UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2022
OR
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number: 001-40782
(Exact name of Registrant as specified in its Charter)
|
|
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
|
Not Applicable
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
+44 207 400 3347
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
|
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒
No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
|
|
|
☒
|
Smaller reporting company
|
||
|
Emerging growth company
|
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 10, 2022, the registrant had 725,418,787 common shares, par
value $0.0000000341740141 per share, outstanding (the “Common Shares”).
|
Page
|
||
|
PART I—FINANCIAL INFORMATION
|
||
|
Item 1.
|
6
|
|
|
|
||
|
|
6
|
|
|
|
||
|
|
7
|
|
|
|
||
|
|
8
|
|
|
|
||
|
|
9
|
|
|
|
||
|
|
11 | |
|
|
||
|
|
12
|
|
|
|
||
|
Item 2.
|
32 | |
|
|
||
|
Item 3.
|
48 | |
|
|
||
|
Item 4.
|
49 |
|
|
|
||
|
PART II—OTHER INFORMATION
|
||
|
|
||
|
Item 1.
|
49 | |
|
|
||
|
Item 1A.
|
49 | |
|
|
||
|
Item 2.
|
114
|
|
|
|
||
|
Item 3.
|
114 | |
|
|
||
|
Item 4.
|
114 | |
|
|
||
|
Item 5.
|
114 | |
|
|
||
|
Item 6.
|
115 | |
|
116
|
||
Where You Can Find More Information
Investors and others should note that we may announce material business and financial information to our investors using our investor
relations website (https://investor.roivant.com), filings we make with the Securities and Exchange Commission (the “SEC”), our corporate twitter account (@Roivant), other social media platforms, webcasts, press releases and conference calls.
Similarly, our subsidiary Immunovant, Inc. may announce material business and financial information to its investors using its investor relations website (https://immunovant.com/investors), filings it makes with the SEC, social media platforms,
webcasts, press releases and conference calls. We and our public company subsidiaries use these mediums to communicate with our and our public company subsidiaries’ shareholders and the public about our company, our subsidiaries, our product
candidates and other matters. It is possible that the information that we make available in this manner may be deemed to be material information. We therefore encourage investors and others interested in our company and our public company
subsidiaries to review this information.
The above-referenced information is not incorporated by reference into this filing and the website addresses and Twitter account name
are provided only as inactive textual references.
Summary Risk Factors
You should consider carefully the risks described under “Risk Factors” in Part II, Item 1.A of this Quarterly Report on Form 10-Q.
Unless the context otherwise requires, references in this section to “we,” “us,” “our,” “Roivant” and the “Company” refer to Roivant Sciences Ltd. and its consolidated subsidiaries, as the context requires. A summary of the risks that could
materially and adversely affect our business, financial condition, operating results and prospects include the following:
Risks Related to Our Business and Industry
| • |
Our limited operating history and the inherent uncertainties and risks involved in biopharmaceutical product development may make it difficult for us to execute on
our business model and for you to assess our future viability.
|
| • |
We may never achieve or maintain profitability.
|
| • |
We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to successfully market our products,
acquire or in-license new products or product candidates, complete the development and commercialization of our products and product candidates and continue to pursue our drug discovery efforts.
|
| • |
We have limited experience as a commercial company and the marketing and sale of VTAMA® (tapinarof) or any future products may be unsuccessful or less
successful than anticipated.
|
| • |
We may not be successful in our efforts to acquire, in-license or discover new product candidates.
|
| • |
We face risks associated with the allocation of capital and personnel across our businesses.
|
| • |
We face risks associated with the Vant structure.
|
| • |
The global pandemic resulting from the outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including
the marketing of our products and our ongoing clinical trials and preclinical studies.
|
| • |
Clinical trials and preclinical studies are very expensive, time-consuming, difficult to design and implement and involve uncertain outcomes. We may encounter
substantial delays in clinical trials, or may not be able to conduct or complete clinical trials or preclinical studies on the expected timelines, if at all.
|
| • |
Our approach to the discovery and development of product candidates from our small molecule discovery engine is unproven, which makes it difficult to predict the
time, cost of development and likelihood of successfully developing any product candidates from these platforms.
|
| • |
Certain of our product candidates are novel, complex and difficult to manufacture.
|
| • |
Obtaining approval of a new drug is an extensive, lengthy, expensive and inherently uncertain process, and the FDA or another regulator may delay, limit or deny
approval.
|
| • |
Our clinical trials may fail to demonstrate substantial evidence of the safety and efficacy of product candidates that we may identify and pursue for their intended
uses, which would prevent, delay or limit the scope of regulatory approval and commercialization.
|
| • |
Our products and product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval, cause us to suspend or
discontinue clinical trials, abandon further development or limit the scope of any approved label or market acceptance.
|
| • |
We depend on the knowledge and skills of our senior leaders and may not be able to manage our business effectively if we are unable to attract and retain key
personnel.
|
| • |
We will need to expand our organization and may experience difficulties in managing this growth, which could disrupt operations.
|
| • |
If we are unable to obtain and maintain patent and other intellectual property protection for our technology, products and product candidates or if the scope of the
intellectual property protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
|
| • |
If the patent applications we hold or have in-licensed with respect to our products or product candidates fail to issue, if their breadth or strength of protection is
threatened, or if they fail to provide meaningful exclusivity for our current and future products or product candidates, it could dissuade companies from collaborating with us to develop product candidates, and threaten our ability to
commercialize our products.
|
| • |
Patent terms and their scope may be inadequate to protect our competitive position on current and future products and product candidates for an adequate amount of
time.
|
Risks Related to Our Securities, Our Jurisdiction of Incorporation and Certain Tax Matters
| • |
If our performance does not meet market expectations, the price of our securities may decline.
|
| • |
We have incurred and will continue to incur increased costs as a result of operating as a public company and our management has devoted and will continue to devote a
substantial amount of time to new compliance initiatives.
|
| • |
Our failure to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act could have a material adverse effect on
our business.
|
| • |
Anti-takeover provisions in our memorandum of association, bye-laws and Bermuda law could delay or prevent a change in control, limit the price investors may be
willing to pay in the future for our Common Shares and could entrench management.
|
| • |
Our largest shareholders and certain members of our management own a significant percentage of our Common Shares and will be able to exert significant control over
matters subject to shareholder approval.
|
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements, including matters discussed under Part I, Item 2. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” Part II, Item 1. “Legal Proceedings,” Part II, Item 1A. “Risk Factors” and in other sections of this report, that are “forward-looking statements” within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, and
statements that are not historical facts. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence
of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs
concerning future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. Should one or more
of these risks or uncertainties materialize, they could cause our actual results to differ materially from the forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to risk associated with:
| • |
our limited operating history and risks involved in biopharmaceutical product development;
|
| • |
our limited experience as a commercial-stage company and ability to successfully commercialize VTAMA® (tapinarof);
|
| • |
our ability to raise additional capital to fund our business on acceptable terms or at all;
|
| • |
the receipt of proceeds from the sale of the Myovant Top-Up Shares (as defined below) to Sumitomo (as defined below) in connection with the previously announced acquisition of Myovant Sciences Ltd. by Sumitomo, expected to close in the
first quarter of calendar year 2023;
|
| • |
the fact that we will likely incur significant operating losses for the foreseeable future;
|
| • |
the impact of public health outbreaks, epidemics or pandemics (such as the COVID-19 pandemic) on our business (including our clinical trials and preclinical studies),
operations and financial condition and results;
|
| • |
our ability to acquire, in-license or discover new product candidates;
|
| • |
our Vant structure and the potential that we may fail to capitalize on certain development opportunities;
|
| • |
clinical trials and preclinical studies, which are very expensive, time-consuming, difficult to design and implement and involve uncertain outcomes;
|
| • |
the unproven nature of our approach to the discovery and development of product candidates from our small molecule discovery engine;
|
| • |
the novelty, complexity and difficulty of manufacturing certain of our products and product candidates, including any manufacturing problems that result in delays in
development or commercialization of our products and product candidates;
|
| • |
difficulties we may face in enrolling and retaining patients in clinical trials and/or clinical development activities;
|
| • |
the results of our clinical trials not supporting our proposed claims for a product candidate;
|
| • |
changes in interim, top-line and/or preliminary data from our clinical trials changing as more data becoming available or being delayed due to audit and verification
process;
|
| • |
changes in product manufacturing or formulation that could lead to the incurrence of costs or delays;
|
| • |
the failure of any third-party we contract with to conduct, supervise and monitor our clinical trials to perform in a satisfactory manner or to comply with applicable
requirements;
|
| • |
the fact that obtaining approvals for new drugs is a lengthy, extensive, expensive and unpredictable process that may end with our inability to obtain regulatory
approval by the FDA or other regulatory agencies in other jurisdictions;
|
| • |
the failure of our clinical trials to demonstrate substantial evidence of the safety and efficacy of our products and product candidates, including, but not limited
to, scenarios in which our products and product candidates may cause adverse effects that could delay regulatory approval, discontinue clinical trials, limit the scope of approval or generally result in negative media coverage of us;
|
| • |
our inability to obtain regulatory approval for a product or product candidate in certain jurisdictions, even if we are able to obtain approval in certain other
jurisdictions;
|
| • |
our ability to effectively manage growth and to attract and retain key personnel;
|
| • |
any business, legal, regulatory, political, operational, financial and economic risks associated with conducting business globally;
|
| • |
our ability to obtain and maintain patent and other intellectual property protection for our technology, products and product candidates;
|
| • |
the inadequacy of patent terms and their scope to protect our competitive position;
|
| • |
the failure to issue (or the threatening of their breadth or strength of protection) or provide meaningful exclusivity for our current and future products and product
candidates of our patent applications that we hold or have in-licensed;
|
| • |
the fact that we do not currently and may not in the future own or license any issued composition of matter patents covering certain of our products and product
candidates and our inability to be certain that any of our other issued patents will provide adequate protection for such products and product candidates;
|
| • |
the fact that our largest shareholders (and certain members of our management team) own a significant percentage of our stock and will be able to exert significant
control over matters subject to shareholder approval;
|
| • |
the outcome of any pending or potential litigation, including but not limited to our expectations regarding the outcome of any such litigation and costs and expenses
associated with such litigation;
|
| • |
changes in applicable laws or regulations;
|
| • |
the possibility that we may be adversely affected by other economic, business and/or competitive factors; and
|
| • |
any other risks and uncertainties, including those described under Part II, Item 1A. “Risk Factors.”
|
These risks are not exhaustive. New risk factors emerge from time to time and it is not possible for our management to predict all risk
factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In addition,
statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe
such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially
available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Except as required by law, we undertake no obligation to update any forward-looking statements to
reflect events or circumstances after the date of such statements.
PART I—FINANCIAL INFORMATION
ROIVANT SCIENCES LTD.
(unaudited, in thousands, except share and per share amounts)
|
September 30, 2022
|
March 31, 2022
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash
|
|
|
||||||
|
Other current assets
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
|
Operating lease right-of-use assets
|
|
|
||||||
|
Restricted cash, net of current portion
|
|
|
||||||
|
Investments measured at fair value
|
|
|
||||||
|
Intangible assets, net
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Accrued expenses
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Current portion of long-term debt (includes $
|
|
|
||||||
|
Deferred revenue
|
|
|
||||||
|
Other current liabilities
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Liability instruments measured at fair value
|
|
|
||||||
|
Operating lease liabilities, noncurrent
|
|
|
||||||
|
Long-term debt, net of current portion (includes $
|
|
|
||||||
|
Deferred revenue, noncurrent
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies (Note 10)
|
||||||||
|
Redeemable noncontrolling interest
|
|
|
||||||
|
Shareholders’ equity:
|
||||||||
|
Common shares, par value $
|
|
|
||||||
|
Additional paid-in capital
|
|
|||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
|
Accumulated other comprehensive income (loss)
|
|
(
|
)
|
|||||
|
Shareholders’ equity attributable to Roivant Sciences Ltd.
|
|
|
||||||
|
Noncontrolling interests
|
|
|
||||||
|
Total shareholders’ equity
|
|
|
||||||
|
Total liabilities, redeemable noncontrolling interest and shareholders’ equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands, except share and per share amounts)
|
Three Months Ended September 30,
|
Six Months Ended September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022 |
2021 |
|||||||||||||
|
Revenue, net
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Cost of revenues
|
|
|
||||||||||||||
|
Research and development (includes $
|
|
|
||||||||||||||
|
Acquired in-process research and development
|
|
|
||||||||||||||
|
Selling, general and administrative (includes $
|
|
|
||||||||||||||
|
Total operating expenses
|
|
|
||||||||||||||
|
Loss from operations
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Change in fair value of investments
|
|
(
|
)
|
( |
) | |||||||||||
|
Gain on sale of investment
|
( |
) | ( |
) | ||||||||||||
|
Change in fair value of debt and liability instruments
|
(
|
)
|
|
|||||||||||||
|
Gain on termination of Sumitomo Options
|
|
|
( |
) | ||||||||||||
|
Gain on deconsolidation of subsidiary
|
( |
) | ( |
) | ||||||||||||
|
Other expense, net
|
|
|
||||||||||||||
|
Loss before income taxes
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Income tax expense
|
|
|
||||||||||||||
|
Net loss
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Net loss attributable to noncontrolling interests
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Net loss attributable to Roivant Sciences Ltd.
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
|
Net loss per common share—basic and diluted(1)
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
|
Weighted average shares outstanding—basic and diluted(1)
|
|
|
||||||||||||||
|
(1)
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands)
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022 |
2021 |
|||||||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
|
Other comprehensive income:
|
||||||||||||||||
|
Foreign currency translation adjustment
|
|
|
||||||||||||||
|
Total other comprehensive income
|
|
|
||||||||||||||
|
Comprehensive loss
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Comprehensive loss attributable to noncontrolling interests
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Comprehensive loss attributable to Roivant Sciences Ltd.
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands, except share data)
|
Shareholders’ Equity
|
||||||||||||||||||||||||||||||||
|
Redeemable
Noncontrolling
Interest
|
Common Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
Income
|
Accumulated
Deficit
|
Noncontrolling
Interests
|
Total
Shareholders’
Equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance at March 31, 2022
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||||||
|
Issuance of subsidiary common shares to the Company
|
—
|
|
|
(
|
)
|
|
|
|
|
|||||||||||||||||||||||
|
Stock options exercised and equity awards vested and settled, net of tax withholding
|
—
|
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Issuance of the Company’s common shares related to settlement of transaction consideration
|
—
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Share-based compensation
|
—
|
—
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||||||||
|
Net loss
|
—
|
—
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||
|
Balance at June 30, 2022
|
$
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||||
|
Issuance of subsidiary common shares to the Company
|
— |
( |
) | |||||||||||||||||||||||||||||
|
Deconsolidation of subsidiary
|
( |
) | — |
— | — | — | — | — | — | |||||||||||||||||||||||
|
Equity awards vested and settled
|
— |
|||||||||||||||||||||||||||||||
|
Issuance of the Company’s common shares and other consideration for an acquisition
|
— |
|||||||||||||||||||||||||||||||
|
Cash contributions to majority-owned subsidiaries
|
— |
— |
( |
) | ||||||||||||||||||||||||||||
|
Share-based compensation
|
— |
— |
||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
— |
— |
( |
) | ||||||||||||||||||||||||||||
|
Net loss
|
— |
— |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
|
Balance at September 30, 2022
|
$ |
— |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
|
Shareholders’ Equity(1)
|
||||||||||||||||||||||||||||||||||||
|
Redeemable
Noncontrolling
Interest
|
Common Stock
|
Additional
Paid-in
Capital
|
Subscription
Receivable
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Accumulated
Deficit
|
Noncontrolling
Interests
|
Total
Shareholders’
Equity
|
|||||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||
|
Balance at March 31, 2021
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||||||||
|
Issuance of subsidiary warrants
|
—
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Cash contribution to majority-owned subsidiaries
|
—
|
—
|
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Share-based compensation
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
—
|
—
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||
|
Net loss
|
—
|
—
|
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||||||
|
Balance at June 30, 2021
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||||||||
|
Issuance of the Company’s common shares upon closing of Business Combination and PIPE Financing, net of issuance costs
|
— |
|||||||||||||||||||||||||||||||||||
|
Issuance of the Company’s common shares related to settlement of transaction consideration
|
— |
|||||||||||||||||||||||||||||||||||
|
Issuance of subsidiary preferred shares
|
— |
— |
||||||||||||||||||||||||||||||||||
|
Issuance of subsidiary common and preferred shares to the Company
|
— |
— |
( |
) | ||||||||||||||||||||||||||||||||
|
Payment of subscription receivable
|
— |
— |
( |
) | ||||||||||||||||||||||||||||||||
|
Cash contribution to majority-owned subsidiaries
|
— |
— |
( |
) | ||||||||||||||||||||||||||||||||
|
Share-based compensation
|
— |
— |
||||||||||||||||||||||||||||||||||
|
Repurchase of equity awards
|
— |
— |
( |
) | ( |
) | ||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
— |
— |
||||||||||||||||||||||||||||||||||
|
Net loss
|
— |
— |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
|
Balance at September 30, 2021
|
$ |
$ |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||||
|
(1)
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands)
|
Six Months Ended September 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Non-cash acquired in-process research and development
|
||||||||
|
Share-based compensation
|
|
|
||||||
|
Change in fair value of investments
|
|
(
|
)
|
|||||
|
Gain on sale of investment
|
( |
) | ||||||
|
Change in fair value of debt and liability instruments
|
|
|
||||||
|
Gain on deconsolidation of subsidiary
|
( |
) | ||||||
|
Gain on termination of Sumitomo Options
|
|
(
|
)
|
|||||
|
Depreciation and amortization
|
||||||||
|
Non-cash lease expense
|
||||||||
|
Other
|
|
|
||||||
|
Changes in assets and liabilities, net of effects from acquisition and divestiture:
|
||||||||
|
Accounts payable
|
|
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Operating lease liabilities
|
(
|
)
|
(
|
)
|
||||
|
Deferred revenue
|
(
|
)
|
(
|
)
|
||||
|
Other
|
(
|
)
|
|
|||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from investing activities:
|
||||||||
|
Cash decrease upon deconsolidation of subsidiary
|
( |
) | ||||||
|
Proceeds from sale of investment
|
||||||||
|
Milestone payments
|
( |
) | ||||||
|
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash (used in) provided by investing activities
|
(
|
)
|
|
|||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from Business Combination and PIPE Financing
|
||||||||
|
Proceeds from payment of subscription receivable
|
||||||||
|
Proceeds from subsidiary debt financings, net of financing costs paid
|
|
|
||||||
|
Repayment of debt by subsidiary
|
(
|
)
|
(
|
)
|
||||
|
Payment of offering and loan origination costs
|
(
|
)
|
(
|
)
|
||||
|
Repurchase of equity awards
|
( |
) | ||||||
|
Taxes paid related to net settlement of equity awards
|
(
|
)
|
|
|||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net change in cash, cash equivalents and restricted cash
|
(
|
)
|
|
|||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
|
$
|
|
||||
|
Non-cash investing and financing activities:
|
||||||||
|
Offering costs included in accounts payable and accrued expenses
|
$
|
|
$
|
|
||||
|
Issuance of the Company’s common shares and other consideration for an acquisition
|
$
|
|
$
|
|
||||
|
Other
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(Unaudited)
Note 1—Description of Business and Liquidity
(A) Description of Business
Roivant Sciences Ltd. (inclusive of its consolidated subsidiaries, the “Company” or “RSL”) aims to improve health by rapidly delivering innovative medicines and
technologies to patients. The Company does this by building biotech and healthcare technology companies (“Vants”) and deploying technology to drive greater efficiency in research and development and commercialization. In addition to
biopharmaceutical subsidiaries, the Company also builds technology Vants focused on improving the process of developing and commercializing medicines. The Company was founded on April 7, 2014 as a Bermuda exempted limited company.
VTAMA® (tapinarof) was approved by the United States Food and Drug Administration (“FDA”) in May 2022 for the treatment of plaque psoriasis in adult patients.
The Company has determined that it has one
On September 30, 2021, RSL completed its business combination (the “Business Combination”) with Montes Archimedes Acquisition Corp. (“MAAC”), a special purpose
acquisition company, and began trading on Nasdaq under the ticker symbol “ROIV.”
(B) Liquidity
The Company has incurred significant losses and negative cash flows from operations since its inception. As of September 30, 2022, the Company had cash and cash
equivalents of approximately $1.6 billion and its accumulated deficit was approximately $3.4 billion. For the six months ended September 30, 2022 and 2021, the Company incurred net losses of $669.7 million and $326.7 million, respectively. The Company has historically
financed its operations primarily through the sale of equity securities, sale of subsidiary interests, debt financings and revenue generated from licensing and collaboration arrangements. Through its subsidiary, Dermavant Sciences Ltd., the
Company has launched its first commercial product, VTAMA, following approval by the FDA in May 2022.
The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited to, uncertainties related to commercialization of
products, regulatory approvals to market its product candidates, dependence on key products, dependence on third-party service providers, such as contract research organizations, and protection of intellectual property rights. Management expects
to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.
The Company intends to raise such additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its
business plan. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates or take other steps to conserve capital.
The Company expects its existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of calendar year 2025.
Note 2—Summary of Significant Accounting Policies
(A) Basis of Presentation and Principles of Consolidation
The Company’s fiscal year ends on March 31, and its fiscal quarters end on June 30, September 30, and December 31.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States (“U.S. GAAP”) for interim financial information and follow the requirements of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, these unaudited condensed consolidated financial
statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. The
unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes
thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed with the SEC. The unaudited condensed consolidated balance sheet at March 31, 2022 has been derived from the audited consolidated
financial statements at that date. In the opinion of management, the unaudited condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary to present fairly the financial position of the
Company and its results of operations and cash flows for the interim periods presented. Certain prior year amounts were reclassified to conform to current year presentation. Operating results for the six months ended September 30, 2022 are not
necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2023, for any other interim period, or for any other future year.
Any references in these notes to applicable accounting guidance are meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification
(‘‘ASC’’) and Accounting Standards Updates (‘‘ASU’’) of the Financial Accounting Standards Board (‘‘FASB’’). The unaudited condensed consolidated financial statements include the accounts of RSL and the subsidiaries in which it has a controlling
financial interest, most often through a majority voting interest. All intercompany balances and transactions have been eliminated in consolidation.
For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to noncontrolling
interests in its unaudited condensed consolidated statements of operations equal to the percentage of common stock ownership interest retained in the respective operations by the noncontrolling parties. The Company presents noncontrolling
interests as a component of shareholders’ equity on its unaudited condensed consolidated balance sheets.
The Company accounts for changes in its ownership interest in its subsidiaries while control is retained as equity transactions. The carrying amount of the
noncontrolling interest is adjusted to reflect the change in RSL’s ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted
is recognized within shareholders’ equity attributable to RSL.
(B) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, costs, expenses, contingent liabilities, share-based compensation and research and development costs. The
Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Additionally, the Company assessed the impact that the COVID-19 pandemic has had on its operations and financial results as of September 30, 2022 and through the
issuance of these condensed consolidated financial statements. The Company’s analysis was informed by the facts and circumstances as they were known to the Company. This assessment considered the impact COVID-19 may have on financial estimates
and assumptions that affect the reported amounts of assets and liabilities and expenses.
(C) Concentrations
Financial instruments that potentially subject the Company to concentration of credit risk include cash and cash equivalents. The Company maintains cash deposits and
cash equivalents in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company has established guidelines relative to diversification and maturities to maintain safety and liquidity. The Company has
not experienced any credit losses related to these financial instruments and does not believe that it is exposed to any significant credit risk related to these instruments.
The Company has long-lived assets in different geographic locations. As of September 30, 2022 and March 31, 2022, a majority of the Company’s long-lived assets were
located in the United States.
(D) Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash deposits in banks and all highly liquid investments that are readily convertible to cash. The Company considers all highly
liquid investments purchased with original maturities of three months or less to be cash equivalents.
Restricted cash classified as a current asset consists of legally restricted non-interest bearing deposit accounts relating to the Company’s corporate credit card
programs. Restricted cash classified as a long-term asset consists of restricted deposit accounts related to irrevocable standby letters of credit.
Cash as reported in the condensed consolidated statements of cash flows includes the aggregate amounts of cash, cash equivalents, and restricted cash as presented on
the accompanying condensed consolidated balance sheets as follows (in thousands):
|
September 30, 2022
|
March 31, 2022
|
|||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash
|
|
|
||||||
|
Cash, cash equivalents and restricted cash
|
$
|
|
$
|
|
||||
(E) Contingencies
The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company continually assesses any
litigation or other claims it may confront to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. The Company accrues for all contingencies at the earliest date at which the
Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the Company
accrues the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the litigation, including an estimable range, if possible.
(F) Inventory
Inventories are recorded at the lower-of-cost or net realizable value, with cost determined based on a first-in, first-out basis. Net realizable value is the
estimated selling price in the ordinary course of the Company’s business, less reasonably predictable costs of completion, disposal, and transportation. The cost basis of the Company’s inventories is reduced for any products that are considered
excessive or obsolete based upon assumptions about future demand and market conditions. Inventories include the cost for raw materials, the cost to manufacture the raw materials into finished goods, and overhead.
The Company performs an assessment of the recoverability of inventories during each reporting period and writes down any excess and obsolete inventories to their net
realizable value in the period in which the impairment is first identified. If they occur, such impairment charges are recorded as a component of cost of goods sold in the condensed consolidated statements of operations.
Prior to initial regulatory approval, the Company expenses costs relating to the production of inventory as research and development expenses when incurred. After
such time as the product receives initial regulatory approval, the Company capitalizes inventory costs related to the product.
Inventory is included in “Other current assets” on the accompanying condensed consolidated balance sheets.
(G) Investments
Investments in equity securities may be accounted for using (i) the fair value option, if elected, (ii) fair value through earnings if fair value is readily
determinable or (iii) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable. The election to use the measurement
alternative is made for each eligible investment.
The Company has elected the fair value option to account for certain investments over which the Company has significant influence. The Company believes the fair
value option best reflects the underlying economics of the investment. See Note 3, “Investments.”
(H) Intangible Assets, Net
Finite-lived intangible assets are recorded at cost, net of accumulated amortization, and, if applicable, impairment charges. Amortization of finite-lived intangible
assets is recorded over the assets’ estimated useful lives on a straight-line basis or based on the pattern in which economic benefits are consumed, if reliably determinable. The Company reviews its finite-lived intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Note 4, “Intangible Assets.”
(I) Fair Value Measurements
The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value
hierarchy for financial instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market
participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would
use in pricing the asset or liability, and are developed based on the best information available in the circumstances. Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the reporting date. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a three-tier fair value
hierarchy that distinguishes among the following:
|
•
|
Level 1-Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
|
•
|
Level 2-Valuations are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for
which all significant inputs are observable, either directly or indirectly.
|
|
•
|
Level 3-Valuations are based on inputs that are unobservable (supported by little or no market activity) and significant to the overall fair value measurement.
|
To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more
judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement.
The Company’s financial instruments include shares of common stock of Arbutus Biopharma Corporation (“Arbutus”); shares of common stock of Sio Gene Therapies Inc.
(“Sio”); shares of common stock of Heracles Parent, L.L.C., the parent entity of Datavant, (as defined and discussed in Note 3, “Investments”); liability instruments issued, including warrant and earn-out shares liabilities issued in connection
with the Company’s business combination with MAAC (see Note 11, “Earn-Out Shares, Public Warrants and Private Placement Warrants”); its investments in other entities; cash and cash equivalents consisting of money market funds; accounts payable;
and long-term debt.
The shares of Arbutus and Sio common stock and investments in common stock with a readily determinable fair value are classified as Level 1, and their fair value is
determined based upon quoted market prices in an active market. The shares of common stock of Heracles Parent, L.L.C., the parent entity of Datavant (as defined and discussed in Note 3, “Investments”) and liability instruments issued, excluding
the Public Warrants (as defined and discussed in Note 11, “Earn-Out Shares, Public Warrants and Private Placement Warrants”), are classified as Level 3 within the fair value hierarchy as the assumptions and estimates used in the valuations are
unobservable in the market. The Public Warrants are publicly traded and therefore are classified as Level 1 as the Public Warrants have a readily determinable fair value. Cash and accounts payable are stated at their respective historical
carrying amounts, which approximate fair value due to their short-term nature. Money market funds are included in Level 1 of the fair value hierarchy and are valued at the closing price reported by an actively traded exchange. The carrying value
of long-term debt issued by Dermavant Sciences Ltd. (together with its wholly owned subsidiaries, “Dermavant”), which is stated at amortized cost, approximates fair value based on current interest rates for similar types of borrowings and
therefore is included in Level 2 of the fair value hierarchy. Long-term debt issued by Dermavant for which the fair value option has been elected is included in Level 3 of the fair value hierarchy as the assumptions and estimates used in the
valuation are unobservable in the market.
(J) Research and Development Expenses
Research and development (“R&D”) costs are expensed as incurred. Preclinical and clinical study costs are accrued over the service periods specified in the
contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. R&D costs primarily consist of costs associated with preclinical studies and clinical trials, including amounts paid to
contract research organizations, contract manufacturing organizations, and other third parties that conduct R&D activities on behalf of the Company, as well as employee-related expenses, such as salaries, share-based compensation, and
benefits, for employees engaged in R&D activities.
(K) Acquired In-Process Research and Development Expenses
Acquired in-process research and development (“IPR&D”) expenses include consideration for the purchase of IPR&D through asset acquisitions and license
agreements as well as payments made in connection with asset acquisitions and license agreements upon the achievement of development milestones. These expenses were previously included in “Research and development” on the condensed consolidated
statements of operations. Prior periods have been revised to conform to the current period presentation.
The Company evaluates in-licensed agreements for IPR&D projects to determine if it meets the definition of a business and thus should be accounted for as a
business combination. If the in-licensed agreement for IPR&D does not meet the definition of a business and the assets have not reached technological feasibility and therefore have no alternative future use, the Company expenses payments made
under such license agreements as acquired in-process research and development expense in its condensed consolidated statements of operations. Payments for milestones achieved and payments for a product license prior to regulatory approval of the
product are expensed in the period incurred. Payments made in connection with regulatory and sales-based milestones are capitalized and amortized to cost of revenue.
(L) Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company
expects to receive in exchange for those goods or services. To determine revenue recognition for its arrangements, the Company performs 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 the Company satisfies a performance obligation.
License, Milestone, and Other Revenue
The Company applies significant judgment when evaluating whether contractual obligations represent distinct performance obligations, allocating transaction price to
performance obligations within a contract, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration, and determining and applying appropriate methods of measuring progress for
performance obligations satisfied over time. These judgments are discussed in more detail below.
|
•
|
Licenses of intellectual property: If the licenses to intellectual property are determined to be distinct from the other performance obligations identified in the
arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not
distinct from other promises, the Company applies judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time,
the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue
recognition accordingly.
|
|
•
|
Milestone payments: At the inception of each arrangement that includes research, development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price on a cumulative catch-up basis in earnings in the period of the adjustment. |
|
•
|
Royalties and commercial milestone payments: For arrangements that include sales-based royalties, including commercial milestone payments based on a pre-specified level of sales, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon performance of the licensee. |
Revenue is also generated by certain technology-focused contracts from subscription and service-based fees recognized for the use of certain technology internally
developed. Subscription revenue is recognized ratably over the contract period.
Product Revenue, Net
The Company began recognizing product revenues after the initial product launch of VTAMA following approval by the FDA in May 2022.
The Company sells VTAMA in the U.S. principally through wholesale, specialty distribution and pharmacy channels (collectively, “customers”). These customers
subsequently resell the product to healthcare providers and patients. In addition to distribution agreements with customers, the Company enters into arrangements with healthcare providers and payers that provide for government-mandated and/or
privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s product. Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time,
either upon shipment or delivery to the customer.
Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration for which reserves are
established that result from: (a) invoice discounts for prompt payment, cash payment and distribution service fees, (b) government and private payer rebates, chargebacks, discounts and fees, (c) performance rebates and administrative fees, (d)
product returns and (e) costs of co-pay assistance programs for patients. These reserves are based on amounts earned or to be claimed on the related sale and are classified as reductions of accounts receivable (if the amount is payable to the
customer) or accrued expenses and other current liabilities (if the amount is payable to a party other than a customer). Where appropriate, the Company utilizes the expected value method to determine the appropriate amount for estimates of
variable consideration. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, the Company’s historical experience, specific known market events and trends, industry data and
forecasted customer buying and payment patterns. The amount of variable consideration that is included in the transaction price may be constrained and is included in net product revenues only to the extent that it is probable that a significant
reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary from the Company’s estimates, the
Company adjusts these estimates in the period such change in estimate becomes known, which could affect net product revenue and earnings in the period of the adjustment.
More specifically, these adjustments include the following:
|
a.
|
Prompt Pay and Cash Pay Discounts: The Company generally provides invoice discounts on product sales to its customers for prompt payment and/or cash payment. The Company estimates the amount of such discounts that will be utilized and deducts the amount from its gross product revenues and accounts receivable at the time such revenues are recognized. |
|
b.
|
Customer Fees: The Company pays fees to its customers for account management, data management, and other administrative services. To the extent the services received are distinct from sales of products to the customer, the Company records these payments in selling, general and administrative expenses. |
|
c.
|
Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a wholesaler or specialty distributor. Contracted customers, which currently consist primarily of public health service institutions, federal government entities, pharmaceutical benefit managers, and health maintenance organizations, generally purchase the product at a discounted price. The wholesaler or specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the wholesaler or specialty distributor and the discounted price paid to the wholesaler or specialty distributor by the contracted customer. The allowance for chargebacks is based on actual chargebacks received and an estimate of sales to contracted customers. |
|
d.
|
Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit as well as contracted discounts with pharmaceutical benefit managers and health maintenance organizations. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with payers or statutory requirements pertaining to Medicaid and Medicare benefit providers. The allowance for rebates is based on contractual or statutory discount rates, estimated payer mix, and expected utilization. The Company’s estimates for expected utilization of rebates are based on historical data received from wholesalers, specialty distributors, and pharmacies since launch, as well as analog data from similar products. The Company monitors sales trends and adjusts the allowance on a regular basis to reflect the most recent rebate experience. The Company’s liability for these rebates consists of invoices received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. |
|
e.
|
Co-payment Assistance: The Company offers co-payment assistance to patients. Co-payment assistance is accrued based on an estimate of the number of co-payment assistance claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period. |
|
f.
|
Product Returns: Consistent with industry practice, the Company offers its customers limited product return rights for damages, shipment errors, and expiring product; provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution or customer agreement. The Company does not allow product returns for product that has been dispensed to a patient. In arriving at its estimate for product returns, the Company considers historical product returns, the underlying product demand, and industry specific data. |
Product revenue is included in “Revenue, net” on the accompanying condensed consolidated statements of operations.
Trade Receivables, Net
The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in customer credit
profiles. The Company reserves against trade receivables for estimated losses that may arise from a customer’s inability to pay, and any amounts deter