| 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 financial statements as “we,” “us,” “our,” the “Company” and “CTI,” is a commercial 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 are conducting the Phase 3 PACIFICA study of VONJO in patients with myelofibrosis and severe thrombocytopenia as a post-marketing requirement. 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. On May 10, 2023, CTI entered into an Agreement and Plan of Merger, or the Merger Agreement, with Swedish Orphan Biovitrum AB (publ), a Swedish public limited liability company, or Sobi, and Cleopatra Acquisition Corp., a Delaware corporation and a wholly owned, indirect subsidiary of Sobi, or the Purchaser. For additional information regarding the pending Merger, please see “Note 6. Subsequent Events”. Basis of Presentation The accompanying unaudited financial information as of and for the three months ended March 31, 2023 and 2022 has been prepared in accordance with accounting principles generally accepted in the United States, 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, 2023 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, 2022 included in our Annual Report on Form 10-K filed with the SEC on March 6, 2023. The condensed balance sheet at December 31, 2022 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 in the condensed financial statements and accompanying notes. Estimates are used for, but not limited to, evaluation of going concern and classification of liabilities, net product sales, clinical accruals, intangible assets, interest expense on royalty financing obligation, income taxes, equity-based compensation and the collectability of receivables. Given the global economic climate, 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 condensed financial statements are issued. While we have seen strong refill demand and expect revenues from VONJO to be one of our primary sources of liquidity, we may not be able to accurately predict the market acceptance or growth trajectory of VONJO’s revenues. We project operating expenses, when offset against our projected revenues, will result in operating losses for the foreseeable future as we expect to conduct research, development, testing and regulatory compliance activities with respect to other development pathways for pacritinib. We have incurred a net operating loss every year since our formation and expect to continue to incur net losses for the foreseeable future. As of March 31, 2023, we had an accumulated deficit of $2.5 billion. Our available cash, cash equivalents and short-term investments were $59.0 million as of March 31, 2023. We expect that our present financial resources, together with expected cash receipts from 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 2024. Based on our evaluation completed pursuant to ASC 205-40 Presentation of Financial Statements-Going Concern, these factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed financial statements are issued. We will require additional capital in order to pursue our longer-term strategic objectives. We expect to satisfy our capital needs through existing capital balances, revenues from VONJO, and a combination of public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, 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 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 of ongoing organization and maintenance of 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 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. Cash, Cash Equivalents and Short-Term Investments As of March 31, 2023 and December 31, 2022, our cash, cash equivalents and short-term investments consisted of cash, money market funds and corporate debt securities. Cash equivalents and short-term investments 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, cash equivalents and short-term investments categorized as Level 3 assets as of March 31, 2023 and December 31, 2022. The following table summarizes, by major security type, our cash, cash equivalents and short-term investments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands): March 31, 2023 December 31, 2022 Cost or Amortized Cost Gross Unrealized Losses Total Estimated Fair Value Total Estimated Financial Assets Cash $ 167 $ — $ 167 $ 337 Level 1 securities: Money market funds 24,042 — 24,042 30,083 Level 2 securities: Corporate debt securities 34,813 (11) 34,802 49,519 Total cash, cash equivalents and short-term investments $ 59,022 $ (11) $ 59,011 $ 79,939 Concentrations of Credit Risk and Uncertainties Cash, cash equivalents, short-term investments and accounts receivable are financial instruments that 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, short-term investments or accounts receivable to date and do not require collateral on accounts receivable. 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 based on our evaluation of the 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 suppliers and 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 consist 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, 2023, 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 because 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 for clinical, research or development purposes is charged to research and development expense. As of March 31, 2023, inventories consist of active pharmaceutical ingredients and capitalized shipping, packaging and labeling costs incurred subsequent to FDA approval of VONJO. 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, 2023 consist of a capitalized milestone payment incurred upon FDA approval and commercialization of VONJO during the first quarter of 2022. 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 10.8 years as of March 31, 2023. For the three months ended March 31, 2023 and 2022, we recognized $0.5 million and $0.2 million of amortization expense, respectively, which was included in Cost of sales . The gross carrying amount and accumulated amortization were $25.0 million and $2.3 million, respectively, as of March 31, 2023. 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. Credit Agreement 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 sheets as of March 31, 2023 and December 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 8. Debt Financing Arrangements” of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding the Credit Agreement with DRI. Upon the closing of the pending acquisition by Sobi, the loan under the Credit Agreement will be repaid in full, unless otherwise directed by DRI, including the end-of-facility lender fee of $1.0 million and a prepayment charge of approximately $2.2 million. Royalty Financing Obligation In August 2021, we entered into a Purchase and Sale Agreement, or the Royalty Financing Agreement, with DRI. We evaluated the terms of the Royalty Financing Agreement 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 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 5. Royalty Financing Agreement ” 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 damaged, defective, 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 the 340B Drug Pricing Program, as well as under 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, 2023 and 2022, cost of sales primarily consisted of amortization expense for intangible assets, shipping and handling costs, and third-party royalty costs. Substantially all of the manufacturing costs of VONJO product sold during the periods presented were previously expensed as research and development expenses. Equity-Based Compensation Expense 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. We recorded equity-based compensation expense of $2.5 million and $1.7 million for the three months ended March 31, 2023 and 2022, respectively. Substantially all of equity-based compensation expense was related to option awards and 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 58.3 million shares and 74.3 million shares for the three months ended March 31, 2023 and 2022, respectively, were excluded from the calculation of diluted net loss per share because they were anti-dilutive. Milestone Payment In October 2016, we entered into the Asset Return and Termination Agreement with Baxalta, pursuant to which, we were required to make a milestone payment to Takeda Pharmaceutical Company Limited, or Takeda, in the amount of approximately $10.3 million, upon the first regulatory approval or any pricing and reimbursement approvals of a product containing pacritinib. See Part II, Item 8, “Notes to Financial Statements, Note 10. Collaboration, Licensing and Milestone Agreements - Baxalta ” of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information. The milestone payment became payable upon FDA approval of VONJO on February 28, 2022 and was included in Accrued expenses as of December 31, 2022. The milestone payment was subsequently made to Takeda in March 2023. 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. In December 2022, the FASB issued guidance to defer the sunset of the reference rate reform guidance until December 31, 2024. 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. |
