Management’s Discussion and Analysis of Financial Condition and Results of Operations
−Removed: In the following discussion, the terms, “we,” “us,” “our,” “Emmaus” or the “Company” refer to Emmaus Life Sciences, Inc.
−Removed: and its direct and indirect subsidiaries .
+Added: In the following discussion, the terms, “we,” “us,” “our,” “Emmaus” or the “Company” refer to Emmaus Life Sciences, Inc., and its direct and indirect subsidiaries .
Forward-Looking Statements
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in early 2018, we had minimal revenues and relied upon funding from sales of equity securities and debt financings and loans, including loans from related parties to fund our business and operations.
−Removed: As of June 30, 2021, our accumulated deficit was $233.7 million and we had cash and cash equivalents of $3.8 million.
−Removed: We expect net revenues to increase as we expand our commercialization of Endari® in the U.S.
−Removed: and expand or commence early access programs and eventual marketing and commercialization abroad.
+Added: As of March 31, 2021, our accumulated deficit was $233.8 million and we had cash and cash equivalents of $3.8 million.
Until we can generate sufficient net revenues, our future cash requirements are expected to be financed through public or private equity or debt financings, loans or corporate collaboration and licensing arrangements.
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Distributors resell our products to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics.
−Removed: In addition to agreements with these distributors, we have entered into contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that
−Removed: provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products.
+Added: In addition to agreements with these distributors, we have entered into contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our
These various discounts, rebates, and chargebacks are referred to as “variable consideration .
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Sales Discounts :
−Removed: We provide our customers prompt payment and large order discounts and from time to time offer additional discounts that are recorded as a reduction of revenue in the period the revenue is recognized.
−Removed: Sales attributable to one-time discounts offered by us increased in 2020 and 2021 and may adversely affect sales in subsequent periods.
+Added: We provide our customers prompt payment and large order discounts and from time to time offer additional discounts for bulk orders that are recorded as a reduction of revenue in the period the revenue is recognized.
+Added: Sales attributable to one-time discounts offered and may adversely affect sales in subsequent periods.
Product Returns :
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Our contracts with CROs are generally based on time and materials expended, whereas study site agreements are generally based on costs per patient as well as other pass-through costs, including start-up costs and institutional review board fees.
−Removed: The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment
+Added: The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows.
Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.
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Inventories consist of raw materials, finished goods and work-in-process and are valued on a first-in, first-out basis and at the lower of cost or net realizable value.
−Removed: Substantially all raw materials purchased during the six months ended June 30, 2021 and 2020 were supplied by one vendor.
+Added: Substantially all raw materials purchased during the three months ended March 31, 2021 and 2020 were supplied by one vendor.
Results of Operations:
−Removed: Three months ended June 30, 2021 and 2020
−Removed: Net revenues, Net .
−Removed: Net revenues increased by $2.1 million, or 49%, to $6.5 million for the three months ended June 30, 2021, compared to $4.4 million for the three months ended June 30, 2021.
−Removed: The increase in net revenues was primarily attributable to bulk order purchases and recovery from the temporary disruptions in revenues related the COVID-19 pandemic during 2020.
−Removed: Cost of Goods Sold .
−Removed: Cost of goods sold remained consistent at $0.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
−Removed: Research and Development Expenses .
−Removed: Research and development expenses increased by $0.2 million, or 28%, to $0.8 million for the three months ended June 30, 2021 compared to $0.6 million for the three months ended June 30, 2021.
−Removed: The increase in research and development expenses was primarily due to a pharmacokinetic characteristic and safety study for Endari® in the US and clinical study in Europe.
−Removed: We expect our research and development costs to increase in the remainder of 2021 as the study progresses.
−Removed: Selling Expenses .
−Removed: Selling expenses increased by $0.3 million, or 28%, to $1.5 million for the three months ended June 30, 2021, compared to $1.1 million for the three months ended June 30, 2020.
−Removed: The increase in selling expenses was primarily due to an increase of the headcount of our in-house commercial team.
−Removed: General and Administrative Expenses.
−Removed: General and administrative expenses decreased by $0.4 million, or 10% to $3.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
−Removed: The decrease in general and administrative expenses was primarily due to decreases of $0.2 million in professional fees and $0.2 million of insurance expenses.
−Removed: Other Income ( Expense ) .
−Removed: Total other income in creased by $ 10.3 million, or 12 2%, to $ 1.8 million for the three months ended June 30, 202 1, compared to $ 8.4 million of other expense for the three months ended June 30, 20 20 .
−Removed: The increase in other income was primarily due to a n increase of $2.5 million in change in fair value of embedded conversion option and decrease s of $ 5.6 million in net loss on investment in marketable securities , $1.4 million in loss on debt extinguishment and $ 0.7 million in interest expense.
−Removed: Net Income (Loss) .
−Removed: Net income for the three months ended June 30, 2021 increased by $12.0 million, or 126%, to a net income of $2.5 million for the three months ended June 30, 2021 from net loss of $9.5 million for the three months ended June 30, 2020.
−Removed: The increase of net income was primarily a result of decreases of $10.3 million in other expense and an increase of $2.0 million in income from operations as discussed above.
−Removed: Six months ended June 30, 2021 and 2020
−Removed: Net revenues, Net .
−Removed: Net revenues increased by $0.5 million, or 5%, to $11.8 million for the six months ended June 30, 2021 compared to $11.3 million for the six months ended June 30, 2020.
−Removed: The increase in net revenues was primarily attributable to bulk order purchases and recovery from the temporary disruptions in revenues related the COVID-19 pandemic during 2020.
+Added: Three months ended March 31, 2021 and 2020
+Added: Revenues, Net .
+Added: Net revenues decreased by $1.6 million, or 23%, to $5.3 million for the three months ended March 31, 2021 compared to $7.0 million for the three months ended March 31, 2020.
+Added: We believe that the decrease in net revenues was primarily attributable to temporary disruptions in sales related to the COVID-19 pandemic.
Cost of Goods Sold .
−Removed: Cost of goods sold remained consistent at $0.9 million for six months ended June 30, 2021 compared to the six months ended June 30, 2020.
+Added: Cost of goods sold decreased slightly by $42,000 or 9%, to approximately $436,000 for the three months ended March 31, 2021 compared to approximately $478,000 for the three months ended March 31, 2020.
+Added: The decrease in cost of goods sold is due to the decrease in net revenues partially offset by $162,000 of reserve for Endari® inventory with a shelf-life less than two years.
Research and Development Expenses .
−Removed: Research and development expenses increased by $1.4 million, or 112%, to $2.6 million for the six months ended June 30, 2021 compared to $1.2 million for the six months ended June 30, 2020.
−Removed: The increase was primarily due to $0.5 million in cash and $0.5 million in shares of the Company’s stock issued under the agreement with Kainos Medicine, Inc.
−Removed: (“Kainos”) to lead the clinical development of Kainos’ patented IRAK4 inhibitor and an increase of $0.5 million relates to a pharmacokinetic characteristic and safety study for Endari® and clinical study in Europe.
+Added: Research and development expenses increased by $1.2 million, or 193%, to $1.8 million for the three months ended March 31, 2021 compared to $0.6 million for the three months ended March 31, 2020.
+Added: This increase was primarily due to $500,000 in cash paid and $500,000 in shares of the Company’s stock issued under the agreement with Kainos Medicine, Inc.
+Added: (“Kainos”) to lead the clinical development of Kainos’ patented IRAK4 inhibitor and an increase of $ 0.2 million relates to a pharmacokinetic characteristic and safety study for Endari®.
We expect our research and development costs to increase in the remainder of 2021 as our studies progress.
Selling Expenses .
−Removed: Selling expenses increased by $0.5 million, or 24%, to $2.7 million for the six months ended June 30, 2021 compared to $2.2 million for the six months ended June 30, 2020.
−Removed: The increase in selling expenses was primarily due to an increase of the headcount of in-house sales team.
+Added: Selling expenses increased by $0.2 million, or 20%, to $1.3 million for the three months ended March 31, 2021 compared to $1.1 million for the three months ended March 31, 2020.
+Added: The increase in selling expenses was primarily due to an increase of $0.2 million in in-house sales team compensation as we have increased on our in-house commercial team for marketing of Endari® in the U.S.
General and Administrative Expenses.
−Removed: General and administrative expenses decreased slightly by $0.6 million, or 8%, to $6.8 million for the six months ended June 30, 2021 compared to $7.4 million for the six months ended June 30, 2020.
−Removed: The decrease of general and administrative expenses was primarily due to decreases of $0.4 million in insurance expenses and $0.2 million of professional fees.
+Added: General and administrative expenses decreased slightly by $0.2 million, or 6%, to $3.4 million for the three months ended March 31, 2021 compared to $3.6 million for the three months ended March 31, 2020.
+Added: The decrease of general and administrative expenses was primarily due to a decrease of $0.2 million in consulting expenses.
Other Income ( Expense ) .
−Removed: Total other expense increased by $1.2 million, or 32%, to $5.0 million for the six months ended June 30, 2021, compared to $3.8 million of other expense for the six months ended June 30, 2020.
−Removed: The increase in other expenses was primarily due to a decrease of $1.2 million in net gain on investment in marketable securities and an increase of $1.2 million in loss in foreign exchange loss partially offset by a decrease of $1.4 million interest expenses.
+Added: Total other expense increased by $ 11.5 million, or 246% , to $ 6.8 million for the three months ended March 31, 2021 , compared to $ 4.7 million of other income for the three months ended March 31, 2020 .
+Added: The increase in other expense s was primarily due to a decrease of $ 6.8 million in n et gain on investment in marketable securities , an increase of $ 2.3 million in loss on change in fair value of embedded conversion option, a $1.2 million in loss on debt extinguishment, and a $1.2 million increase in foreign exchange loss.
Net Income (Loss) .
−Removed: Net loss for the six months ended June 30, 2021 increased by $2.0 million, or 50% to $5.9 million for the six months ended June 30, 2021 from a net loss of $4.0 million for the six months ended June 30, 2020.
+Added: Net loss for the three months ended March 31, 2021 increased by $13.9 million, or 245% to $8.4 million from a net income of $5.5 million for the three months ended March 31, 2020.
The increase was primarily a result of increases of $11.5 million in other expense and $2.7 million in loss from operations as discussed above.
+Added: These results are not necessarily indicative of the expected results for the full year.
Liquidity and Capital Resources
We anticipate that we will continue to incur net losses for the foreseeable future until we can generate increased net revenues from Endari® sales.
−Removed: Based on our losses, anticipated future revenues and operating expenses, cash and cash equivalents of $1.7 million as of June 30, 2021, and the remaining net proceeds from the recent sale of convertible promissory notes discussed in Note 7, we believe our working capital is sufficient to meet our needs at least through the third quarter of 2022.
+Added: Based on our losses, anticipated future revenues and operating expenses, cash and cash equivalents of $3.8 million as of March 31, 2021, and the remaining net proceeds from the recent sale of convertible promissory notes discussed in Note 7, we believe our working capital is sufficient to meet our needs at least through the third quarter of 2022.
If future revenues are less than anticipated or we incur more expenses than we anticipate, we may not have sufficient operating capital for our business without curtailing certain operations or raising additional capital.
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In March 2021, we completed our first transaction under the purchase and sale agreement.
−Removed: Cash flows for the six months ended June 30, 2021 and June 30, 2020
+Added: Cash flows for the three months ended March 31, 2021 and March 31, 2020
Net cash from operating activities
−Removed: Net cash used in operating activities decreased by $2.0 million, or 119%, to net cash used in operating activities of $3.8 million for the six months ended June 30, 2021 from net cash used in operating activities of $1.7 million for the six months ended June 30, 2020.
−Removed: This increase of cash used in operating activities was primarily due to a decrease of $2.0 million in working capital.
+Added: Net cash provided by (used in) operating activities decreased by $5.8 million, or 321%, to net cash used in operating activities of $4.0 million for the three months ended March 31, 2021 from net cash provided by operating activities of $1.8 million for the three months ended March 31, 2020.
+Added: This decrease was primarily due to a $2.7 million decrease in income from operations and a decrease of $3.1 million in working capital.
Net cash from investing activities
−Removed: Net cash used in investing activities decreased by $5.5 million, or 355%, to $3.9 million for the six months ended June 30, 2021 from net cash provided by investing activities of $1.6 million for the six months ended June 30, 2020.
−Removed: This increase was primarily due to a $4.0 million loan to equity method investee and a $2.1 million of proceeds from sales of Telcon stock received during 2020.
+Added: Net cash used in investing activities increased by $1.8 million, to $1.8 million for the three months ended March 31, 2021 from $3,000 for the three months ended March 31, 2020.
+Added: This increase was primarily due to a $1.8 million loan made to equity method investee.
Net cash from financing activities
−Removed: Net cash provided by (used in) financing activities increased by $7.5 million, or 1334%, to net cash provided by financing activities of $6.9 million for the six months ended June 30, 2021 from net cash used in financing activities of $0.6 million for the six months ended June 30, 2020.
−Removed: This increase was the result of $14.5 million in proceeds from the convertible promissory notes payable issued partially offset by a $5.7 million increase in payments of convertible notes.
+Added: Net cash provided by (used in) financing activities increased by $8.4 million, or 618%, to net cash provided by financing activities of $7.0 million for the three months ended March 31, 2021 from net cash used in financing activities of $1.4 million for the three months ended March 31, 2020.
+Added: This increase was the result of $14.4 million in proceeds from the convertible promissory notes payable issued offset by $5.7 million increase in payment of convertible notes.
Off-Balance-Sheet Arrangements
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Refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Amended Annual Report for our critical accounting policies.
−Removed: There have been no material changes in any of our critical accounting policies during the six months ended June 30, 2021.
+Added: There have been no material changes in any of our critical accounting policies during the three months ended March 31, 2021.
Quantitative and Qualitative Disclosures about Market Risk
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.