AMICUS THERAPEUTICS, INC. - Quarter Report: 2014 September (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

OR

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to      

 

Commission file number 001-33497

 

Amicus Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

1 Cedar Brook Drive, Cranbury, NJ 08512

(Address of Principal Executive Offices and Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (609) 662-2000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller-reporting company. See definition of “large accelerated filer,” accelerated filer” and “smaller-reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes o  No x

 

The number of shares outstanding of the registrant’s common stock, $.01 par value per share, as of October 31, 2014 was 79,321,630 shares.

 

 

Table of Contents

 

AMICUS THERAPEUTICS, INC.

 

Form 10-Q for the Quarterly Period Ended September 30, 2014

 

				Page
PART I.		FINANCIAL INFORMATION		4
	Item 1.		Financial Statements (unaudited)	4
			Consolidated Balance Sheets as of December 31, 2013 and September 30, 2014	4
			Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2014	5
			Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2013 and 2014	6
			Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2013 and 2014	7
			Notes to Consolidated Financial Statements	8
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.		Quantitative and Qualitative Disclosures about Market Risk	38
	Item 4.		Controls and Procedures	38
PART II.		OTHER INFORMATION		39
	Item 1.		Legal Proceedings	39
	Item 1A.		Risk Factors	39
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 3.		Defaults Upon Senior Securities	39
	Item 4.		Mine Safety Disclosures	39
	Item 5.		Other Information	39
	Item 6.		Exhibits	40
SIGNATURES				41
INDEX TO EXHIBITS				42

 

We have registered or filed applications to register certain trademarks in the United States and abroad, including AMICUS™, AMICUS THERAPEUTICS™ (and design) and CHART™ (and design).

 

2

Table of Contents

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  All statements, other than statements of historical facts, included in this  quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “potential,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward- looking statements contain these identifying words.

 

The forward-looking statements in this quarterly report on Form 10-Q include, among other things, statements about:

 

·                  the progress and results of our clinical trials of our drug candidates, including migalastat HCl;

·                  the cost of manufacturing drug supply for our clinical and preclinical studies, including the significant cost of enzyme replacement therapy (ERT) cell line development and manufacturing as well as the cost of manufacturing the vIGF-2 peptide tag;

·                  the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our product candidates including those testing the use of pharmacological chaperones co-formulated and co-administered with ERT and for the treatment of lysosomal storage diseases;

·                  the costs, timing and outcome of regulatory review of our product candidates;

·                  the number and development requirements of other product candidates that we pursue;

·                  the costs of commercialization activities, including product marketing, sales and distribution;

·                  the emergence of competing technologies and other adverse market developments;

·                  the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property related claims;

·                  the extent to which we acquire or invest in businesses, products and technologies; and

·                  our ability to establish collaborations and obtain milestone, royalty or other payments from any such collaborators.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.  Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.  We have included important factors in the cautionary statements included in Part I Item 1A — Risk Factors of the Annual Report on Form 10-K for the year ended December 31, 2013 that we believe could cause actual results or events to differ materially from the forward-looking statements that we make.  Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make.

 

You should read this quarterly report on Form 10-Q in conjunction with the documents that we reference herein.  We do not assume any obligation to update any forward-looking statements.

 

3

Table of Contents

 

PART I.          FINANCIAL INFORMATION

 

Item 1.             Financial Statements (unaudited)

 

Amicus Therapeutics, Inc.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

		December 31,			September 30,
		2013			2014
Assets:
Current assets:
Cash and cash equivalents		$	43,640		$	19,671
Investments in marketable securities		38,360			65,511
Receivable due from collaboration agreements		1,083			293
Prepaid expenses and other current assets		5,195			1,762
Total current assets		88,278			87,237
Property and equipment, less accumulated depreciation and amortization of $9,973 and $11,157 at December 31, 2013 and September 30, 2014, respectively		4,120			3,129
In-process research & development		23,000			23,000
Goodwill		11,613			11,613
Other non-current assets		552			508
Total Assets		$	127,563		$	125,487
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	10,162		$	11,331
Current portion of secured loan		299			2,493
Total current liabilities		10,461			13,824
Deferred reimbursements		36,677			36,677
Secured loan, less current portion		14,174			11,809
Contingent consideration payable		10,600			10,200
Deferred tax liability		9,186			9,186
Other non-current liability		714			514
Commitments and contingencies
Stockholders’ equity:
Common stock, $.01 par value, 125,000,000 shares authorized, 61,975,416 shares issued and outstanding at December 31, 2013, 125,000,000 shares authorized, 79,257,588 shares issued and outstanding at September 30, 2014		679			853
Additional paid-in capital		423,593			468,650
Accumulated other comprehensive income		1			2
Accumulated deficit		(378,522		)	(426,228		)
Total stockholders’ equity		45,751			43,277
Total Liabilities and Stockholders’ Equity		$	127,563		$	125,487

 

See accompanying notes to consolidated financial statements

 

4

Table of Contents

 

Amicus Therapeutics, Inc.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share amounts)

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2013			2014			2013			2014
Revenue:
Research revenue		$	39		$	293		$	39		$	1,224
Total revenue		39			293			39			1,224
Operating Expenses:
Research and development		$	10,110		$	12,049		$	32,824		$	32,019
General and administrative		4,635			5,270			14,288			15,199
Changes in fair value of contingent consideration payable		—			(600		)	—			(400		)
Restructuring charges		—			15			—			(74		)
Depreciation and amortization		429			375			1,318			1,183
Total operating expenses		15,174			17,109			48,430			47,927
Loss from operations		(15,135		)	(16,816		)	(48,391		)	(46,703		)
Other income (expenses):
Interest income		36			55			147			133
Interest expense		(7		)	(377		)	(26		)	(1,106		)
Change in fair value of warrant liability		517			—			874			—
Other expense		—			(11		)	—			(30		)
Net loss		$	(14,589	)	$	(17,149	)	$	(47,396	)	$	(47,706	)
Net loss per common shares — basic and diluted		$	(0.29	)	$	(0.22	)	$	(0.96	)	$	(0.68	)
Weighted-average common shares outstanding — basic and diluted		49,621,188			78,889,346			49,621,188			70,216,251

 

See accompanying notes to consolidated financial statements

 

5

Table of Contents

 

Amicus Therapeutics, Inc.

Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2013			2014			2013			2014
Net loss		$	(14,589	)	$	(17,149	)	$	(47,396	)	$	(47,706	)
Other comprehensive (loss)/ income:
Unrealized gain/ (loss) on available-for-sale securities		2			4			(9		)	1
Other comprehensive gain/ (loss) before income taxes		2			4			(9		)	1
Provision for income taxes related to other (loss)/ comprehensive income items (a)		—			—			—			—
Other comprehensive gain/ (loss)		$	2		$	4		$	(9	)	$	1
Comprehensive loss		$	(14,587	)	$	(17,145	)	$	(47,405	)	$	(47,705	)

 

(a) — Taxes have not been accrued on unrealized gain on securities as the Company is in a loss position for all periods presented.

 

See accompanying notes to consolidated financial statements

 

6

Table of Contents

 

Amicus Therapeutics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

		Nine Months
		Ended September 30,
		2013			2014
Operating activities
Net loss		$	(47,396	)	$	(47,706	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense		—			176
Depreciation and amortization		1,318			1,183
Stock-based compensation		4,674			4,398
Restructuring charges		—			(74		)
Change in fair value of warrant liability		(874		)	—
Non-cash changes in the fair value of contingent consideration payable		—			(400		)
Changes in operating assets and liabilities:
Receivable due from collaboration agreements		1,064			790
Prepaid expenses and other current assets		618			3,433
Other non-current assets		—			26
Accounts payable and accrued expenses		(679		)	1,213
Non-current liabilities		—			(200		)
Deferred reimbursements		3,601			—
Net cash used in operating activities		(37,674		)	(37,161		)
Investing activities
Sale and redemption of marketable securities		68,348			47,959
Purchases of marketable securities		(33,654		)	(75,109		)
Purchases of property and equipment		(645		)	(192		)
Net cash provided by/(used in) investing activities		34,049			(27,342		)
Financing activities
Proceeds from issuance of common stock, net of issuance costs		—			38,736
Payments of secured loan agreement		(299		)	(299		)
Proceeds from exercise of stock options		—			2,097
Net cash (used in)/provided by financing activities		(299		)	40,534
Net decrease in cash and cash equivalents		(3,924		)	(23,969		)
Cash and cash equivalents at beginning of period		33,971			43,640
Cash and cash equivalents at end of period		$	30,047		$	19,671
Supplemental disclosures of cash flow information
Cash paid during the period for interest		$	24		$	864
Non-cash activities		$	—		$	—

 

See accompanying notes to consolidated financial statements

 

7

Table of Contents

 

Note 1.   Description of Business and Significant Accounting Policies

 

Corporate Information, Status of Operations and Management Plans

 

Amicus Therapeutics, Inc. (the Company) was incorporated on February 4, 2002 in Delaware and is a biopharmaceutical company focused on the discovery, development and commercialization of next-generation medicines for a range of rare and orphan diseases, with a focus on improved therapies for lysosomal storage diseases (LSDs). The Company’s lead program is migalastat HCl (migalastat) for Fabry disease.  Migalastat is a novel, small molecule pharmacological chaperone in development as a monotherapy and in combination with enzyme replacement therapy (ERT) for Fabry disease.  The Company is leveraging its Chaperone-Advanced Replacement Therapy, or CHART™  platform along with other proprietary technologies to develop next-generation ERTs for Fabry, Pompe, Mucopolysaccharidosis Type I (MPS I) and Gaucher diseases.  The Company’s activities since inception have consisted principally of raising capital, establishing facilities, and performing research and development.

 

In August 2014, the Company announced positive 18 month data from the Study 012.  A summary of the 18-month results are as follows:

 

·                  Migalastat had a comparable effect to ERT on patients’ kidney function as measured by the change in eGFR and mGFR.

·                  Levels of plasma lyso-Gb3, an important biomarker of disease, remained low and stable in patients with amenable mutations who switched from ERT to migalastat.

·                  Migalastat was generally safe and well-tolerated.

·                  Of 48 patients with GLP HEK-amenable mutations who completed Study 012, 46 (96%) elected to continue with the 12-month treatment extension and 45 remain on migalastat today as their only treatment for Fabry disease.

 

The Company looks forward to meeting with the EMEA in the fourth quarter of 2014 and the US FDA early in 2015 to make migalastat available for all amenable Fabry patients as quickly as possible.

 

In July 2014, the Company completed a $40 million at the market (ATM) equity offering under which the Company sold shares of its common stock, par value $0.01 per share, with Cowen  and Company LLC as sales agent. Under the ATM equity program, the Company sold 14.3 million shares of common stock raising approximately $38.7 million in net proceeds.

 

For further information on the ATM Agreement, see — Note 7. Stockholder’s Equity.

 

In November 2013, the Company completed the acquisition of Callidus Biopharma, Inc. (Callidus).  Callidus was a privately-held biologics company focused on developing best-in-class enzyme replacement therapies (ERTs) for lysosomal storage diseases (LSDs). Callidus lead ERT is a recombinant human acid-alpha glucosidase (rhGAA, called ATB200) for Pompe disease in late preclinical development.

 

For further information, see — Note 4. Acquisition of Callidus Biopharma, Inc.

 

In November 2013, Amicus entered into the Revised Agreement (the Revised Agreement) with GlaxoSmithKline plc (GSK), pursuant to which Amicus has obtained global rights to develop and commercialize migalastat as a monotherapy and in combination with ERT for Fabry disease. The Revised Agreement amends and replaces in its entirety the Expanded Agreement entered into between Amicus and GSK in July 2012 (the Expanded Collaboration Agreement). Under the terms of the Revised Agreement, Amicus obtained global commercial rights to migalastat, both as a monotherapy and co-formulated with ERT. For the next-generation Fabry ERT (migalastat co-formulated with ERT), GSK is eligible to receive single-digit royalties on net sales in eight major markets outside the U.S. For migalastat monotherapy, GSK is eligible to receive post-approval and sales-based milestones, as well as tiered royalties in the mid-teens in eight major markets outside the U.S.  There was no other consideration paid to GSK as part of the Revised Agreement.

 

In November 2013, the Company entered into a securities purchase agreement (the 2013 SPA) with certain entities controlled by Redmile Group, LLC and GSK for the private placement of a combination of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock.  The warrants have a term of one year and are exercisable between July 1, 2014 and June 30, 2015 at an exercise price of $2.50 per share.  The aggregate offer proceeds were $15 million.

 

In September 2013, the Company entered into a collaboration agreement with Biogen Idec (Biogen) to discover, develop and commercialize novel small molecules that target the glucocerobrosidase (GCase) enzyme for the treatment of Parkinson’s disease.

 

8

Table of Contents

 

In September 2014, the Company and Biogen concluded their research collaboration.  Amicus’ most advanced Parkinson’s candidate is AT3375, which was developed outside the collaboration and is wholly-owned by Amicus.

 

For further information, see — Note 10. Collaborative Agreements.

 

The Company had an accumulated deficit of approximately $426.2 million at September 30, 2014 and anticipates incurring losses through the fiscal year ending December 31, 2014 and beyond. The Company has not yet generated commercial sales revenue and has been able to fund its operating losses to date through the sale of its redeemable convertible preferred stock, issuance of convertible notes, net proceeds from its initial public offering (IPO) and subsequent stock offerings, payments from partners during the terms of the collaboration agreements and other financing arrangements.

 

Including the net proceeds from the completed ATM equity program, the Company believes that its existing cash and cash equivalents and short-term investments will be sufficient to fund the current operating plan into 2016.

 

Basis of Presentation

 

The Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulations S-X.  Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements.  In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial information.

 

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  For a complete description of the Company’s accounting policies, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

 

9

Table of Contents

 

Significant Accounting Policies

 

There have been no material changes to the Company’s significant accounting policies during the three months ended September 30, 2014, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, except for the adoption of Accounting Standards Update (ASU) 2014-10, as described below. However, the following accounting policies are the most critical in fully understanding and evaluating the Company’s financial condition and results of operations.

 

Revenue Recognition

 

The Company recognizes revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned when the following criteria are met: (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) collection of the amounts due are reasonably assured.

 

In multiple element arrangements, revenue is allocated to each separate unit of accounting and each deliverable in an arrangement is evaluated to determine whether it represents separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and there is no general right of return for the delivered elements. In instances when the aforementioned criteria are not met, the deliverable is combined with the undelivered elements and the allocation of the arrangement consideration and revenue recognition is determined for the combined unit as a single unit of accounting. Allocation of the consideration is determined at arrangement inception on the basis of each unit’s relative selling price. In instances where there is determined to be a single unit of accounting, the total consideration is applied as revenue for the single unit of accounting and is recognized over the period of inception through the date where the last deliverable within the single unit of accounting is expected to be delivered.

 

The Company’s current revenue recognition policies, which were applied in fiscal 2010, provide that, when a collaboration arrangement contains multiple deliverables, such as license and research and development services, the Company allocates revenue to each separate unit of accounting based on a selling price hierarchy. The selling price hierarchy for a deliverable is based on (i) its vendor specific objective evidence (VSOE) if available, (ii) third party evidence (TPE) if VSOE is not available, or (iii) best estimated selling price (BESP) if neither VSOE nor TPE is available. The Company would establish the VSOE of selling price using the price charged for a deliverable when sold separately. The TPE of selling price would be established by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. The BESP would be established considering internal factors such as an internal pricing analysis or an income approach using a discounted cash flow model.

 

The Company also considers the impact of potential future payments it makes in its role as a vendor to its customers and evaluates if these potential future payments could be a reduction of revenue from that customer. If the potential future payments to the customer are:

 

·                  a payment for an identifiable benefit; and

·                  the identifiable benefit is separable from the existing relationship between the Company and its customer; and

·                  the identifiable benefit can be obtained from a party other than the customer; and

·                  the Company can reasonably estimate the fair value of the identifiable benefit,

 

then the payments are accounted for separate from the revenue received from that customer. If, however, all these criteria are not satisfied, then the payments are treated as a reduction of revenue from that customer.

 

10

Table of Contents

 

If the Company determines that any potential future payments to its customers are to be considered as a reduction of revenue, it must evaluate if the total amount of revenue to be received under the arrangement is fixed and determinable. If the total amount of revenue is not fixed and determinable due to the uncertain nature of the potential future payments to the customer, then any customer payments cannot be recognized as revenue until the total arrangement consideration becomes fixed and determinable.

 

The reimbursements for research and development costs under collaboration agreements that meet the criteria for revenue recognition are included in Research Revenue and the costs associated with these reimbursable amounts are included in research and development expenses.

 

In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards (FASB) guidance on the milestone method of revenue recognition at the inception of a collaboration agreement. The criteria requires that (i) the Company determines if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from the Company’s activities to achieve the milestone, (ii) the milestone be related to past performance, and (iii) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved.

 

Although the Company believes the assumptions and estimates made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired businesses and are inherently uncertain. Examples of critical estimates in valuing any contingent acquisition consideration issued or which may be issued and the intangible assets we have acquired or may acquire in the future include but are not limited to:

 

·                  the feasibility and timing of achievement of development, regulatory and commercial milestones;

·                  expected costs to develop the in-process research and development into commercially viable products; and

·                  future expected cash flows from product sales.

 

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

 

Fair Value Measurements

 

The Company records certain asset and liability balances under the fair value measurements as defined by the FASB guidance.  Current FASB fair value guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, current FASB guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions that  market participants assumptions would use in pricing assets or liabilities (unobservable inputs classified within Level 3 of the hierarchy).

 

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at measurement date.  Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity.  In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

 

11

Table of Contents

 

New Accounting Standards

 

In August 2014, the FASB issued ASU 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” (ASU 2014-15), which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-10 that removes the definition of development stage entity from the accounting standards codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the ASU eliminates the requirements for development stage entities to (i) present inception-to-date information in the statement of income, cash flow and stockholders’ equity, (ii) label the financial statements as those of a development stage entity, (iii) disclose a description of the development stage activities in which the entity is engaged, and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.  The Company has applied the ASU effective from the financial statements as of June 30, 2014.

 

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The ASU becomes effective for the Company at the beginning of its 2017 fiscal year; early adoption is not permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

 

12

Table of Contents

 

Note 2.  Cash, Money Market Funds and Marketable Securities

 

As of September 30, 2014, the Company held $19.7 million in cash and cash equivalents and $65.5 million of available-for-sale investment securities which are reported at fair value on the Company’s balance sheet.  Unrealized holding gains and losses are reported within accumulated comprehensive income/ (loss) in the statement of comprehensive loss.  If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge.  To date, only temporary impairment adjustments have been recorded.

 

Consistent with the Company’s investment policy, the Company does not use derivative financial instruments in its investment portfolio.  The Company regularly invests excess operating cash in deposits with major financial institutions, money market funds, notes issued by the U.S. government, as well as fixed income investments and U.S. bond funds both of which can be readily purchased and sold using established markets.  The Company believes that the market risk arising from its holdings of these financial instruments is mitigated as many of these securities are either government backed or of the highest credit rating.

 

Cash and available-for-sale securities consisted of the following as of December 31, 2013 and September 30, 2014 (in thousands):

 

		As of December 31, 2013
		Cost			Unrealized Gain			Unrealized Loss			Fair Value
Cash balances		$	43,640		$	—		$	—		$	43,640
Corporate debt securities		30,817			1			(6		)	30,812
Commercial paper		7,192			6			—			7,198
Certificate of deposit		350			—			—			350
		$	81,999		$	7		$	(6	)	$	82,000
Included in cash and cash equivalents		$	43,640		$	—		$	—		$	43,640
Included in marketable securities		38,359			7			(6		)	38,360
Total cash and available for sale securities		$	81,999		$	7		$	(6	)	$	82,000

 

		As of September 30, 2014
		Cost			Unrealized Gain			Unrealized Loss			Fair Value
Cash balances		$	19,671		$	—		$	—		$	19,671
Corporate debt securities		53,674			1			(13		)	53,662
Commercial paper		11,486			13			—			11,499
Certificate of deposit		350			—			—			350
		$	85,181		$	14		$	(13	)	$	85,182
Included in cash and cash equivalents		$	19,671		$	—		$	—		$	19,671
Included in marketable securities		65,510			14			(13		)	65,511
Total cash and available for sale securities		$	85,181		$	14		$	(13	)	$	85,182

 

Unrealized gains and losses are reported as a component of other comprehensive income/(loss) in the statements of comprehensive loss.  For the year ended December 31, 2013, unrealized holding loss of $13 thousand and for the nine months ended September 30, 2014, unrealized holding gain of $1 thousand, were recognized.

 

For the year ended December 31, 2013 and the nine months ended September 30, 2014, there were no realized gains or losses.  The cost of securities sold is based on the specific identification method.

 

Unrealized loss positions in the available for sale securities as of December 31, 2013 and September 30, 2014 reflect temporary impairments that have not been recognized and have been in a loss position for less than twelve months.  The fair value of these available for sale securities in unrealized loss positions was $23.6 million and $42.6 million as of December 31, 2013 and September 30, 2014, respectively.

 

13

Table of Contents

 

The Company holds available-for-sale investment securities which are reported at fair value on the Company’s balance sheet. Unrealized holding gains and losses are reported within accumulated other comprehensive income (AOCI) in the statements of comprehensive loss.  The changes in AOCI associated with the unrealized holding gain on available-for-sale investments during the three and nine months ended September 30, 2013 and 2014, were as follows (in thousands):

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2014			2013			2014
Balance, beginning		$	3		(2		)	$	14		$	1
Current period changes in fair value, (a)		2			4			(9		)	1
Reclassification of earnings, (a)		—			—			—			—
Balance, ending		$	5		$	2		$	5		$	2

 

(a) — Taxes have not been accrued on the unrealized gain on securities as the Company is in a loss position for all periods presented.

 

Note 3.  Basic and Diluted Net Loss Attributable to Common Stockholders per Common Share

 

The Company calculates net loss per share as a measurement of the Company’s performance while giving effect to all dilutive potential common shares that were outstanding during the reporting period.  The Company has a net loss for all periods presented; accordingly, the inclusion of common stock options and warrants would be anti-dilutive.  Therefore, the weighted average shares used to calculate both basic and diluted earnings per share are the same.

 

The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss attributable to common stockholders per common share:

 

		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share amounts)		2013			2014			2013			2014
Historical
Numerator:
Net loss attributable to common stockholders per common		$	(14,589	)	$	(17,149	)	$	(47,396	)	$	(47,706	)
Denominator
Weighted average common shares outstanding — basic and diluted		49,621,188			78,889,346			49,621,188			70,216,251

 

Dilutive common stock equivalents would include the dilutive effect of common stock options, restricted stock units and warrants for common stock equivalents.  Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periods because of their anti-dilutive effect. The table below presents potential shares of common stock that were excluded from the computation as they were anti-dilutive using the treasury stock method (in thousands):

 

		As of September 30,
		2013		2014
Options to purchase common stock		10,112		10,329
Outstanding warrants, convertible to common stock		1,404		1,600
Unvested restricted stock units		—		955
Total number of potentially issuable shares		11,516		12,884

 

14

Table of Contents

 

Note 4.   Acquisition of Callidus Biopharma, Inc.

 

In November 2013, the Company acquired Callidus, through the merger of the Company’s subsidiary, CB Acquisition Corp. with and into Callidus (see — Note 1. Description of Business).  Callidus was a privately-held biologics company focused on developing best-in-class ERTs for LSDs and its lead ERT is ATB200 for Pompe disease in late preclinical development. The acquisition of the Callidus assets and technology complements Amicus’ CHART™ platform for the development of next generation ERTs.

 

In consideration for the merger, the Company agreed to issue an aggregate of 7.2 million shares of its common stock, par value $0.01 per share, to the former stockholders of Callidus.  As of September 30, 2014, approximately 25 thousand shares remain issuable to former Callidus shareholders.  In addition, the Company will be obligated to make additional payments to the former stockholders of Callidus upon the achievement by the Company of certain clinical milestones of up to $35 million and regulatory approval milestones of up to $105 million as set forth in the Merger Agreement, provided that the aggregate consideration shall not exceed $130 million.  The Company may, at its election, satisfy certain milestone payments identified in the Merger Agreement aggregating $40 million in shares of its Common Stock (calculated based on a price per share equal to the average of the last closing bid price per share for the Common Stock on The NASDAQ Global Market for the ten (10) trading days immediately preceding the date of payment).  The milestone payments not permitted to be satisfied in Common Stock (as well as any payments that the Company is permitted to, but chooses not to, satisfy in Common Stock), as a result of the terms of the Merger Agreement, the rules of The NASDAQ Global Market, or otherwise, will be paid in cash.

 

The fair value of the contingent acquisition consideration payments on the acquisition date was $10.6 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions included a discount rate of 13.0% and various probability factors.  As of September 30, 2014, the range of outcomes and assumptions used to develop these estimates has changed to better reflect the probability of certain milestone outcomes.  (see — Note 8. Assets and Liabilities Measured at Fair Value for additional discussion regarding fair value measurements of the contingent acquisition consideration payable).  The Company determined the fair value of the contingent consideration to be $10.2 million at September 30, 2014, resulting in a decrease in the contingent consideration payable and related income of $0.4 million for the nine months ended September 30, 2014.

 

A substantial portion of the assets acquired consisted of intangible assets related to Callidus lead ERT. The Company determined that the estimated acquisition-date fair values of the IPR&D related to the lead ERT was $23.0 million.

 

As part of the Callidus acquisition, the Company recognized $9.2 million of deferred tax liabilities, which relates to the tax impact of future amortization or possible impairments associated with the identified intangible assets acquired, and are not deductible for tax purposes. The Company also recorded goodwill in the Company’s consolidated balance sheet as of the acquisition date. The goodwill results from the recognition of the deferred tax liability on the intangible assets as well as synergies expected from the acquisition and other benefits that do not qualify for separate recognition as acquired intangible assets. None of the goodwill is expected to be deductible for income tax purposes. The final valuation of this acquisition was completed on March 31, 2014.

 

For further information, see — Note 5 Goodwill & — Note 6 Intangible Assets.

 

Supplemental Pro Forma Information

 

The following pro forma information for the three and nine months ending September 30, 2013 assumes the Merger Agreement occurred as of January 1, 2013.  The pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the Merger Agreement been consummated during the period for which pro forma information is presented, or is it intended to be a projection of future results or trends.

 

(in thousands)		Three Months ended September 30, 2013			Nine Months ended September 30, 2013
Revenue		$	—		$	—
Net loss		$	(15,838	)	$	(49,569	)

 

15

Table of Contents

 

Note 5.   Goodwill

 

In connection with the acquisition of Callidus in November 2013, the Company recognized $11.6 million of goodwill, resulting from the recognition of the deferred tax liability on the intangible assets as well as synergies expected from the acquisition and other benefits that do not qualify for separate recognition as acquired intangible assets.

 

Goodwill is tested for impairment on an annual basis.  In between annual tests the Company assesses any events occurring or changes in the circumstances that would reduce the fair value of the goodwill below its carrying amount.

 

The following table represents the changes in goodwill for the nine months ended September 30, 2014:

 

		(in thousands)
Balance at December 31, 2013		$	11,613
Change in goodwill related to the acquisition of Callidus		—
Balance at September 30, 2014		$	11,613

 

Note 6.   Intangible Assets

 

In connection with the acquisition of Callidus in November 2013, the Company recognized $23.0 million of IPR&D.

 

Intangible assets consisting of IPR&D are considered indefinite-lived until the completion or abandonment of the associated research and development efforts.  During the period the assets are considered indefinite lived, they will not be amortized but will be tested for impairment on an annual basis. In between annual tests the Company assesses any events occurring or changes in the circumstances that would reduce the fair value of the intangible asset below its carrying amount.

 

The following table represents the changes in intangible assets for the nine months ended September 30, 2014:

 

		(in thousands)
Balance at December 31, 2013		$	23,000
Change in IPR&D related to the acquisition of Callidus		—
Balance at September 30, 2014		$	23,000

 

Note 7.   Stockholders’ Equity

 

Common Stock and Warrants

 

As of September 30, 2014, the Company was authorized to issue 125 million shares of common stock. Dividends on common stock will be paid when, and if declared by the board of directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held.

 

In March 2014, the Company entered into the Sales Agreement with Cowen to create an ATM equity program under which the Company sold shares of its common stock, par value $0.01 per share, with an aggregate offering price of up to $40 million (ATM Shares) through Cowen. Upon delivery of a placement notice and subject to the terms and conditions of the ATM agreement, Cowen used its commercially reasonable efforts to sell the ATM Shares, based upon the Company’s instructions. The Company had provided Cowen with customary indemnification rights, and Cowen was entitled to a commission at a fixed commission rate of up to 3.0% of the gross proceeds per Share sold.  Sales of the ATM Shares under the Sales Agreement were to be made in transactions that were deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on The NASDAQ Global Market, at market prices or as otherwise agreed with Cowen. The Company began the sale of ATM Shares in May 2014.  The Company sold 14.3 million shares of common stock resulting in net proceeds of $38.7 million, which included Cowen’s commission of $1.1 million and legal fees of $0.1 million. The Company completed all sales under the ATM equity program in July 2014.

 

16

Table of Contents

 

In November 2013, the Company entered into the 2013 SPA with certain entities controlled by Redmile Group, LLC and GSK and for the private placement of shares of the Company’s common stock, par value $0.01 and a combination of shares of common stock (the Shares) and warrants (the Warrants) to purchase shares of the Common Stock (collectively, the Units).  Each of the investors was one of the Company’s shareholders prior to consummation of these transactions.  The Shares and the Units sold to the investors were offered and sold in reliance on exemptions from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act based on the nature of such investors and certain representations made to the Company. Pursuant to the 2013 SPA, Amicus agreed to issue 1.5 million Shares at $2.00 per Share to GSK and (b) 6 million Units at $2.00 per Unit to Redmile Group, with each Unit consisting of one Share and .267 Warrants resulting in an aggregate of 6 million Shares and 1.6 million Warrants underlying the Units to be issued. Each Warrant is exercisable between July 1, 2014 and June 30, 2015 with an exercise price of $2.50, subject to certain adjustments. The Company received total proceeds of $15 million for general corporate and working capital purposes as a result of the private placement and the transaction closed in November 2013.

 

At the time of issuance the Company evaluated the warrants against current accounting guidance and determined that these warrants should be accounted as a component of equity. As such, these warrants were valued at issuance date using the Black Scholes valuation model using inputs such as the underlying price of the shares issued when the warrant is exercised, volatility, risk free interest rate and expected life of the instrument. The six inputs used to determine the value of the warrants were: (1) the closing price of Amicus stock on the day of evaluation of $2.12; (2) the exercise price of the warrants of $2.50; (3) the remaining term of the warrants of 1 year; (4) the volatility of Amicus’ stock for the one year term of 93.5%; (5) the annual rate of dividends of 0%; and (6) the riskless rate of return of 0.12%. The annual rate of dividends is based on the Company’s historical practice of not granting dividends.  The resulting Black Scholes value of the warrants was $1.0 million.

 

In November 2013, in connection with its acquisition of Callidus, the Company agreed to issue an aggregate of 7.2 million shares of its common stock, par value $0.01 per share, to the former stockholders of Callidus. As of September 30, 2014, approximately 25 thousand shares remain issuable to former Callidus shareholders.

 

Nonqualified Cash Deferral Plan

 

In July 2014, the Board of Directors approved the Company’s Cash Deferral Plan (the Deferral Plan), which provides certain key employees and other service providers as selected by the Compensation Committee of the Board of Directors of the Company (the Compensation Committee), with an opportunity to defer the receipt of such Participant’s base salary, bonus and director’s fees, as applicable. The Deferral Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code (the Code).

 

As of September 30, 2014, the amounts deferred under the Deferral Plan have not been invested. The investments are expected to be made in the fourth quarter of fiscal year 2014. All of the investments held in the Deferral Plan will be classified as trading securities and recorded at fair value with changes in the investments’ fair value recognized in the period they occur. The corresponding liability for the Deferral Plan is included in other non-current liability in the Company’s consolidated balance sheets.

 

Equity Incentive Plan

 

In June 2014, the Company’s shareholders approved the Amended and Restated 2007 Equity Incentive Plan (the Plan). The amendment to the Plan makes an additional 6 million shares of the Company’s common stock available for issuance and increases the maximum number of shares within the Plan that may be issued as restricted stock, restricted stock units (RSUs), stock grants and any other similar awards from 1.1 million to 1.5 million shares. As of September 30, 2014, awards issued under the Plan include both stock options and RSUs.

 

Stock Option Grants

 

The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2013			2014			2013			2014
Expected stock price volatility		81.7		%	81.0		%	82.0		%	81.3		%
Risk free interest rate		1.8		%	1.9		%	1.3		%	1.9		%
Expected life of options (years)		6.25			6.25			6.25			6.25
Expected annual dividend per share		$	0.00		$	0.00		$	0.00		$	0.00

 

17

Table of Contents

 

A summary of the Company’s stock options for the nine months ended September 30, 2014 is as follows:

 

		Number of Shares (in thousands)		Weighted Average Exercise Price			Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (in millions)
Balance at December 31, 2013		9,041.1		$	5.65
Options granted		2,894.1		$	2.87
Options exercised		(594.4	)	$	3.53
Options forfeited		(1,012.3	)	$	5.82
Balance at September 30, 2014		10,328.5		$	4.97		6.9 years		$	17.6
Vested and unvested expected to vest, September 30, 2014		9,649.5		$	5.10		6.8 years		$	15.6
Exercisable at September 30, 2014		5,551.1		$	6.40		5.2 years		$	4.9

 

As of September 30, 2014, the total unrecognized compensation cost related to non-vested stock options granted was $8.3 million and is expected to be recognized over a weighted average period of 2.4 years.

 

Restricted Stock Units

 

In April 2014, the Compensation Committee made awards of restricted stock units (the RSUs) to certain employees of the Company.  The RSUs awarded under the Plan are generally subject to graded vesting of 50% of the RSUs on the 13th month anniversary of the grant date and the remaining 50% of the RSUs on the 20th month anniversary of the grant date, in each case, contingent on such employee’s continued service on such date.

 

RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse.

 

A summary of non-vested RSU activity under the Plan for the nine months ended September 30, 2014 is as follows:

 

		Number of Shares (in thousands)		Weighted Average Grant Date Fair Value			Weighted Average Remaining Years		Aggregate Intrinsic Value (in millions)
Non-vested units as of December 31, 2013		—		$	—
Granted		975		$	2.28
Vested		—		$	—
Forfeited		(20	)	$	2.15
Non-vested units as of September 30, 2014		955		$	2.28		1.0		$	3.5

 

For the nine months ended September 30, 2014, there were no RSUs that vested and all non-vested units are expected to vest over their normal term. As of September 30, 2014, there was $1.5 million of total unrecognized compensation cost related to unvested RSUs with service-based vesting conditions. These costs are expected to be recognized over a weighted average period of 1.0 years.

 

In April 2014, the Board of Directors approved the Company’s Restricted Stock Unit Deferral Plan (the Deferred Compensation Plan), which provides selected employees with an opportunity to defer receipt of RSUs until the first to occur of termination of the employee’s employment or a date selected by the employee.  Any RSUs deferred under the Deferred Compensation Plan would be fully vested once the original vesting conditions of the RSU were satisfied.

 

18

Table of Contents

 

Compensation Expense Related to Equity Awards

 

The following table summarizes information related to compensation expense recognized in the statements of operations related to the equity awards (in thousands):

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2013			2014			2013			2014
Stock compensation expense recognized in:
Research and development expense		$	824		$	698		$	2,634		$	1,950
General and administrative expense		693			953			2,040			2,448
Total stock compensation expense		$	1,517		$	1,651		$	4,674		$	4,398

 

Note 8.  Assets and Liabilities Measured at Fair Value

 

The Company’s financial assets and liabilities are measured at fair value and classified within the fair value hierarchy which is defined as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

 

Level 3 — Inputs that are unobservable for the asset or liability.

 

Cash, Money Market Funds and Marketable Securities

 

The Company classifies its cash and money market funds within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in active market for identical assets at the measurement date.  The Company considers its investments in marketable securities as available-for-sale and classifies these assets within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the three and nine months ended September 30, 2014.  No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three and nine months ended September 30, 2014.

 

Secured Debt

 

As disclosed in Note 9, the Company entered into a loan and security agreement (the 2013 Loan Agreement) with MidCap Funding III, LLC, Oxford Finance LLC and Silicon Valley Bank (SVB) in December 2013.  The Company also entered into an equipment loan with SVB in 2011. The carrying amount of the Company’s borrowings approximates fair value at September 30, 2014. The Company’s secured debt is classified as Level 2 and the fair value is estimated using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals.

 

In connection with the 2013 Loan Agreement, as disclosed in Note 9, the Company recorded a contingent liability of approximately $0.3 million representing the fair value of a contingent payment of up to $0.4 million related to a success fee payable within six months of a trigger event, with the trigger event being regulatory acceptance of a New Drug Application (NDA) or the Marketing Authorization Application (MAA) submission. This is effective five years from the closing of the 2013 Loan Agreement. The success fee payable to the lender was probability adjusted and discounted utilizing an appropriate discount rate and classified as Level 3.

 

19

Table of Contents

 

For the nine months ended September 30, 2014, change in fair value of the contingent success fee payable was $30 thousand, and is recorded in other income/(expense) in the Company’s consolidated statements of operations.

 

		(in thousands)
Fair value balance at December 31, 2013		$	264
Change in fair value		30
Fair value balance at September 30, 2014		$	294

 

Contingent Consideration Payable

 

The Company recorded a liability upon the acquisition of Callidus to estimate the fair value of future contingent consideration payments which may be made to former Callidus stockholders, as outlined under the terms of the merger agreement with Callidus. These contingent payments are owed if upon the achievement by the Company of certain clinical milestones of up to $35 million and regulatory approval milestones of up to $105 million as set forth in the Merger Agreement, provided that the aggregate consideration shall not exceed $130 million. The fair values of these Level 3 liabilities are estimated using a probability-weighted discounted cash flow analysis. Such valuations require significant estimates and assumptions including but not limited to: determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows, and developing appropriate discount rates.

 

Subsequent changes in the fair value of these contingent consideration liabilities are recorded to the “Change in fair value of contingent consideration payable” expense line item in the consolidated statements of operations under operating expenses. For the nine months ended September 30, 2014, the recognized amount of the contingent consideration payable decreased by $0.4 million as a result of changes in certain probability factors and the time value of money.

 

		(in thousands)
Fair value balance at December 31, 2013		$	10,600
Change in fair value		(400		)
Fair value balance at September 30, 2014		$	10,200

 

Warrants

 

The Company allocated $3.3 million of proceeds from its March 2010 registered direct offering to warrants issued in connection with the offering that was classified as a liability. The valuation of the warrants was determined using the Black-Scholes model. The Company determined the warrant liability is most appropriately classified within Level 3 of the fair value hierarchy. This liability was subject to a fair value mark-to-market adjustment each period and the Company recognized the change in the fair value of the warrant liability as non-operating expense of $0.3 million for the three months ended March 31, 2013 and the resulting fair value of the warrant liability at March 31, 2013 was $1.2 million. The warrants expired on March 2, 2014 and hence the warrant liability is no longer recognized on the consolidated balance sheet as of September 30, 2014.

 

A summary of the fair value of the Company’s assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of December 31, 2013, are identified in the following table (in thousands):

 

		Level 1			Level 2			Total
Assets:
Cash/ money market funds		$	43,640		$	—		$	43,640
Corporate debt securities		—			30,812			30,812
Commercial paper		—			7,198			7,198
Certificate of deposit		—			350			350
		$	43,640		$	38,360		$	82,000

 

		Level 1			Level 2			Level 3			Total
Liabilities:
Secured debt		$	—		$	14,473		$	—		$	14,473
Contingent success fee payable		—			—			264			264
Contingent consideration payable		—			—			10,600			10,600
Warrants liability		—			—			—			—
		$	—		$	14,473		$	10,864		$	25,337

 

20

Table of Contents

 

A summary of the fair value of the Company’s assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of September 30, 2014, are identified in the following table (in thousands):

 

		Level 1			Level 2			Total
Assets:
Cash/ money market funds		$	19,671		$	—		$	19,671
Corporate debt securities		—			53,662			53,662
Commercial paper		—			11,499			11,499
Certificate of deposit		—			350			350
		$	19,671		$	65,511		$	85,182

 

		Level 1			Level 2			Level 3			Total
Liabilities:
Secured debt		$	—		$	14,302		$	—		$	14,302
Contingent success fee payable		—			—			294			294
Contingent consideration payable		—			—			10,200			10,200
		$	—		$	14,302		$	10,494		$	24,796

 

Note 9.   Short-Term Borrowings and Long-Term Debt

 

In December 2013, the Company entered into the 2013 Loan Agreement with a lending syndicate consisting of MidCap Funding III, LLC, Oxford Finance LLC, and SVB which provides an aggregate of $25 million (the Term Loan).  The Company drew $15 million of the aggregate principal amount of the Term Loan at the end of December 2013 (the First Tranche) and may draw up to an additional $10 million through the end of the fourth quarter of 2014 (the Second Tranche).  The principal outstanding balance of the First Tranche bears interest at a rate per annum fixed at 8.5%. If the Company draws from the Second Tranche, the principal outstanding balance of the Second Tranche will also have a fixed interest rate, which will be determined by reference to the applicable index rate at the time of the draw.  The Company will make interest-only payments on the Term Loan beginning January 1, 2014 and continuing through April 1, 2015, after which the Company will repay the aggregate principal outstanding balance of the Term Loan in 33 equal monthly installments of principal, plus accrued interest at the applicable rate. The Term Loan matures on December 27, 2017.  At September 30, 2014, the total principal amount due under the Term Loan was $15 million.

 

In connection with the Term Loan, the Company recorded a debt discount of $0.8 million at December 31, 2013 which consists of payments to be made and a contingent payable to the lenders. These payments include a debt facility fee of $0.1 million which was paid on the date of the First Tranche, $0.4 million exit fee that will be payable upon repayment of the term loan and $0.3 million representing the fair value of a contingent payment of up to $0.4 million related to a success fee payable within six months of a trigger event, with the trigger event being regulatory acceptance of NDA or MMA submission. This is effective 5 years from the closing of the Term Loan. The success fee payable to the lender was probability adjusted and discounted utilizing an appropriate discount rate and is shown as a current liability on the Company’s consolidated balance sheet.  The amortization of the debt discount is recorded as noncash interest expense over the life of the loan.

 

For the three months ended September 30, 2014, the Company amortized the debt discount and the deferred financing using the effective interest method and recorded amortization expense of $45 thousand and $6 thousand, respectively, under operating expense on the consolidated statement of operations. For the nine months ended September 30, 2014, the Company amortized the debt discount and the deferred financing using the effective interest method and recorded amortization expense of $131 thousand and $18 thousand, respectively, under operating expense on the consolidated statement of operations.

 

In February 2012, the Company borrowed approximately $1.0 million from a loan and security agreement (the 2011 Loan Agreement) with SVB which was to be repaid over the following 2.5 years. The 2011 Loan Agreement contains financial covenants and the Company has at all times been in compliance with these covenants.  As of September 30, 2014, the 2011 Loan Agreement has been fully repaid and there is no amount currently due.

 

The carrying amount of the Company’s borrowings approximates fair value at September 30, 2014.

 

21