from similar products and other qualitative considerations, such as visibility into the inventory remaining in the distribution channel. Chargebacks : Chargebacks result from our contractual commitments to provide our product to discount-eligible healthcare entities, group purchasing organizations, 340B eligible covered entities and federal government entities purchasing via the Federal Supply Schedule, at prices lower than the list prices charged to our customers. Our customers charge us back for the discount provided to the contracted entities. Our reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel inventory which we expect will be sold to the contracted entities, as well as chargebacks that customers have claimed, but for which we have not yet issued a credit. We record reserves for chargebacks based on contractual terms in the same period that the related revenue is recognized. Rebates : We are subject to discount and rebate obligations under government programs such as the Medicaid Drug Rebate Program, the Medicare Part D Coverage Gap Discounts Program and 340B Drug Pricing Program as well as commercial contracts. Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. The allowance for rebates is based on statutory or contractual discount rates and expected utilization. Our estimates for the expected utilization of rebates are based on data received from our customers and historical utilization rates observed subsequent to product launch. Our accrual for these rebates consists of invoices received for claims from prior and current quarters that have not been paid or for which an invoice has not yet been received as well as estimates of claims for the current period's shipment to our customers, which include estimated future claims that will be made for product that has been recognized as revenue but which remains in distribution channel inventories at the end of the reporting period. Co-payment Assistance : We offer co-payment assistance to patients who have commercial insurance and meet certain eligibility requirements. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption based on data provided by the third-party administrator. Cost of Sales Cost of sales includes the cost of manufacturing inventories that are related to product sales, including overhead costs, amortization expense for intangible assets, and third-party royalties payable on net product sales. In addition, shipping and handling costs for product shipments are recorded in cost of sales as incurred. Cost of sales may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs and manufacturing variances. For the three months ended March 31, 2022, cost of sales primarily consisted of amortization expense for intangible assets, shipping and handling costs, and third-party royalty costs. The manufacturing costs of VONJO product sold during the current period were previously expensed as research and development expenses. Equity-based compensation Equity-based compensation expense is recognized over the requisite service periods on awards ultimately expected to vest. We apply estimated forfeiture rates at the time of grant and make revisions, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For performance-based stock options and restricted stock, we record compensation expense over the estimated service period once the achievement of the performance-based milestone is considered probable. We recorded equity-based compensation expense of $1.7 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively. All equity-based compensation expense was related to option awards, and substantially all of the expense was included in Selling, g eneral and administrative expenses for the periods presented. Net Loss per Share Basic net loss per common share is calculated based on net loss divided by the weighted average number of shares outstanding for the period. The calculation of diluted net loss per common share excludes the potential conversion of all dilutive convertible securities, such as convertible preferred stock, using the if-converted method, and the potential exercise or vesting of other dilutive securities, such as stock awards and warrants, using the treasury stock method, as their inclusion would have an anti-dilutive effect. Common shares underlying stock awards, warrants and convertible preferred stock aggregating 74.3 million shares and 69.0 million shares for the three months ended March 31, 2022 and 2021, respectively, were excluded from the calculation of diluted net loss per share because they were anti-dilutive. Recently Issued Accounting Standards In March 2020, the Financial Accounting Standards Board, or FASB, issued accounting guidance to provide temporary optional expedients to ease the potential burden in accounting for reference rate reform. The guidance includes an optional expedient that simplifies accounting for contract modifications to loans receivable and debt, by prospectively adjusting the effective interest rate. The accounting guidance is effective as of January 7, 2021 through December 31, 2022. In August 2021, we entered into the Credit Agreement, which has an interest rate referenced to the London Interbank Offered Rate, or LIBOR. We plan to elect the optional expedient for our credit facility by prospectively adjusting the effective interest rate if the cessation of the LIBOR occurs. We do not expect the adoption of this guidance to have a material impact on our condensed financial statements. Although there were several other new accounting pronouncements issued or proposed by the FASB, we do not believe any of these have had or will have a material impact on our condensed financial statements. Reclassification Certain prior year items have been reclassified to conform to current year presentation. |
