What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 128 added, 151 removed, 134 unchanged (68% of the section changed)

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We also actively evaluate complementary products, technologies and companies for in-licensing, partnership, acquisition and/or investment opportunities.

Our research and development expenses consist primarily of expenses related to in-licensing of new product candidates, fees paid to consultants and outside service providers for clinical and laboratory development, facilities-related and other expenses relating to the design, development, manufacture, testing and enhancement of our drug candidates and technologies.

Following FDA approval of UKONIQ on February 5, 2021, we commenced commercial sales of UKONIQ in the US and began generating product revenue.

During the year ended December 31, 2021, our only sources of product revenues were from the sales of UKONIQ.

Product revenues are recorded net of estimates of variable consideration.

For further discussion of our revenue recognition policy, see “Critical Accounting Policies and Significant Judgements and Estimates” below.

Cost of product revenue consists primarily of materials and third-party manufacturing costs, as well as freight and royalties owed to our licensing partner for UKONIQ sales.

Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, the manufacturing costs of UKONIQ units recognized as revenue during the year ended December 31, 2021 were expensed prior to receipt of FDA approval on February 5, 2021, and therefore are not included in costs of product revenue during the current period.

Our other research and development expenses consist primarily of expenses relating to the design, development, manufacture, testing and enhancement of our drug candidates and technologies, milestone expenses related to in-licensing of new product candidates, fees paid to consultants and outside service providers for clinical and laboratory development, personnel expenses and other facilities-related expenses.

We expense our research and development costs as they are incurred.

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Early Clinical Pipeline & Pre-Clinical

Our general and administrative expenses consist primarily of expenses related to the US launch of UKONIQ, including salaries and related expenses for our commercialization team and commercial development activities.

Other general and administrative expenses consist of executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Our results of operations include noncash compensation expenses as a result of the grants of restricted stock and stock options.

Compensation expense for awards of restricted stock and stock options granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards.

The expense is included in the respective categories of expense in the consolidated statements of operations.

We expect to continue to incur significant noncash compensation expenses.

We recognize all share-based payments to employees and non-employee directors (as compensation for service) as noncash compensation expense in the consolidated financial statements based on the fair values of such payments.

Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

In addition, some of the restricted stock and stock options issued to employees, consultants and other third parties vest upon achievement of certain milestones, and accordingly, the total expense is uncertain.

Compensation expense for such awards is recognized when the achievement of such milestones becomes probable.

Our clinical trials will be lengthy and expensive.

In addition, we expect losses to continue as we fund in-licensing and development of new drug candidates.

As we further our development efforts, we may enter into additional third-party collaborative agreements and incur additional expenses, such as licensing fees and milestone payments.

In addition, we will need to maintain and expand our commercial infrastructure for the manufacturing, marketing and selling of UKONIQ and our drug candidates following approval, if any, by the FDA or a foreign health authority, which would result in incurring significant additional expenses.

As a result, our annual results may fluctuate and a year-by-year comparison of our operating results may not be a meaningful indication of our future performance.

RESULTS OF OPERATIONS

Years Ended December 31, 2020, 2019 and 2018

Years Ended December 31,

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes the results of operations for the years ended December 31, 2021 and 2020:

(in thousands)

Product revenue, net

License Revenue

Total Revenue

Costs and expenses:

Cost of product revenue

Research and development:

Noncash compensation

Other research and development

Total research and development

Selling, General and administrative:

Noncash compensation

Other selling, general and administrative

Total selling, general and administrative

Total costs and expenses

Interest expense

Total other expense, net

Total revenue for the year ended December 31, 2021 increased compared to the comparable periods ended December 31, 2020 and 2019, due to net product revenues from U.S.

sales of our sole commercial product, UKONIQ, which was approved by the FDA on February 5, 2021.

Cost of Product Revenue.

Cost of product revenue consists primarily of freight and royalties on net sales of UKNOIQ owed to our licensing partner.

During the year ended December 31, 2021, the cost of product revenue was $0.8 million.

Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, the manufacturing costs of UKONIQ units recognized as revenue during the year ended D ecember 31, 2021 were expensed as research and development expenses prior to receipt of FDA approval on February 5, 2021, and therefore are not included in costs of product revenue during the current period.

We expect the cost of product revenues to remain low, as we sell through certain inventory that was expensed prior to FDA approval of UKONIQ in February 2021.

Noncash Compensation Expense (Research and Development).

Noncash compensation expense (research and development) related to equity incentive grants totaled $24.0 million for the year ended December 31, 2021, as compared to $14.0 million during the comparable period in 2020.

The increase in noncash compensation expense was primarily due to vesting of milestone-based grants, an increase in research and development personnel and the vesting of grants at a higher stock price during the year ended December 31, 2021.

Other Research and Development Expense .

Other research and development expense increased for the year ended December 31, 2021 by approximately $46.6 million to $198.5 million as compared to the comparable period ended December 31, 2020.

The increase in research and development expense is primarily attributable to increased manufacturing expense of approximately $34.4 million in preparation for commercialization and for our Phase 3 clinical trials.

Additionally, an increase in personnel expense of $9.5 million associated with the buildout of our regulatory and late-stage development groups.

Noncash Compensation Expense (Selling, General and Administrative).

Noncash compensation expense (selling, general and administrative) related to equity incentive grants totaled $37.2 million for the year ended December 31, 2021, as compared to $66.3 million during the comparable period in 2020.

The decrease in noncash compensation expense was primarily related to more milestone-based vesting of restricted stock granted to executive personnel occurring during the year ended December 31, 2020.

Other Selling, General and Administrative.

Other selling, general and administrative expenses increased for the year ended December 31, 2021 by approximately $49.3 million to $90.9 million as compared to the comparable period ended December 31, 2020.

The increase in selling, general and administrative expense is primarily attributable to increased personnel and other selling, general and administrative costs associated with execution of the launch of UKONIQ and planning for the potential launches of U2 in CLL and ublituximab in RMS.

Interest Expense.

Interest expense for the year ended December 31, 2021 was $5.6 million compared to $6.3 million for the comparable period ended December 31, 2020.

The $0.7 million decrease is mainly due to an increase in interest expense related to administrative fees in connection with contract manufacturing costs during the year ended December 31, 2020.

Other Income.

Other income increased by $1.9 million to $2.3 million for the year ended December 31, 2021, as compared to $0.5 million for the year ended December 31, 2020.

The increase is mainly due to greater interest income and an increase in the change in fair value of notes payable during the year ended December 31, 2021.

Comparison of the Years Ended December 31, 2020 and 2019

The following table summarizes the results of operations for the years ended December 31, 2020 and 2019:

(in thousands)

License Revenue

Total Revenue

Costs and expenses:

Research and development:

Noncash stock expense associated with in-licensing agreements

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Total costs and expenses

Operating loss

Other (income) expense, net

Years Ended December 31, 2020 and 2019

License Revenue.

License revenue was approximately $152,000 for each of the years ended December 31, 2020 and 2019.

Interest expense

Total other expense, net

License revenue was approximately $0.2 million for each of the years ended December 31, 2020 and 2019.

License revenue is related to the amortization of an upfront payment of $2.0 million associated with our license agreement with Ildong.

The upfront payment from Ildong will be recognized as license revenue on a straight-line basis through December 2025, which represents the estimated period over which we will have certain ongoing responsibilities under the sublicense agreement.

Noncash Stock Expense Associated with In-Licensing Agreement (Research and Development).

Noncash stock expense associated with in-licensing agreement (research and development) amounted to zero for the year ended December 31, 2020, as compared to $0.1 million during the comparable period in 2019.

Noncash compensation expense (research and development).

Noncash compensation expense (research and development) related to equity incentive grants totaled $14.0 million for the year ended December 31, 2020, as compared to $5.8 million during the comparable period in 2019.

The increase in noncash compensation expense was primarily due to an increase in research and development personnel and a higher stock price during the year ended December 31, 2020.

Other Research and Development Expenses .

Other research and development expenses increased by $3.6 million from $148.3 million for the year ended December 31, 2019 to $151.9 million for the year ended December 31, 2020.

The increase in R&D expense is primarily attributable to the achievement of various milestones, offset by a decrease in manufacturing expense during the year ended December 31, 2020.

We expect our other research and development costs to remain at consistent levels throughout 2021.

period in 2019.

The increase in noncash compensation expense was primarily due to an increase in research and development personnel and the vesting of grants with a higher stock price during the year ended December 31, 2020.

Other Research and Development Expense.

Other research and development expense increased for the year ended December 31, 2020 by approximately $3.6 million to $151.9 million compared to the comparable period ended December 31, 2019.

The increase in research and development expense is primarily attributable to the achievement of various license agreement milestones, offset by a decrease in manufacturing expense during the year ended December 31, 2020.

Noncash Compensation Expense (General and Administrative).

Noncash compensation expense (general and administrative) related to equity incentive grants increased by $60.8 million from $5.5 million for the year ended December 31, 2019 to $66.3 million during the year ended December 31, 2020.

The increase in noncash compensation expense was primarily related to more milestone-based vesting of restricted stock granted to executive personnel during the year ended December 31, 2020.

Other General and Administrative Expenses .

Other general and administrative expenses increased by $32.0 million from $9.5 million for the year ended December 31, 2019 to $41.5 million for the year ended December 31, 2020.

Noncash compensation expense (general and administrative) related to equity incentive grants totaled $66.3 million for the year ended December 31, 2020, as compared to $5.5 million during the comparable period in 2019.

The increase in noncash compensation expense was primarily related to more milestone-based vesting of restricted stock granted to executive personnel occurring during the year ended December 31, 2020.

Other General and Administrative.

Other general and administrative expenses increased for the year ended December 31, 2020 by approximately $32.0 million to $41.5 million compared to the comparable period ended December 31, 2019.

The increase was due primarily to commercial costs, including personnel, incurred in preparation for the launch of UKONIQ.

We expect our other general and administrative expenses to increase modestly during 2021.

Interest Expense.

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We expect our other income to remain at a comparable level during 2021.

Years Ended December 31, 2019 and 2018

License Revenue.

License revenue was approximately $152,000 for each of the years ended December 31, 2019 and 2018.

License revenue is related to the amortization of an upfront payment of $2.0 million associated with our license agreement with Ildong.

Noncash Stock Expense Associated with In-Licensing Agreement (Research and Development).

Noncash stock expense associated with in-licensing agreement (research and development) amounted to $0.1 million for the year ended December 31, 2019, as compared to $4.0 million during the comparable period in 2018.

The expense during the year ended December 31, 2018 was recorded in conjunction with the 333,868 total shares of common stock issued to Novimmune and Jiangsu Hengrui as upfront payments for the licenses to the CD47/CD19 and BTK programs.

Noncash Compensation Expense (Research and Development).

Noncash compensation expense (research and development) related to equity incentive grants remained consistent between the two periods totaling $5.8 million for the year ended December 31, 2019, as compared to $5.6 million during the comparable period in 2018.

Other Research and Development Expenses.

Other research and development expenses decreased by $1.5 million from $149.8 million for the year ended December 31, 2018 to $148.3 million for the year ended December 31, 2019.

The decrease in R&D expense is primarily attributable to the winding down of our late-stage clinical development programs during the year ended December 31, 2019.

Noncash Compensation Expense (General and Administrative).

Noncash compensation expense (general and administrative) related to equity incentive grants decreased by $1.8 million from $7.3 million for the year ended December 31, 2018 to $5.5 million during the year ended December 31, 2019.

The decrease in noncash compensation expense was primarily related to more vesting of restricted stock granted to executive personnel during the year ended December 31, 2018.

Other General and Administrative Expenses.

Other general and administrative expenses increased by $1.6 million from $7.9 million for the year ended December 31, 2018 to $9.5 million for the year ended December 31, 2019.

The increase was due primarily to increased personnel and other general and administrative costs.

Interest Expense.

Interest expense increased by $4.4 million to $5.3 million for the year ended December 31, 2019, as compared to expense of $0.9 million for year ended December 31, 2018.

The increase is mainly due to the interest expense related to the Hercules financing agreement.

Other Income.

Other income decreased by $0.3 million to $1.5 million for the year ended December 31, 2019, as compared to $1.8 million for the year ended December 31, 2018.

The decrease in other income is mainly due to a greater change in the fair value of notes payable during the year ended December 31, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Our major sources of cash have been proceeds from the private placement and public offering of equity securities, and in 2019 from our loan and security agreement executed with Hercules Capital, Inc.

Our major sources of cash have been proceeds from private placement and public offering of equity securities, and from our loan and security agreements executed with Hercules Capital, Inc.

(Hercules) (see Note 6 for more information).

As of December 31, 2020 we had not yet generated revenue from drug sales of UKONIQ.

UKONIQ first became commercially available in the United States in February of 2021.

Even with the commercialization of UKONIQ and the future commercialization of our other drug candidates, we may not become profitable.

Our ability to achieve profitability depends on our ability to generate revenue and many other factors, including our ability to obtain regulatory approval for our drug candidates;

successfully complete any post-approval regulatory obligations;

and successfully commercialize our drug candidates alone or in partnership.

We may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates.

In February of 2021, umbralisib, now referred to as UKONIQ, was granted accelerated approval in the United States for the treatment of adult patients with relapsed or refractory MZL who have received at least one prior anti-CD20 based regimen and adult patients with relapsed or refractory FL who have received at least three prior lines of systemic therapy.

Commercial sales of UKONIQ commenced in the first quarter of 2021.

We have generated limited revenues to date from product sales.

Even with the commercialization of UKONIQ and the potential future commercialization of our other drug candidates, we may not become profitable.

Our ability to achieve profitability depends on many factors, including our ability to generate revenue, our ability to obtain regulatory approvals for our drug candidates, our ability to successfully complete any post-approval regulatory obligations and our ability to successfully commercialize our drug candidates.

We may continue to incur substantial operating losses even as we begin to generate revenues from product sales.

As of December 31, 2021, we had $350.3 million in cash and cash equivalents, and investment securities.

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We are dependent upon significant future financing to provide the cash necessary to execute our current operations, including the commercialization of any of our drug candidates.

Discussion of Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2021 and 2020:

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Cash used in operating activities for the year ended December 31, 2021 was $295.6 million as compared to $214.5 million for the year ended December 31, 2020.

The increase in cash used in operating activities was due primarily to increased expenditures associated with our clinical development programs for ublituximab and umbralisib.

The increase in cash used in operating activities was due primarily to increased expenditures associated with execution of the launch of UKONIQ, our scale-up for manufacturing, ongoing clinical development programs and paydown of accounts payable and accrued expenses.

For the year ended December 31, 2021, net cash used in investing activities was $0.3 million as compared to cash used in investing activities of $24.5 million for the year ended December 31, 2020.

The increase in net cash used in investing activities was primarily due to greater investment in short-term securities during the year ended December 31, 2020.

For the year ended December 31, 2020, net cash provided by financing activities of $679.8 million related to the net proceeds from the issuance of common stock as part of our ATM program and public offerings in May 2020 and December 2020.

In December 2014, we filed a shelf registration statement on Form S-3 (the "2015 S-3"), which was declared effective in January 2015.

Under the 2015 S-3, the Company may sell up to a total of $250 million of its securities.

In connection with the 2015 S-3, we amended our 2013 At-the-Market Issuance Sales Agreement (the "2015 ATM") with MLV & Co.

LLC (“MLV”) such that we were able to issue and sell additional shares of our common stock, having an aggregate offering price of up to $175.0 million, from time to time through MLV and FBR Capital Markets & Co.

("FBR", each of MLV and FBR individually an "Agent"

and collectively the "Agents"), acting as the sales agents.

Under the 2015 ATM, we paid the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock sold through the Agents.

During the year ended December 31, 2017, we sold a total of 3,104,253 shares of common stock under the 2015 ATM for aggregate total gross proceeds of approximately $31.6 million at an average selling price of $10.18 per share, resulting in net proceeds of approximately $31.0 million after deducting commissions and other transaction costs.

In May 2017, we filed a shelf registration statement on Form S-3 (the "2017 S-3"), which was declared effective in June 2017.

The decrease in net cash used in investing activities was primarily due to greater investment in short-term securities during the year ended December 31, 2020.

For the year ended December 31, 2021, net cash provided by financing activities was $41.4 million as compared to net cash provided by financing activities of $679.8 million for the year ended December 31, 2020.

The decrease in net cash provided by financing activities related to net proceeds from the issuance of common stock as part of our ATM program and public offerings that took place during the year ended December 31, 2020.

In May 2017, we filed a shelf registration statement on Form S-3 (the 2017 S-3), which was declared effective in June 2017.

Under the 2017 S-3, we may sell up to a total of $300 million of securities.

In connection with the 2017 S-3, we entered into an At-the-Market Issuance Sales Agreement (the "2017 ATM") with Jefferies LLC, Cantor Fitzgerald & Co., FBR Capital Markets & Co., SunTrust Robinson Humphrey, Inc., Raymond James & Associates, Inc., Ladenburg Thalmann & Co.

Wainwright & Co., LLC (each a "2017 Agent"

and collectively, the "2017 Agents"), relating to the sale of shares of our common stock.

In connection with the 2017 S-3, we entered into an At-the-Market Issuance Sales Agreement (the 2017 ATM) with Jefferies LLC, Cantor Fitzgerald & Co., FBR Capital Markets & Co., SunTrust Robinson Humphrey, Inc., Raymond James & Associates, Inc., Ladenburg Thalmann & Co.

Wainwright & Co., LLC (each a 2017 Agent and collectively, the 2017 Agents), relating to the sale of shares of our common stock.

Under the 2017 ATM we paid the 2017 Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock.

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During the year ended December 31, 2020, we sold a total of 804,100 shares of common stock under the 2021 ATM for aggregate total gross proceeds of approximately $33.9 million at an average selling price of $42.18 per share, resulting in net proceeds of approximately $33.3 million after deducting commissions and other transactions costs.

During the year ended December 31, 2021, we sold a total of 72,000 shares of common stock under the 2021 ATM for aggregate total gross proceeds of approximately $2.5 million at an average selling price of $34.25 per share, resulting in net proceeds of approximately $2.4 million after deducting commissions and other transactions costs.

The 2019 WKSI Shelf is currently our only active shelf-registration statement.

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On February 28, 2019 (the Closing Date), we entered into a term loan facility of up to $60.0 million (Term Loan) with Hercules Capital, Inc.

(“Hercules”), the proceeds of which will be used research and development programs and for general corporate purposes.

(Hercules), the proceeds of which were used for research and development programs and for general corporate purposes.

The Term Loan is governed by a loan and security agreement, dated February 28, 2019 (the Loan Agreement), which provides for up to four separate advances.

The first advance of $30.0 million was drawn on the Closing Date.

Two additional advances of $10.0 million may be drawn at our option but subject to certain clinical trial milestones, and the fourth advance of $10.0 million, available in minimum increments of $5.0 million, was available through December 15, 2020 subject to the approval of Hercules’ investment committee.

The Term Loan will mature on March 1, 2022 (the “Loan Maturity Date”).

Each advance accrues interest at a per annum rate of interest equal to the greater of either (i) the “prime rate” as reported in The Wall Street Journal plus 4.75%, or (ii) 10.25%.

The Term Loan provides for interest-only payments until October 1, 2020.

The interest-only period may be extended to April 1, 2021 if on or before September 30, 2020, we achieve either the third milestone or we have raised at least $150.0 million in unrestricted net cash proceeds from one or more equity financings, subordinated indebtedness and/or upfront proceeds from business development transactions permitted under the Loan Agreement, in each case after February 7, 2019, and prior to September 30, 2020 (“Milestone IV”).

Thereafter, amortization payments will be payable monthly in eighteen installments (or, if the period requiring interest-only payments has been extended to April 1, 2021, in twelve installments) of principal and interest (subject to recalculation upon a change in prime rates).

As a result of the Company having raised in excess of $150 million before the required timeline in the Loan Agreement, the interest-only period has been extended to April 1, 2021.

At our option upon seven business days’ prior written notice to Hercules, we may prepay all or any portion greater than or equal to $5.0 million of the outstanding advances by paying the entire principal balance (or portion thereof), all accrued and unpaid interest, subject to a prepayment charge of 3.0%, if such advance is prepaid in any of the first twelve months following the Closing Date;

1.5%, if such advance is prepaid after twelve months following the Closing Date but on or prior to twenty-four months following the Closing Date;

and 0% thereafter.

In addition, a final payment equal to 3.5% of the aggregate principal amount of the loan extended by Hercules is due on the maturity date.

Amounts outstanding during an event of default shall be payable on demand and accrue interest at an additional rate of 4.0% per annum of the past due amount outstanding.

The Term Loan is secured by a lien on substantially all of our assets, other than intellectual property, and contains customary covenants and representations, including a liquidity covenant, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.

The events of default under the Loan Agreement include, without limitation, and subject to customary grace periods, (1) our failure to make any payments of principal or interest under the Loan Agreement, promissory notes or other loan documents, (2) our breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse effect, (4) a false or misleading representation or warranty in any material respect, (5) our insolvency or bankruptcy, (6) certain attachments or judgments on the Borrower’s assets, or (7) the occurrence of any material default under certain agreements or obligations involving indebtedness in excess of $750,000.

If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement.

The Loan Agreement also contains warrant coverage of 2% of the total amount funded.

A warrant (the “Hercules Warrant”) was issued to Hercules to purchase 147,058 shares of common stock with an exercise price of $4.08.

The Hercules Warrant is exercisable for seven years from the date of issuance.

Hercules may exercise the Hercules Warrant either by (a) cash or check or (b) through a net issuance conversion.

The shares will be registered and freely tradeable within six months of issuance.

We accounted for the Hercules Warrant as an equity instrument since it was indexed to our common shares and met the criteria for classification in shareholders’ equity.

The relative fair value of the Hercules Warrant on the date of issuance was approximately $1.0 million and was recorded as debt issuance costs and as an offset to the Term Loan.

This amount will be amortized to interest expense using the straight-line method, which approximates the effective interest method, over the life of the Term Loan.

Contract Manufacturer

In 2018, we entered into an agreement with a contract manufacturer for the clinical and potential commercial supply of one of our product candidates.

As part of this agreement, the contract manufacturer has agreed to defer payment of certain costs and expenses under the agreement in exchange for the payment of an administrative fee.

To date we have incurred expenses related to this agreement of approximately $53.7 million as of December 31, 2020, which include service fees, raw material costs and administrative fees.

We have made payments of $37.4 million to the contract manufacturer as of December 31, 2020.

Accordingly, as of December 31, 2020, $15.7 million is

included in current liabilities in the Company’s consolidated balance sheet, of which $4.2 million is due in the first quarter of 2021.

We will incur an administrative fee of six percent (6%) per year starting from the date of invoice issuance.

For the years ended December 31, 2020, 2019 and 2018, we have accrued $1.2 million, $1.2 million and zero, respectively, in administrative fees in connection with these costs, which has been included in interest expense in the Company’s consolidated statements of operations.

An additional $30.0 million was available with different milestones and time points that have lapsed.

On December 30, 2021 (the First Amendment Closing Date), the Company entered into an Amended and Restated Loan and Security Agreement (the Amended Loan Agreement) with Hercules Capital, Inc.

The Amended Loan Agreement amended the terms of the Loan Agreement to, among other things, (i) increase the aggregate principal amount of the loan, available at the Company’s option, from $60.0 million to $200.0 million (the Amended Term Loan), (ii) issue a first advance of $70.0 million drawn at the First Amendment Closing date, a portion of which was used to refinance the current outstanding loan balance of approximately $7.8 million and pay for expenses incurred by the Lender in executing the agreements, (iii) change the draw amounts and dates available in Tranche 2 through Tranche 4 including increasing the amount available under Tranche 2 subject to the achievement of performance milestones from $10.0 million to $20.0 million, increasing the amount available under Tranche 3 subject to the achievement of performance milestones from $10.0 million to $45.0 million, and increasing the amount under Tranche 4 subject to the approval of Hercules’ investment committee from $10.0 million to $65.0 million, (iv) extend the maturity date of the facility from the original March 1, 2022 to January 1, 2026, (v) reset and extend the interest only period from April 1, 2021 to February 1, 2025 and extendable to August 1, 2025 subject to the achievement of certain performance milestones, and (vi) modify the cash interest rate to be the greater of either (a) the “prime rate” as reported in The Wall Street Journal plus 2.15%, and (b) 5.40%.

The performance milestones are based on achievement of certain U.S.

Food and Drug Administration approvals and impact the potential extension of the interest only period, access to future advances under the Loan Agreement and minimum cash levels required under the Amended Loan Agreement.

The Amended Loan Agreement contains financial covenants from and after October 15, 2022 that require the Company to maintain certain levels of unrestricted cash and additional financial covenants related to market capitalization and unrestricted cash commencing on July 1, 2023 at any time when the Amended Term Loan advances made under the Amended Loan Agreement are greater than $70 million.

The Amended Loan Agreement also contains warrant coverage of 2.95% of the total amount funded.

A warrant (the Warrant) was issued by the Company to Hercules to purchase 115,042 shares of common stock with an exercise price of $17.95 for the initial amount funded at closing.

The Warrant shall be exercisable for seven years from the date of issuance.

Hercules may exercise the Warrant either by (a) cash or check or (b) through a net issuance conversion.

In addition, the Company is required to pay a final payment fee equal to 5.95% of the aggregate principal amount of the Term Loan Advances.

The Company may, at its option, prepay the Amended Term Loan in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to the first anniversary of the First Amendment Closing Date, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after the first anniversary and prior to the second anniversary of the First Amendment Closing Date, and (iii) 1.0% of the principal amount prepaid if the prepayment occurs on or after the second anniversary and prior to the third anniversary of the First Amendment Closing Date.

In October 2014, we entered into an agreement (the Office Agreement) with Fortress Biotech, Inc.

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The present values of our lease liability and corresponding ROU asset are $11.3 million and $8.6 million, respectively, as of December 31, 2021.

Our leases have remaining lease terms of 4 months to 11 years.

Our leases have remaining lease terms of 2 years to 10 years.

One lease has a renewal option to extend the lease for an additional term of two years.

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We took possession of this space in October 2019, with rental payments beginning in November 2019.

In October 2021, we finalized a five-year lease for office space in North Carolina (the NC Lease).

We approximate an average annual rental obligation of $0.2 million under the NC Lease.

We took possession of this space in February 2022, with rental payments beginning in April 2022.

Total rental expense was approximately $2.2 million, $2.7 million and 2.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Future minimum lease commitments as of December 31, 2021 total, in the aggregate, approximately $18.5 million through December 31, 2032.

Our future minimum lease commitments include our office leases in New York, New Jersey, North Carolina and Tennessee as of December 31, 2020.

Our future minimum lease commitments include our office leases in New York, New Jersey and North Carolina as of December 31, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

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Our critical accounting policies include the following:

Revenue Recognition .

Pursuant to Topic 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principle, Topic 606 includes provisions within a five-step model that includes i) identifying the contract with a customer, ii) identifying the performance obligations in the contract, iii) determining the transaction price, iv) allocating the transaction price to the performance obligations, and v) recognizing revenue when, or as, an entity satisfies a performance obligation.

At contract inception, we assess the goods or services promised within each contract and assess whether each promised good or service is distinct and determine those that are performance obligations.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

Product Revenue, Net – The Company recognizes product revenues, net of variable consideration related to certain allowances and accruals, when the customer takes control of the product, which is typically upon delivery to the customer.

Product revenue is recorded at the net sales price, or transaction price.

The Company records product revenue reserves, which are classified as a reduction in product revenues, to account for the components of variable consideration.

Variable consideration includes the following components, which are described below:

chargebacks, government rebates, trade discounts and allowances, product returns, and co-payment assistance.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is expected to be settled with a credit against the Company's customer account) or a liability (if the amount is expected to be settled with a cash payment).

The Company's estimates of reserves established for variable consideration are calculated based upon a consistent application of the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts.

These estimates reflect the Company's current contractual and statutory requirements, 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 subject to constraint 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 received may ultimately differ from the Company's estimates.

If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment.

For a complete discussion of the accounting for product revenue, see Note 1 – Organization and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

Stock Compensation .

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however, these estimates are neither predictive nor indicative of the future performance of our stock.

For purposes of the calculation, we assumed that no dividends would be paid during the life of the options and warrants.

For purposes of the calculation, we assumed that no dividends would be

paid during the life of the options and warrants.

The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment.

In addition, because some of the options, restricted stock and warrants issued to employees, consultants and other third parties vest upon the achievement of certain milestones, the total expense is uncertain.

Compensation expense for such awards that vest upon the achievement of milestones is recognized when the achievement of such milestone becomes probable.

Compensation expense for such awards that vest upon the achievement of milestones is recognized when the achievement of such milestones becomes probable.

Accrued Research and Development Expenses.

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RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2018, the FASB issued Accounting Standards Update (“ASU”) No.

2018-11, “Leases - Targeted Improvements” (“ASU 2018-11”) as an update to ASU 2016-02, Leases (“ASU 2016-02” or “Topic 842”) issued on February 25, 2016.

ASU 2016-02 is effective for public business entities for fiscal years beginning January 1, 2019.

ASU 2016-02 required companies to adopt the new leases standard at the beginning of the earliest period presented in the financial statements, which is January 1, 2017, using a modified retrospective transition method where lessees must recognize lease assets and liabilities for all leases even though those leases may have expired before the effective date of January 1, 2017.

Lessees must also provide the new and enhanced disclosures for each period presented, including the comparative periods.

ASU 2018-11 provides an entity with an additional (and optional) transition method to adopt the new leases standard.

Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease standard will continue to be in accordance with ASC 840, Leases (“ASC 840”).

An entity that elects this additional (and optional) transition method must provide the required ASC 840 disclosures for all periods that continue to be in accordance with ASC 840.

The amendments do not change the existing disclosure requirements in ASC 840.

ASU 2018-11 is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier adoption permitted.

The Company adopted ASU 2018-11 on January 1, 2019 using a modified retrospective method and will not restate comparative periods.

We elected the package of practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification and our assessment on whether a contract is or contains a lease.

The adoption of this guidance resulted in the addition of material balances of ROU assets and lease liabilities to our consolidated balance sheets at January 1, 2019, primarily relating to our lease of office space (see Note 8).

The impact to our consolidated statements of operations was not material as a result of this standard.

In June 2018, the FASB issued ASU No.

2018-07, “Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”).

ASU 2018-07 expands the scope of FASB Topic 718, Compensation – Stock Compensation (“Topic 718”) to include share-based payment transactions for acquiring goods and services from nonemployees.

An entity should only remeasure equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date.

The entity must not remeasure assets that are completed.

Disclosures required at transition include the nature of and reason for the change in accounting principle and, if applicable, quantitative information about the cumulative effect of the change on retained earnings or other components of equity.

ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.

The Company adopted ASU 2018-07 on January 1, 2019.

The adoption of ASU 2018-07 did not have a material effect on our consolidated financial statements as of January 1, 2019.

The adoption of ASU 2018-07 had no impact on nonemployee performance awards as they are measured based on the outcome that is probable.

Other pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not applicable or not significant to our consolidated financial statements.

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have an effect on the Company’s financial statements.

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.

What changed 10-K

Item 7. Management’s Discussion and Analysis