f
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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 ☐ No
As of July 31, 2024, the registrant had
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and section 27A of the Securities Act of 1933, as amended, or the Securities Act. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, business strategy, market size, potential growth opportunities, nonclinical and clinical development activities, efficacy and safety profile of OJEMDA™ (tovorafenib) and our product candidates, potential therapeutic benefits and economic value of OJEMDA and product candidates, our ability to market and sell OJEMDA while maintaining full compliance with applicable federal and state laws, rules and regulations, use of net proceeds from our public offerings, our ability to maintain and recognize the benefits of certain designations received by products and product candidates, the timing and results of nonclinical studies and clinical trials, commercial collaboration with third parties, and our ability to recognize milestone and royalty payments from commercialization agreements, the potential impact of global business or macroeconomic conditions, including as a result of inflation, changing interest rates, cybersecurity incidents, actual or perceived instability in the global banking system, uncertainty with respect to the federal debt ceiling and budget and potential government shutdowns related thereto and global regional conflicts on our operations, and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” and other similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, 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 we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
As used in this Quarterly Report on Form 10-Q, the terms “Day One,” “the Company,” “we,” “us,” and “our” refer to Day One Biopharmaceuticals, Inc., a Delaware corporation. “Day One” and all product and product candidate names are our common law trademarks. This Quarterly Report contains additional trade names, trademarks and service marks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
Table of Contents
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Page |
PART I. |
4 |
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Item 1. |
4 |
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4 |
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5 |
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6 |
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7 |
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9 |
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10 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
34 |
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Item 4. |
34 |
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PART II. |
36 |
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Item 1. |
36 |
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Item 1A. |
36 |
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Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
94 |
Item 3. |
94 |
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Item 4. |
94 |
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Item 5. |
94 |
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Item 6. |
95 |
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96 |
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3
PART I-FINANCIAL INFORMATION
Day One Biopharmaceuticals, Inc.
Condensed Balance Sheets
(in thousands, except share amounts)
(unaudited)
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June 30, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use asset |
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Intangible assets, net |
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Deposits and other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Current portion of operating lease liability |
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Total current liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in-capital |
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Accumulated other comprehensive (loss) income |
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( |
) |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to the condensed financial statements.
4
Day One Biopharmaceuticals, Inc.
Condensed Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Product revenue, net |
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$ |
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$ |
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$ |
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$ |
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Cost and operating expenses: |
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Cost of product revenue |
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Research and development |
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Selling, general and administrative |
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Total cost and operating expenses |
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Loss from operations |
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( |
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( |
) |
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( |
) |
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( |
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Non-operating income (expense): |
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Gain from sale of priority review voucher |
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Investment income, net |
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Other expense, net |
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( |
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( |
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( |
) |
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( |
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Total non-operating income, net |
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Loss before income taxes |
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( |
) |
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( |
) |
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( |
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( |
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Income tax expense |
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( |
) |
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( |
) |
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Net loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted-average number of common shares used in computing net loss per share, basic and diluted |
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See accompanying notes to the condensed financial statements.
5
Day One Biopharmaceuticals, Inc.
Condensed Statements of Comprehensive Loss
(in thousands)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Other comprehensive income: |
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Unrealized (loss) gain on available-for-sale securities |
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( |
) |
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( |
) |
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( |
) |
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Total comprehensive loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
See accompanying notes to the condensed financial statements.
6
Day One Biopharmaceuticals, Inc.
Condensed Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
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Common Shares |
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Additional |
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Accumulated Other |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Paid-In Capital |
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Comprehensive Income (Loss) |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock upon release of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Unvested common stock forfeiture |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation expenses |
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— |
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— |
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— |
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— |
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Unrealized loss on available-for-sale securities |
|
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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( |
) |
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( |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock upon release of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to Employee Stock Purchase Plan |
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— |
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— |
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— |
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Unvested common stock forfeiture |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation expenses |
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— |
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— |
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— |
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— |
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Unrealized loss on available-for-sale securities |
|
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2024 |
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( |
) |
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( |
) |
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See accompanying notes to the condensed financial statements.
7
Day One Biopharmaceuticals, Inc.
Condensed Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
|
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Common Shares |
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Additional |
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Accumulated Other |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Paid-In Capital |
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Comprehensive Income (Loss) |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock upon release of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Unvested common stock forfeiture |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation expenses |
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— |
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— |
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— |
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— |
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Unrealized gain on available-for-sale securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2023 |
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( |
) |
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Issuance of common stock pursuant to follow-on offering, net of issuance costs of $ |
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— |
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— |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock upon release of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to Employee Stock Purchase Plan |
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— |
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— |
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— |
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Share-based compensation expenses |
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— |
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— |
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— |
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— |
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Unrealized loss on available-for-sale securities |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2023 |
|
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|
$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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||||
See accompanying notes to the condensed financial statements.
8
Day One Biopharmaceuticals, Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
|
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Six Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Share-based compensation expense |
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Depreciation expense |
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Accretion of discounts on short-term investments, net |
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( |
) |
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( |
) |
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Amortization of intangible assets |
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Amortization of operating right-of-use asset |
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Gain from sale of priority review voucher |
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( |
) |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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( |
) |
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Inventory |
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( |
) |
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Prepaid expenses and other current assets |
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( |
) |
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( |
) |
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Deposits and other long-term assets |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Operating lease liability |
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( |
) |
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( |
) |
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Net cash used in operating activities |
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( |
) |
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( |
) |
|
Cash flows from investing activities: |
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Cash paid for purchase of short-term investments |
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|
( |
) |
|
|
|
( |
) |
|
Proceeds from maturity of short-term investments |
|
|
|
|
|
|
|
|||
Cash paid for acquired intangible assets |
|
|
( |
) |
|
|
|
|
||
Proceeds from sale of priority review voucher |
|
|
|
|
|
|
|
|||
Cash paid for purchase of property and equipment |
|
|
( |
) |
|
|
|
( |
) |
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|||
Proceeds from issuance of common stock, net |
|
|
|
|
|
|
|
|||
Proceeds from issuance of common stock upon stock option exercises |
|
|
|
|
|
|
|
|||
Proceeds from issuance of common stock upon Employee Stock Purchase Plan purchase |
|
|
|
|
|
|
|
|||
Cash provided by financing activities |
|
|
|
|
— |
|
|
|
||
Net increase in cash and cash equivalents |
|
|
|
|
|
|
|
|||
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|||
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
|
|||
Supplemental disclosures of noncash activities: |
|
|
|
|
|
|
|
|||
Cash not yet paid for upfront license agreement payment |
|
|
|
|
|
|
|
|||
Unpaid/deferred offering costs |
|
|
|
|
|
|
|
|||
See accompanying notes to the condensed financial statements.
9
Day One Biopharmaceuticals, Inc.
Notes to the Condensed Financial Statements
Organization and Business
Day One Biopharmaceuticals, Inc., or the Company, is a commercial-stage biopharmaceutical company dedicated to developing and commercializing targeted therapies for people of all ages with life-threatening diseases. The Company was formed as a limited liability company under the laws of the State of Delaware in November 2018, under the name Hero Therapeutics Holding Company, LLC. Subsequently, the Company changed its name to Day One Therapeutics Holding Company, LLC in December 2018 and to Day One Biopharmaceuticals Holding Company, LLC, or Day One Holding LLC, in March 2020. On May 26, 2021, the Company completed a conversion by filing a certificate of conversion with the Secretary of State of the State of Delaware and changed its name to Day One Biopharmaceuticals, Inc.
Basis of Presentation
The Company’s unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission, or SEC, and should be read in conjunction with the Company's consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 26, 2024. The condensed financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.
Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASU, of the Financial Accounting Standards Board, or FASB.
Use of Estimates
The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of expenses during the reporting period. Estimates and assumptions made in the accompanying condensed financial statements include, but are not limited to, accruals for research and development expenses, variable consideration and other relevant inputs impacting the gross and net revenue recognition, the valuation of share-based awards, and the valuation of deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results may differ from those estimates or assumptions.
Segments
The Company has determined that its chief executive officer is the chief operating decision maker, or CODM. The Company operates and manages the business as one reporting and one operating segment, which is the business of identifying and advancing targeted therapies for people of all ages with genomically-defined cancers. The Company’s CODM reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. All of the Company’s assets are located in the United States.
Concentration of credit risk and other risks and uncertainties
Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, and accounts receivable. Amounts on deposit may at times exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents and short-term investments that are recorded on its balance sheet. Per policy, the Company mitigates its risk by investing in high-grade instruments and limiting the concentration in any one issuer, which limits its exposure. The Company has not experienced any losses on its cash, cash equivalents and short-term investments.
For the six months ended June 30, 2024, two individual customers accounted for
Notes to the Condensed Financial Statements
the accounts receivable balance. No other individual customers account for more than
The Company is subject to certain risks and uncertainties and believes that changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of its operations: ability to obtain future financing; regulatory requirements for approval and market acceptance of, and reimbursement for, product candidates; performance of third-party clinical research organizations and manufacturers upon which the Company relies; development of sales channels; protection of the Company’s intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; changes to the market landscape; and the Company’s ability to attract and retain employees necessary to support its growth.
The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.
Accounts Receivable, Net
Accounts receivable, net consists of trade receivables which are amounts due from the Company's specialty pharmacy and specialty distributor customers related to product sales. The Company records trade receivables net of discounts, chargebacks, and any allowances for potential credit losses. An allowance for credit losses is determined based on the financial condition and creditworthiness of customers and the Company considers economic factors and events or trends expected to affect future collections experience. Any allowance would reduce the net receivables to the amount that is expected to be collected. The payment history of the Company’s customers will be considered in future assessments of collectability as these patterns are established over a longer period of time. For the three and six months ended June 30, 2024, the Company did
Inventory
The Company began capitalizing inventory for OJEMDA upon approval by the U.S. Food and Drug Administration, or FDA, in April 2024. OJEMDA is approved for the treatment of patients 6 months of age and older with relapsed or refractory pediatric low-grade glioma, or pLGG, harboring a BRAF fusion rearrangement, or BRAF V600 mutation. Prior to regulatory approval, all direct and indirect manufacturing costs were charged to research and development expense in the period incurred.
Inventory is comprised of raw materials, work-in-process and finished goods, and includes costs related to third-party contract manufacturing, packaging, freight-in and overhead. Inventory is stated at the lower of cost or net realizable value with cost based on the first-in-first-out method. Raw and intermediate materials that may be used for either research and development or commercial purposes where the intended use is not yet known are classified as inventory until the material is consumed or otherwise allocated for research and development. If the material is used or otherwise allocated for research and development, it is expensed as research and development in the period that determination is made.
The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded within cost of product revenue. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as a cost of product revenue in the statements of operations. There were
Product Revenue, Net
The Company recognizes net product revenue from OJEMDA for the treatment of patients 6 months of age and older with relapsed or refractory pLGG harboring a BRAF fusion rearrangement, or BRAF V600 mutation, which it began selling in May 2024 through contractual arrangements with its specialty pharmacy and specialty distributor customers.
The Company recognizes net product revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, which outlines a five-step process for recognizing revenue from contracts with customers: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the separate performance obligations in the contract, and (v) recognize revenue associated with the performance obligations as they are satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606, the Company determines the performance obligations that are
11
Notes to the Condensed Financial Statements
distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied. The Company has determined that the delivery of OJEMDA to its customers constitutes a single performance obligation. There are no other promises to deliver goods or services beyond what is specified in each accepted customer order. Net product revenue is recognized at the transaction price when the customer obtains control of the Company’s product, which occurs at a point in time upon delivery of the product to the customer.
The Company has assessed the existence of a significant financing component in the agreements with its customers. The trade payment terms with the Company’s customers do not exceed one year and therefore the Company has elected to apply the practical expedient and no amount of consideration has been allocated as a financing component.
Net product revenues from the sale of OJEMDA are recorded at the transaction price, which include adjustments for discounts and allowances, including estimated cash discounts, government chargebacks, government rebates, specialty distributor fees, copay assistance, and returns. These adjustments represent variable consideration under ASC 606 and are estimated using the expected value method or most likely amount method and are recorded when revenue is recognized on the sale of the product. These adjustments are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.
The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price, only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s original estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
Cash Discounts — The Company estimates cash discounts based on contractual terms and expectations regarding future customer payment patterns. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.
Government Chargebacks — Chargebacks for fees and discounts to qualified government healthcare providers represent the estimated obligations resulting from contractual commitments to sell products to qualified U.S. Department of Veterans Affairs hospitals and 340B entities at prices lower than the list prices charged to customers who directly purchase the product from the Company. The 340B Drug Discount Program is a U.S. federal government program created in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations and covered entities at significantly reduced prices. Customers charge the Company for the difference between what they pay for the product and the statutory selling price to the qualified government entity. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivables, net. Chargeback amounts are generally determined at the time of resale to the qualified government healthcare provider by customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale. Reserves for chargebacks consist of chargebacks that customers have claimed, but for which the Company has not yet issued a credit and credits that the Company expects to issue for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.
Government Rebates — The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. For Medicaid programs, the Company estimates the portion of sales attributed to Medicaid patients and records a liability for the rebates to be paid to the respective state Medicaid programs. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been 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 which remains in the distribution channel inventories at the end of each reporting period.
Specialty Distributor Fees — The Company pays fees to our specialty distributor customers for distribution services provided in connection with the sales of OJEMDA. These specialty distributor fees are based on a contractually determined fixed percentage of sales. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities.
12
Notes to the Condensed Financial Statements
Copay Assistance — The Company offers a co-pay assistance program, which is intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an estimate of 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. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as accrued expenses and other current liabilities.
Product Returns — Consistent with industry practice, the Company’s contracts with customers for OJEMDA generally provide for returns only if the product is damaged or defective upon delivery, if there is a shipment error, and for certain customers, if the product is within an eligible expiry window. The Company currently estimates product return reserves using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company believes the returns of OJEMDA will be minimal because our customers often carry limited inventory given the price of our products, and the limited number of patients. These reserves are established in the same period that the related revenue is recognized.
Cost of Product Revenue
Our cost of product revenue includes the cost of inventory sold, amortization expense of intangible assets and third-party royalties payable on our net product revenue. Cost of goods sold may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, and manufacturing variances.
Intangible Assets, Net
Upon FDA approval and commercial launch of OJEMDA in April 2024, the Company capitalized the $
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, which requires incremental disclosure of segment information on an interim and annual basis. This ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective application to all prior periods presented in the financial statements is required for public entities. The Company is currently evaluating the effect of this update on its financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures by requiring disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The ASU is effective for fiscal years beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the effect of this update on its financial statement disclosures.
The following table sets forth the Company’s financial instruments as of June 30, 2024 and December 31, 2023, which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
13
Notes to the Condensed Financial Statements
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company's money market funds are classified as Level 1 because they are measured using observable inputs from active markets for identical assets.
The Company's U.S. treasury securities and U.S. government agency securities are classified as Level 2 because they are measured with inputs that are either directly or indirectly observable for the asset which include quoted prices for similar assets in active markets and quoted prices for identical or similar assets in markets that are not active.
There were no assets or liabilities classified as Level 3 as of June 30, 2024 and December 31, 2023.
There were
The following tables summarize the estimated fair value of the Company's cash equivalents, available-for-sale securities classified as short-term investments, and associated unrealized gains and losses (in thousands):
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. government agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government agency securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
U.S. treasury securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total short-term investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. government agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total short-term investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table summarizes the maturities of our cash equivalents and available-for-sale securities (in thousands):
|
|
June 30, 2024 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Mature in one year or less |
|
$ |
|
|
$ |
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
December 31, 2023 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Mature in one year or less |
|
$ |
|
|
$ |
|
||
Total |
|
$ |
|
|
$ |
|
||
The Company regularly reviews the changes to the rating of its securities and monitors the surrounding economic conditions to assess the risk of expected credit losses. As of June 30, 2024 and December 31, 2023, there were
14
Notes to the Condensed Financial Statements
were in an unrealized loss position for more than 12 months. As of June 30, 2024, the unrealized losses, if any, on the Company’s short-term investments were primarily caused by interest rate increases. The Company does not expect the issuers to settle any security at a price less than the amortized cost basis of the investment with the contractual cash flows of these investments guaranteed by the issuer. No allowance for credit losses has been recorded since it is not more-likely-than-not that the Company will be required to sell the investments before recovery of their amortized cost basis.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
Prepaid research and development expenses |
|
$ |
|
|
$ |
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Other prepaid expenses and other assets |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
Accrued license agreement upfront payment |
|
$ |
|
|
$ |
|
||
Accrued research and development expenses |
|
|
|
|
|
|
||
Accrued pa | ||||||||