Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34703
Alimera Sciences, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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20-0028718
(I.R.S. Employer
Identification No.) |
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6120 Windward Parkway, Suite 290
Alpharetta, GA
(Address of principal executive offices)
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30005
(Zip Code) |
(678) 990-5740
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
As
of May 4, 2011, there were 31,348,197 shares of the registrants
common stock issued and outstanding.
ALIMERA SCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
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ITEM 1 |
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Financial Statements |
ALIMERA SCIENCES, INC.
BALANCE SHEETS
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March 31, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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(In thousands, except
share and
per share data) |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
49,457 |
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$ |
28,514 |
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Investments |
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503 |
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26,330 |
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Prepaid expenses and other current assets |
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846 |
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1,078 |
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Deferred financing costs |
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247 |
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272 |
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Total current assets |
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51,053 |
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56,194 |
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PROPERTY AND EQUIPMENT at cost less accumulated depreciation |
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180 |
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220 |
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TOTAL ASSETS |
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$ |
51,233 |
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$ |
56,414 |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
2,013 |
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$ |
1,677 |
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Accrued expenses (Note 5) |
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1,434 |
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2,731 |
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Outsourced services payable |
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681 |
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841 |
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Notes payable (Note 7) |
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1,852 |
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1,157 |
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Capital lease obligations |
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11 |
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11 |
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Total current liabilities |
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5,991 |
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6,417 |
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LONG-TERM LIABILITIES: |
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Notes payable, net of discount less current portion (Note 7) |
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4,162 |
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4,767 |
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Other long-term liabilities |
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15 |
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18 |
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PREFERRED STOCK: |
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Preferred stock, $.01 par value 10,000,000 shares
authorized and no shares issued and outstanding at March 31,
2011 and December 31, 2010 |
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STOCKHOLDERS DEFICIT: |
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Common stock, $.01 par value 100,000,000 shares authorized
and 31,333,483 shares issued and outstanding at March 31, 2011
and 100,000,000 shares authorized and 31,255,953 shares issued
and outstanding at December 31, 2010 |
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313 |
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313 |
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Additional paid-in capital |
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233,888 |
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233,338 |
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Common stock warrants |
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415 |
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415 |
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Accumulated deficit |
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(193,551 |
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(188,854 |
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TOTAL STOCKHOLDERS EQUITY |
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41,065 |
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45,212 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
51,233 |
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$ |
56,414 |
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See Notes to Financial Statements.
2
ALIMERA SCIENCES, INC.
STATEMENTS OF OPERATIONS
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Three Months Ended March 31, |
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2011 |
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2010 |
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(Unaudited) |
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(In thousands, except share |
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and per share data) |
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RESEARCH AND DEVELOPMENT EXPENSES |
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$ |
1,757 |
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$ |
3,065 |
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GENERAL AND ADMINISTRATIVE EXPENSES |
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1,540 |
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904 |
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MARKETING EXPENSES |
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1,117 |
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247 |
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OPERATING EXPENSES |
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4,414 |
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4,216 |
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INTEREST INCOME |
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12 |
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2 |
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INTEREST EXPENSE |
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(295 |
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(474 |
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DECREASE IN FAIR VALUE OF PREFERRED STOCK CONVERSION FEATURE |
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3,265 |
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LOSS FROM CONTINUING OPERATIONS |
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(4,697 |
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(1,423 |
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INCOME FROM DISCONTINUED OPERATIONS (NOTE 3) |
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4,000 |
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NET (LOSS) INCOME |
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(4,697 |
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2,577 |
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PREFERRED STOCK ACCRETION |
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(359 |
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PREFERRED STOCK DIVIDENDS |
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(2,025 |
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NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS |
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$ |
(4,697 |
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$ |
193 |
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NET (LOSS) INCOME PER SHARE APPLICABLE TO COMMON
STOCKHOLDERS Basic and diluted |
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$ |
(0.15 |
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$ |
0.12 |
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WEIGHTED AVERAGE SHARES OUTSTANDING Basic and diluted |
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31,277,697 |
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1,619,011 |
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See Notes to Financial Statements.
3
ALIMERA SCIENCES, INC.
STATEMENTS OF CASH FLOWS
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Three Months Ended March 31, |
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2011 |
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2010 |
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(Unaudited) |
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(In thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net (loss) income |
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$ |
(4,697 |
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$ |
2,577 |
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Income from discontinued operations (Note 3) |
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(4,000 |
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Depreciation |
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44 |
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48 |
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Change in fair value of preferred stock conversion feature |
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(3,265 |
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Stock-based compensation and other expense |
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438 |
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108 |
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Amortization of deferred financing costs |
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114 |
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Changes in assets and liabilities: |
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Prepaid expenses and other current assets |
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232 |
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(118 |
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Accounts payable |
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336 |
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962 |
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Accrued expenses and other current liabilities |
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(1,457 |
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(767 |
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Other long-term liabilities |
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(184 |
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Net cash used in operating activities |
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(4,990 |
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(4,639 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from maturities of investments |
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25,827 |
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Purchases of property and equipment |
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(4 |
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(23 |
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Net cash provided by (used in) investing activities of continuing operations |
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25,823 |
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(23 |
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Net cash provided by investing activities of discontinued operations (Note 3) |
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4,000 |
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Net cash provided by investing activities |
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25,823 |
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3,977 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from exercise of Series C-1 preferred warrants |
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9,998 |
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Proceeds from exercise of stock options |
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113 |
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Proceeds from exercise of common warrants |
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148 |
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Deferred offering costs |
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(163 |
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Payments on capital lease obligations |
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(3 |
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(1 |
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Net cash provided by financing activities |
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110 |
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9,982 |
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NET INCREASE IN CASH |
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20,943 |
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9,320 |
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CASH Beginning of period |
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28,514 |
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4,858 |
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CASH End of period |
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$ |
49,457 |
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$ |
14,178 |
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Three Months Ended March 31, |
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2011 |
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2010 |
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SUPPLEMENTAL DISCLOSURES: |
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Cash paid for interest |
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$ |
143 |
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$ |
300 |
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There were no income tax or dividend payments made for the three months ended March 31,
2011 and 2010.
See Notes to Financial Statements.
4
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
Alimera Sciences, Inc. (the Company) is a biopharmaceutical company that specializes in
the research, development, and commercialization of ophthalmic pharmaceuticals. The Company
was formed on June 4, 2003 under the laws of the State of Delaware.
On April 21, 2010, the Companys Registration Statement on Form S-1 (as amended) was
declared effective by the Securities and Exchange Commission (SEC) for the Companys initial
public offering (IPO), pursuant to which the Company sold 6,550,000 shares of its common
stock at a public offering price of $11.00 per share. The Company received net proceeds of
approximately $68,395,000 from this transaction, after deducting underwriting discounts and
commissions.
During
the year ended December 31, 2006, management and the board of
directors of the Company approved
a plan to discontinue the operations of its non-prescription business
(see Note 3). As a
result of the completion of the disposal of its non-prescription business in July 2007, the
Company no longer has active products and will not have active
products until and unless the Company
receives U.S. Food and Drug Administration (FDA) approval and launches its initial
prescription product (see Note 4).
The Company is presently focused on diseases affecting the back of the eye, or retina,
because the Companys management believes these diseases are not well treated with current
therapies and represent a significant market opportunity. The Companys most advanced
product candidate is ILUVIEN, which is being developed for the treatment of diabetic macular
edema (DME). DME is a disease of the retina which affects individuals with diabetes and can
lead to severe vision loss and blindness. The Company has completed its two
Phase 3 pivotal clinical trials (collectively referred to as the Companys FAME Study) for
ILUVIEN involving 956 patients in sites across the U.S., Canada, Europe and India
to assess the efficacy and safety of ILUVIEN in the treatment of DME.
In June 2010, the Company submitted a New Drug Application (NDA) for ILUVIEN to the
FDA. In July 2010, the Company submitted a
Marketing Authorization Application for ILUVIEN to the Medicines and Healthcare products
Regulatory Agency in the United Kingdom and to regulatory authorities in Austria, France,
Germany, Italy, Portugal and Spain. In August 2010, the FDA accepted the Companys NDA for
ILUVIEN and granted it priority review status, which reduced the
review time from ten months to six months.
In December 2010, the FDA issued a Complete Response Letter (CRL) in response to the
Companys NDA. In the CRL, the FDA communicated its decision that the NDA could not be
approved in its then present form. No new clinical studies were requested in the CRL. However,
the FDA asked for analyses of the safety and efficacy data through month 36 of the FAME
Study, including exploratory analyses in addition to those previously submitted to the FDA,
to further assess the relative benefits and risks of ILUVIEN. The NDA included data through
month 24. The Company has completed month 36 of the study and is preparing the analyses the
FDA requested. The FDA is also seeking additional information regarding controls and
specifications concerning the manufacturing, packaging and sterilization of ILUVIEN, which
the Company is in the process of compiling.
2. Basis of Presentation
The Company has prepared the accompanying unaudited interim financial statements and
notes thereto in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) for interim financial information and the instructions to Form
10-Q and Article 10-01 of Regulation S-X of the SEC.
Accordingly, they do not include all of the information and disclosures required by U.S.
GAAP for complete financial statements. In the opinion of management, the accompanying
unaudited interim financial statements reflect all adjustments, which include normal
recurring adjustments, necessary to present fairly the Companys interim financial
information.
The accompanying unaudited interim financial statements and related notes should be
read in conjunction with the Companys audited financial statements for the year ended
December 31, 2010 and related notes included in the
Companys Annual Report on Form
10-K, which was filed with the SEC on March 25, 2011. The financial results for any interim
period are not necessarily indicative of the expected financial results for the full year.
On April 21, 2010, the Company effected a 1 for 3.4 reverse split of the Companys
common and preferred stock. All share and per share amounts in the accompanying financial
statements and notes have been retroactively adjusted for all periods presented to give
effect to the reverse stock split.
5
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
3. Discontinued Operations
In October 2006, management and the board of directors of the Company approved a plan
to discontinue the operations of its non-prescription ophthalmic pharmaceutical business
(the OTC Business). The plan included the sale of the assets of the Companys OTC Business
and also the termination of its sales and marketing personnel. The Company previously
determined that the discontinued OTC Business comprised operations and cash flows that could
be clearly distinguished, operationally and for financial reporting purposes, from the rest
of the Company. Accordingly, the results of operations for the discontinued OTC Business
have been presented as discontinued operations. During the three
months ended March 31, 2010,
the Company received a $4,000,000 option payment from the acquirer of the assets of the OTC
Business to provide it with an additional two years to develop one of the acquired products.
There were no revenues or expenses from discontinued operations during the three month
period ended March 31, 2011. The following table presents basic and diluted earnings per
share from discontinued operations for the three months ended
March 31, 2010:
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Net income
from discontinued operations (in thousands) |
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$ |
4,000 |
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Net income from discontinued operations per share Basic and diluted |
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$ |
2.47 |
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Weighted-average shares outstanding Basic and diluted |
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1,619,011 |
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4. Factors Affecting Operations
To date the Company has incurred recurring losses, negative cash flow from operations,
and has accumulated a deficit of $193,551,000 from the Companys inception through March 31,
2011. The Company does not expect to generate revenues from its product, ILUVIEN, until late
2011, if at all, and therefore does not expect to have cash flow from operations until 2012,
if at all. As of March 31, 2011, the Company had approximately $49,960,000 in cash, cash
equivalents, and investments. In October 2010, the Company obtained a $32,500,000 senior
secured credit facility (Credit Facility) to help fund its working capital requirements (see
note 7). The Credit Facility consists of a $20,000,000 working
capital revolver and a
$12,500,000 term loan. The lenders have advanced $6,250,000 under the term loan and may
advance the remaining $6,250,000 following FDA approval of ILUVIEN, but no later than July
31, 2011. Given the status of the FDA's review of the ILUVIEN NDA, it is unlikely that the FDA
approval would occur prior to July 31, 2011. The Company is currently in discussions with the
lenders to amend the terms of the Credit Facility to, among other things, extend the availability
of the term loan and the working capital revolver. However, there are no assurances that the Credit Facility will be amended. The
Company may draw on the working capital revolver against eligible domestic accounts
receivable, as defined, subsequent to the launch of ILUVIEN. Management believes it has
sufficient funds available to fund its operations through the projected commercialization of
ILUVIEN and the expected generation of revenue in late 2011. The commercialization of ILUVIEN is
dependent upon approval by the FDA, however, and management cannot be sure that ILUVIEN will
be approved by the FDA or that, if approved, future sales of ILUVIEN will generate enough
revenue to fund the Companys operations beyond its
commercialization. Due to the uncertainty around FDA approval, management also cannot
be certain that the Company will not need additional funds for the
commercialization of ILUVIEN. If ILUVIEN is not approved, or if approved, does not generate
sufficient revenue, the Company may adjust its
commercial plans so that it can continue to operate with its existing cash resources or seek
to raise additional financing.
5. Accrued Expenses
Accrued expenses consisted of the following:
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March 31, |
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December 31, |
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2011 |
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2010 |
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(In thousands) |
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Accrued clinical investigator expenses |
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$ |
795 |
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$ |
1,911 |
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Accrued compensation expenses |
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453 |
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730 |
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Other accrued expenses |
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186 |
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90 |
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Total accrued expenses |
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$ |
1,434 |
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$ |
2,731 |
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6
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
6. pSivida Agreement
In March 2008, in connection with the Companys collaboration agreement with pSivida U.S.,
Inc. (pSivida), the licensor of the ILUVIEN technology, the Company and pSivida amended and
restated the agreement to provide us with 80% of the net profits and pSivida with 20% of the net
profits. In connection with the amended and restated agreement , the Company also agreed to:
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pay $12.0 million to pSivida upon the execution of the March 2008 agreement; |
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issue a $15.0 million promissory note to pSivida; |
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forgive all outstanding development payments, penalties and interest as of
the effective date of the March 2008 agreement, which totaled $6.8 million; |
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|
continue responsibility for regulatory, clinical, preclinical,
manufacturing, marketing and sales for the remaining development and
commercialization of the products; |
|
|
|
assume all financial responsibility for the development of the products and
assume 80% of the commercialization costs of the products (instead of 50%
as provided under the February 2005 agreement); and |
|
|
|
make an additional milestone payment of $25.0 million after the first
product under the March 2008 agreement has been approved by the FDA. |
In addition, pSivida is continuing to provide clinical supply materials for the Companys
Phase 2 clinical trials being conducted for the use of ILUVIEN for the treatment of dry AMD and wet
AMD and perform and maintain stability testing on those supplies.
The $15,000,000 promissory note accrued interest at 8% payable quarterly and was payable in
full to pSivida upon the earlier of a liquidity event as defined in the note (including an initial
public offering of the Companys common stock greater than $75,000,000), the occurrence of an event
of default under the Companys agreement with pSivida or September 30, 2012. If the note was not
paid in full by March 31, 2010, the interest rate was to increase to 20% effective as of April 1,
2010, and the Company would be required to begin making principal payments of $500,000 per month.
On April 27, 2010, the Company paid pSivida approximately $15,200,000 in principal and interest to
satisfy the note payable with the proceeds from its initial public offering.
The Companys license rights to pSividas proprietary delivery device could revert to pSivida
if the Company were to (i) fail twice to cure its breach of an obligation to make certain payments
to pSivida following receipt of written notice thereof; (ii) fail to cure other breaches of
material terms of its agreement with pSivida within 30 days after notice of such breaches or such
longer period (up to 90 days) as may be reasonably necessary if the breach cannot be cured
within such 30-day period; (iii) file for protection under the bankruptcy laws, make an
assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee
over its property, file a petition under any bankruptcy or insolvency act or have any such petition
filed against it and such proceeding remains undismissed or unstayed for a period of more than 60
days; or (iv) notify pSivida in writing of its decision to abandon its license with respect to a
certain product using pSividas proprietary delivery device. The Company was not in breach of its
agreement with pSivida as of March 31, 2011.
Upon commercialization of ILUVIEN, the Company must share 20% of net profits of
ILUVIEN, as defined by the agreement, with pSivida. In connection with this arrangement the
Company is entitled to recover 20% of commercialization costs of ILUVIEN, as defined in the
agreement, incurred prior to product profitability out of pSividas share of net profits. As
of March 31, 2011 and December 31, 2010 the Company was owed $2,649,000 and $2,224,000,
respectively, in commercialization costs. Due to the uncertainty of
FDA approval of the NDA for ILUVIEN, the
Company has fully reserved these amounts in the accompanying financial statements.
7.
Term Loan Agreement and Working Capital Revolver
Term
Loan Agreement
On October 14, 2010 (Effective Date), the Company entered into a Loan and Security
Agreement with Silicon Valley Bank and MidCap Financial LLP under which the Company may
borrow up to $12,500,000 (Term Loan Agreement). The lenders advanced the Initial Tranche of
$6,250,000 on the Effective Date and may advance the remaining Second Tranche of $6,250,000
following approval by the FDA of the Companys ILUVIEN product, but no later than July 31,
2011. Given the status of the FDAs review of the Companys NDA, the Company believes it is
unlikely that approval of ILUVIEN would occur prior to July 31, 2011. The Company is in
discussions with the lenders to amend the terms of the Term Loan Agreement to, among other
things, extend its availability. However, there are no assurances that the Term Loan
Agreement will be amended.
The Company is required to maintain its primary operating and other deposit accounts
and securities accounts with Silicon Valley Bank, which accounts must represent at least 50%
of the dollar value of the Companys accounts at all financial institutions.
The
Company will be required to pay interest on the Initial Tranche at a rate of 11.5% on
a monthly basis through July 31, 2011, and then will be required to repay the principal in
27 equal monthly installments, beginning August 2011, plus interest at a rate of 11.5%. If
the Second Tranche is advanced to the Company, the Company will be required to pay interest
on the Second Tranche at a rate of 12.0% on a monthly basis through July 31, 2011, and then
will be required to repay the principal in 27 equal monthly installments, plus interest at a
rate of 12.0%. The Company paid to the lenders an upfront fee of $62,500, and will pay to
the lenders an additional final payment of 3% of the total principal amount. In addition, if
the Company repays the Initial Tranche or the Second Tranche (if it
is advanced to the Company) prior to maturity, it will pay to the lenders a prepayment
penalty of 5% of the total principal amount if the prepayment occurs within one year after
the Effective Date, 3% of the total principal amount if the prepayment occurs between one and
two years after the Effective Date and 1% of the total principal amount of the prepayment
occurs thereafter (each a Prepayment Penalty), provided in each case that such Prepayment
Penalty will be reduced by 50% in the event of an acquisition of the Company. The occurrence
of an event of default could result in the acceleration of the Companys obligations under
the Term Loan Agreement and an increase to the applicable interest rate, and would permit
the lenders to exercise remedies with respect to the collateral under the Term Loan
Agreement.
To secure the repayment of any amounts borrowed under the Term Loan Agreement, the
Company granted to the Lenders a first priority security interest in all of its assets,
other than its intellectual property, provided that, for any date during which the notes are
outstanding, the Companys unrestricted balance sheet cash and cash equivalents plus the
excess available under the term loan agreements are less than the product of six times the
monthly cash burn amount. In the event the Company fails to meet this financial condition, a
curable lien will be imposed on the Companys intellectual property. Should such a lien
event take place, the lien would remain in force until such date that the Companys
unrestricted cash and cash equivalents plus the excess available under the term loan
agreements was equal to or greater than twelve times the monthly cash burn amount. The
Company also agreed not to pledge or otherwise encumber its intellectual property assets.
Additionally, the Company must seek the lenders approval prior to the payment of any cash
dividends.
In connection with entering into this agreement, the Company issued to the lenders
warrants to purchase an aggregate of up to 39,773 shares of the Companys common stock. Each
of the warrants is exercisable immediately, has a per-share exercise price of $11.00 and has
a term of 10 years. In addition, the lenders will have certain registration rights with
respect to the shares of common stock issuable upon exercise of the warrants. The Company
estimated the fair value of warrants granted using the Black-Scholes option pricing model.
The aggregate fair value of the warrants was estimated to be $389,000. The Company allocated
a portion of the proceeds from the Term Loan Agreement to the warrants in accordance with
Accounting Standards Codification (ASC) 470-20-25-2, Debt
Instruments with Detachable Warrants. As a result, the Company
recorded a discount of $366,000 which is being amortized to interest expense using the
effective interest method. If the Second Tranche is advanced to the
Company, the Company will issue to the lenders warrants to purchase an
aggregate of up to 39,773 shares of the Companys common stock.
7
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Working
Capital Revolver
Also on the Effective Date, the Company and Silicon Valley Bank entered into a Loan and
Security Agreement (Working Capital Revolver), pursuant to which the Company obtained a
secured revolving line of credit from Silicon Valley Bank with borrowing availability up to
$20,000,000. The Company is in discussions with the lenders to amend
the terms of the Working Capital Revolver to, among other things, extend its availability.
The
Working Capital Revolver provides for a working capital-based revolving line of
credit in an aggregate amount of up to the lesser of (i) $20,000,000, or
(ii) 85% of eligible domestic accounts receivable. The Working
Capital Revolver matures on October 31,
2013. As of March 31, 2011, no amounts under the Working Capital
Revolver were available to
the Company.
Amounts
advanced under the Working Capital Revolver bear interest at an annual rate equal to
Silicon Valley Banks prime rate plus 2.50% (with a rate floor of 6.50%). Interest on the
Working Capital Revolver is due monthly, with the balance due at the maturity date. The Company paid
to Silicon Valley Bank an upfront fee of $100,000. In addition, if the Company terminates
the Working Capital Revolver prior to maturity, it will pay to Silicon Valley Bank a fee of $400,000
if the termination occurs within one year after the Effective Date and a fee of $200,000 if
the termination occurs more than one year after the Effective Date (each a Termination Fee),
provided in each case that such Termination Fee will be reduced by 50% in the event of an
acquisition of the Company.
To
secure the repayment of any amounts borrowed under the Working
Capital Revolver, the
Company granted to Silicon Valley Bank a first priority security interest in all of its
assets, other than its intellectual property, provided that, for any date during which the
notes are outstanding, the Companys unrestricted balance sheet cash and cash equivalents
plus the excess available under the term loan agreements are less than the product of six
times the monthly cash burn amount. In the event the Company fails to meet this financial
condition, a curable lien will be imposed on the Companys intellectual property. Should
such a lien event take place, the lien would remain in force until such date that the
Companys unrestricted cash and cash equivalents plus the excess available under the term
loan agreements was equal to or greater than twelve times the monthly cash burn amount. The
Company also agreed not to pledge or otherwise encumber its intellectual property assets.
Additionally, the Company must seek Silicon Valley Banks approval prior to the payment of
any cash dividends.
The occurrence of an event of default could result in the acceleration of the Companys
obligations under the Working Capital Revolver and an increase to the applicable interest
rate, and would permit Silicon Valley Bank to exercise remedies with respect to the
collateral under the Working Capital Revolver.
8. Earnings (Loss) Per Share (EPS)
Basic EPS is
calculated in accordance with ASC 260, Earnings per Share, by dividing net income or loss
attributable to common stockholders by the weighted
average common stock outstanding. Diluted EPS is calculated in accordance with ASC 260 by
adjusting weighted average common shares outstanding for the dilutive effect of common stock
options, warrants, convertible preferred stock and accrued but unpaid convertible preferred
stock dividends. In periods where a net loss from continuing operations is recorded, no
effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Total securities that could potentially dilute basic EPS in the
future that were not included in
the computation of diluted EPS because to do so would have been anti-dilutive were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
Series A preferred stock and convertible accrued dividends |
|
|
|
|
|
|
7,005,145 |
|
Series B preferred stock |
|
|
|
|
|
|
7,147,894 |
|
Series C preferred stock |
|
|
|
|
|
|
5,807,112 |
|
Series C-1 preferred stock |
|
|
|
|
|
|
2,752,990 |
|
Common stock warrants |
|
|
30,615 |
|
|
|
150,703 |
|
Stock options |
|
|
1,632,683 |
|
|
|
1,792,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,663,298 |
|
|
|
24,656,608 |
|
|
|
|
|
|
|
|
9. Preferred Stock
Prior to the
Company’s IPO, the Company had four series of
preferred stock. On April 27, 2010 and in connection with the IPO, all
outstanding shares of the Company’s preferred stock were converted into
22,863,696 shares of common stock and all preferred stock dividends were
eliminated. Significant terms of all series of the preferred stock were as
follows;
|
|
|
Dividends were
cumulative and accrued on a daily basis at the rate
of 8% per annum beginning on the date of issuance and based on the original
issue price, as adjusted for any stock dividend, stock split, combination, or
other event involving the preferred stock. Dividends accrued, whether or not
declared, annually and were due and payable when and if declared by the Board
of Directors, upon a liquidating event upon redemption of the preferred stock or on the date
that the preferred stock was otherwise acquired by the Company. |
8
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
|
|
|
Upon any liquidation, dissolution, or winding up of the
Company, the preferred stockholders were entitled to a
liquidation preference payment equal to (i) the sum of the
liquidation value plus all accumulated, accrued, and unpaid
dividends and (ii) the pro rata share of any remaining
amounts such holder would have been entitled to receive had
such holders shares been converted into common stock
immediately prior to the liquidation, dissolution, or
winding up. |
|
|
|
|
At any time subsequent to March 17, 2013, the holders of a
majority of the preferred stock could have required the
Company to redeem all or any portion of the preferred
stock. If the preferred stock was redeemed, the redemption
would have occurred in equal installments over a three-year
period. The price paid by the Company to redeem the shares
would have been the greater of (i) the original issue
price, plus all accumulated, accrued, and unpaid dividends,
and (ii) the fair market value of the preferred stock being
redeemed at the time of the redemption. |
Because the preferred stock provided the holders the right to require the Company to
redeem such shares for cash after March 17, 2013 at the greater of (i) the original issue
price plus any accrued but unpaid dividends and (ii) the fair market value of the preferred
stock being redeemed, the embedded conversion feature required separate accounting.
Consequently, the conversion feature had to be bifurcated from the preferred stock and
accounted for separately at each issuance date. The carrying value of the embedded
derivative was adjusted to fair value at the end of each reporting period and the change in
fair value was recognized in the statement of operations.
On January 8, 2010 warrants to purchase shares of the Companys Series C-1 preferred
stock were exercised resulting in $10,000,000 in cash proceeds and the issuance of 1,935,700
additional shares of Series C-1 preferred stock. The Company recorded a derivative liability
of $3,471,000 upon the exercise of the warrants and the issuance of 1,935,700 shares of
Series C-1 preferred stock in January 2010.
At each reporting date, the Company adjusted the carrying value of the embedded
derivatives to estimated fair value and recognized the change in such estimated value in its
statement of operations. The estimated fair value of the derivatives at March 31, 2010 was
$36,907,000. The Company recognized a gain of $3,265,000 associated with the change in fair
value for the three months ended March 31, 2010. In connection
with the IPO, the embedded derivatives were eliminated.
In connection with the
Company’s IPO in
April 2010, the Company authorized 10,000,000 shares of $0.01 par value
preferred stock. No shares of preferred stock were issued or
outstanding at March 31, 2011 and December 31, 2010, respectively.
10. Stock Options
During the three months ended March 31, 2011 and 2010, the Company recorded
compensation expense related to stock options of approximately $415,000 and $108,000,
respectively. As of March 31, 2011, the total unrecognized compensation cost related to
non-vested stock options granted was $4,733,000 and is expected to be recognized over a
weighted average period of 3.20 years. The following table presents a summary of stock
option transactions for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
|
|
|
|
Options at beginning of period |
|
|
2,741,985 |
|
|
$ |
3.81 |
|
|
|
2,225,778 |
|
|
$ |
2.14 |
|
Grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises |
|
|
(77,530 |
) |
|
|
1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at end of period |
|
|
2,664,455 |
|
|
|
3.87 |
|
|
|
2,225,778 |
|
|
|
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
The following table provides additional information related to outstanding
stock options, fully vested stock options, and stock options expected to vest as of
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
2,664,455 |
|
|
$ |
3.87 |
|
|
6.80 years |
|
|
$ |
11,952 |
|
Exercisable |
|
|
1,738,510 |
|
|
|
2.03 |
|
|
5.76 years |
|
|
|
10,112 |
|
Expected to vest |
|
|
877,488 |
|
|
|
7.51 |
|
|
8.77 years |
|
|
|
1,656 |
|
The following table provides additional information related to outstanding stock
options, fully vested stock options, and stock options expected to vest as of December
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
2,741,985 |
|
|
$ |
3.81 |
|
|
6.99 years |
|
|
$ |
18,338 |
|
Exercisable |
|
|
1,722,281 |
|
|
|
1.88 |
|
|
5.88 years |
|
|
|
14,638 |
|
Expected to vest |
|
|
963,754 |
|
|
|
7.24 |
|
|
8.92 years |
|
|
|
3,334 |
|
11. Income Taxes
In
accordance with ASC 740 the Company
recognizes deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of its assets and liabilities. The Company
records a valuation allowance against its net deferred tax asset to reduce the net carrying
value to an amount that is more likely than not to be realized.
Income tax positions are considered for uncertainty in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
ASC 740-10. The Company believes that its income tax filing positions and deductions will be
sustained on audit and does not anticipate any adjustments that will result in a material
change to its financial position; therefore, no ASC 740-10 liabilities have been recorded.
Significant management judgment is involved in determining the provision for income
taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net
deferred tax assets. Due to uncertainties with respect to the realization of deferred tax
assets due to the history of operating losses, a valuation allowance has been established
against the entire net deferred tax asset balance. The valuation allowance is based on
managements estimates of taxable income in the jurisdictions in which the Company operates
and the period over which deferred tax assets will be recoverable. In the event that actual
results differ from these estimates or the Company adjusts these estimates in future
periods, a change in the valuation allowance may be needed, which could materially impact
the Companys financial position and results of operations.
At March 31, 2011 and December 31, 2010, the Company had federal net operating loss
(NOL) carry-forwards of approximately $102,299,000 and $97,813,000 and state NOL
carry-forwards of approximately $85,482,000 and $80,995,000, respectively, that are
available to reduce future income unless otherwise taxable. If not utilized, the federal NOL
carry-forwards will expire at various dates between 2023 and 2030, and the state NOL
carry-forwards will expire at various dates between 2020 and 2030.
NOL carry-forwards may be subject to annual limitations under Internal Revenue Code
Section 382 (or comparable provisions of state law) in the event that certain changes in
ownership of the Company were to occur. The Company has not yet
completed a formal evaluation of the impact of its IPO (Note 1) on the Companys NOL carry-forwards and whether certain
changes in ownership have occurred that would limit the Companys ability to utilize a
portion of its NOL carry-forwards.
10
ALIMERA SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
12. Fair Value
The Company adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (ASC 820), effective January 1, 2008. Under this standard, fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability
(i.e., the exit price) in an orderly transaction between market participants at the
measurement date.
In determining fair value, the Company uses various valuation approaches. The hierarchy
of those valuation approaches is broken down into three levels based on the reliability of
inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement
date. An active market for the asset or liability is a market in which transactions
for the asset or liability occur with sufficient frequency and volume to provide
pricing information on an ongoing basis. The valuation under this approach does not
entail a significant degree of judgment.
Level 2 inputs are inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. Level 2
inputs include: quoted prices for similar assets or liabilities in active markets,
inputs other than quoted prices that are observable for the asset or liability, (e.g.,
interest rates and yield curves observable at commonly quoted intervals or current
market) and contractual prices for the underlying financial instrument, as well as
other relevant economic measures.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable
inputs shall be used to measure fair value to the extent that observable inputs are
not available, thereby allowing for situations in which there is little, if any,
market activity for the asset or liability at the measurement date.
The following table presents information about the Companys assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents(1) |
|
$ |
48,432 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
48,432 |
|
Investments in marketable debt securities(2) |
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value |
|
$ |
48,432 |
|
|
$ |
503 |
|
|
$ |
|
|
|
$ |
48,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents(1) |
|
$ |
27,393 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27,393 |
|
Investments in marketable debt securities(2) |
|
|
|
|
|
|
26,330 |
|
|
|
|
|
|
|
26,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value |
|
$ |
27,393 |
|
|
$ |
26,330 |
|
|
$ |
|
|
|
$ |
53,723 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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(1) |
|
The carrying amounts approximate fair value due to the short-term maturities of the cash and cash equivalents. |
|
(2) |
|
Valuations are based on quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly. These prices include broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency. Pricing sources include industry standard data
providers, security master files from large financial institutions, and other third party sources which are
input into a distribution-curve-based algorithm to determine a daily market value. This creates a consensus
price or a weighted average price for each security. |
11
PART I. FINANCIAL INFORMATION
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Various statements in
this report are “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve substantial risks and
uncertainties. All statements, other than statements of historical facts,
included in this Quarterly Report on Form 10-Q regarding our strategy, future
operations, future financial position, future revenues, projected costs,
prospects, plans and objectives of management are forward-looking statements.
These statements are subject to risks and uncertainties and are based on
information currently available to our management. Words such as, but not
limited to, “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“may,” “plan,” “contemplates,”
“predict,” “project,” “targets,”
“likely,” “potential,” “continue,”
“will,” “would,” “should,”
“could,” or the negative of these terms and similar expressions or
words, identify forward-looking statements. The events and circumstances
reflected in the Company’s forward-looking statements may not occur and
actual results could differ materially from those projected in the
Company’s forward-looking statements. Meaningful factors which could
cause actual results to differ include, but are not limited to:
• delay in or failure to obtain regulatory approval of the
Company’s product candidates;
• uncertainty as to the Company’s ability to
commercialize, and market acceptance of, the Company’s product candidates;
• the extent of government regulations;
• uncertainty as to the relationship between the benefits of
the Company’s product candidates and the risks of their side-effect
profiles;
• dependence on third-party manufacturers to manufacture the
Company’s product candidates in sufficient quantities and quality;
• uncertainty of clinical trial results;
• limited sales and marketing infrastructure;
• inability of the Company’s outside sales force to
successfully sell and market ILUVIEN in the U.S. following regulatory approval;
and
• the Company’s ability to operate its business in
compliance with the covenants and restrictions that it is subject to under its
credit facility.
All written and
verbal forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. We
caution investors not to rely too heavily on the forward-looking statements we
make or that are made on our behalf. We undertake no obligation, and
specifically decline any obligation, to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
We encourage you to
read the discussion and analysis of our
financial condition and our financial statements contained in this quarterly
report on Form 10-Q. We also encourage you to read Item 1A of Part II
of this quarterly report on Form 10-Q entitled “Risk Factors” and
Item 1A of Part I of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2010 which contain a more complete discussion of
the risks and uncertainties associated with our business. In addition to the
risks described above and in Item 1A of Part II of this report and
Item 1A of Part I of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2010, other unknown or unpredictable factors also
could affect our results. Therefore, the information in this report should be
read together with other reports and documents that we file with the SEC from
time to time, including Forms 10-Q, 8-K and 10-K, which may supplement, modify,
supersede or update those risk factors. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures, collaborations or investments we may make.
Overview
We are a biopharmaceutical company that specializes in the research, development and
commercialization of prescription ophthalmic pharmaceuticals. We are presently focused on
diseases affecting the back of the eye, or retina, because we believe these diseases are not
well treated with current therapies and represent a significant market opportunity.
Our most advanced
product candidate is ILUVIEN, which we are developing for the
treatment of diabetic macular edema (DME). DME is a disease of the retina that affects
individuals with diabetes and can lead to severe vision loss and blindness. In September
2010, we completed two Phase 3 pivotal clinical trials (collectively, our FAME Study) for
ILUVIEN involving 956 patients in sites across the U.S., Canada, Europe and India to assess
the efficacy and safety of ILUVIEN in the treatment of DME. Based on our analysis of the
month 24 clinical readout from our FAME Study in December 2009, we filed a New Drug
Application (NDA) in June 2010 for the low dose of ILUVIEN in the U.S. with the U.S. Food
and Drug Administration (FDA), followed by registration filings in the United Kingdom,
Austria, France, Germany, Italy, Portugal and Spain in July 2010. In December 2010, we
received a Complete Response Letter (CRL) from the FDA. The FDA issued the CRL to
communicate its decision that the NDA for ILUVIEN could not be
approved in its then present form.
No new clinical studies were requested by the FDA in the CRL. However, the FDA asked us for
analyses of the safety and efficacy data through the end of the FAME Study to further assess
the relative benefits and risks of ILUVIEN. We are currently preparing the analyses the FDA
requested having completed the FAME Study and publicly released data on February 3, 2011.
The FDA is also seeking additional information regarding controls and specifications
concerning the manufacturing, packaging and sterilization of ILUVIEN, which we are currently
compiling. We currently anticipate submitting our response to the CRL to the FDA early in
the second quarter of 2011. Our submission to the FDA will be considered a Class 2 response,
which will provide for a review period of up to an additional six months for our NDA. Based
on our discussions with the FDA, we anticipate that the FDA will call an advisory committee
during this review. Additionally, we plan to submit the additional safety and efficacy data
through the final readout at the end of the FAME Study to regulatory authorities in the
United Kingdom, Austria, France, Germany, Italy, Portugal and Spain in the second quarter of
2011. If our NDA for ILUVIEN is approved by the FDA, we plan to commercialize ILUVIEN in the
U.S. by marketing and selling it to retinal specialists as early as late 2011. In addition
to treating DME, ILUVIEN is being studied in three Phase 2 clinical trials for the treatment
of the dry form of age-related macular degeneration (AMD), the wet form of AMD and retinal
vein occlusion (RVO).
We are also conducting testing on two classes of nicotinamide adenine dinucleotide
phosphate (NADPH) oxidase inhibitors, for which we have acquired exclusive, worldwide
licenses from Emory University, in the treatment of dry AMD. We plan to evaluate the use of
NADPH oxidase inhibitors in the treatment of other diseases of the eye, including wet AMD
and diabetic retinopathy. We intend to seek a collaboration partner for sales and marketing
activities outside North America. We currently contract with development partners or outside
firms for various operational aspects of our development activities, including the
preparation of clinical supplies and have no plans to establish in-house manufacturing
capabilities.
12
We commenced operations in June 2003. Since our inception we have incurred significant
losses. As of March 31, 2011, we have accumulated a deficit of $193.5 million. We expect to
incur substantial losses through the projected commercialization of ILUVIEN as we:
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complete the clinical development and registration of ILUVIEN; |
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build our sales and marketing capabilities for the anticipated commercial launch of ILUVIEN in late 2011; |
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add the necessary infrastructure to support our growth; |
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evaluate the use of ILUVIEN for the treatment of other diseases; and |
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advance the clinical development of other new product candidates either currently in our pipeline, or
that we may license or acquire in the future. |
Prior to our initial public offering (IPO), we funded our operations through the
private placement of common stock, preferred stock, warrants and convertible debt, as well
as by the sale of certain assets of the non-prescription business in which we were
previously engaged. On April 21, 2010, our Registration Statement on Form S-1 (as amended)
was declared effective by the Securities and Exchange Commission (SEC) for our IPO, pursuant
to which we sold 6,550,000 shares of our common stock at a public offering price of $11.00
per share. We received net proceeds of approximately $66.1 million from this transaction,
after deducting underwriting discounts, commissions and other offering costs.
As
of March 31, 2011, we had approximately $50.0 million in
cash, cash equivalents,
and of investments in trading securities. In addition to our net IPO proceeds, our
cash and cash equivalents include the January 2010 receipt of $10.0 million in proceeds from
the exercise of outstanding Series C-1 warrants, and a $4.0 million option payment from
Bausch & Lomb Incorporated (Bausch & Lomb) upon the exercise by Bausch & Lomb of its option
to extend by two years the period during which it may continue to develop an allergy product
acquired from us in 2006.
In October 2010, we obtained a $32.5 million senior secured credit facility (Credit
Facility) to help fund our working capital requirements. The Credit Facility consists of a
$20.0 million working capital revolver and a $12.5 million term loan. The lenders have
advanced $6.25 million under the term loan and may advance the remaining $6.25 million
following FDA approval of ILUVIEN, but no later than July 31, 2011. Given the status of the
FDAs review of the NDA for ILUVIEN, we do not currently expect that FDA approval would
occur prior to July 31, 2011. We are in discussions with the lenders to amend the terms of
the Credit Facility to, among other things, extend the availability of the term loan.
However, there are no assurances that the Credit Facility will be amended. We may draw on
the working capital revolver against eligible, domestic accounts receivable subsequent to
the launch of ILUVIEN.
We do not expect to generate revenues from our product, ILUVIEN, until late 2011, if at
all, and therefore we do not expect to have positive cash flow from operations before that
time. We believe our cash, cash equivalents, investments and Credit Facility are sufficient
to fund our operations through the projected commercialization of ILUVIEN and the expected
generation of revenue in late 2011. The commercialization of ILUVIEN is dependent upon
approval by the FDA, however, and we cannot be sure that ILUVIEN will be approved by the FDA
or that, if approved, future sales of ILUVIEN will generate enough revenue to fund our
operations beyond its commercialization. Due to the uncertainty around FDA approval,
management cannot be certain that we will not need additional funds for the
commercialization of ILUVIEN. If ILUVIEN is not approved, or if approved, does not generate
sufficient revenue, we may adjust our commercial plans so that we can continue to operate
with our existing cash resources or seek to raise additional financing.
Our Agreement with pSivida US, Inc.
In February 2005, we entered into an agreement with pSivida US, Inc. (pSivida) for the
use of fluocinolone acetonide (FAc) in pSividas proprietary delivery device. pSivida is a
global drug delivery company committed to the biomedical sector and the development of drug
delivery products. Our agreement with pSivida provides us with a worldwide exclusive license
to develop and sell ILUVIEN, which consists of a tiny polyimide tube with membrane caps that
is filled with FAc in a polyvinyl alcohol matrix for delivery to the back of the eye for the
treatment and prevention of eye diseases in humans (other than uveitis). This agreement also
provided us with a worldwide non-exclusive license to develop and sell pSividas proprietary
delivery device to deliver other corticosteroids to the back of the eye for the treatment
and prevention of eye diseases in humans (other than uveitis) or to treat DME by delivering
a compound to the back of the eye through a direct delivery method through an incision
required for a 25-gauge or larger needle. We do not have the right to develop and sell
pSividas proprietary delivery device for indications for diseases outside of the eye or for
the treatment of uveitis. Further, our agreement with pSivida permits pSivida to grant to
any other party the right to use its intellectual property (i) to treat DME through an
incision smaller than that required for a 25-gauge needle, unless using a
corticosteroid delivered to the back of the eye, (ii) to deliver any compound outside
the back of the eye unless it is to treat DME through an incision required for a 25-gauge or
larger needle, or (iii) to deliver non-corticosteroids to the back of the eye, unless it is
to treat DME through an incision required for a 25-gauge or larger needle.
13
Under the February 2005 agreement, we and pSivida agreed to collaborate on the
development of ILUVIEN for DME, and share financial responsibility for the development
expenses equally. Per the terms of the agreement, we each reported our monthly expenditures
on a cash basis, and the party expending the lesser amount of cash during the period was
required to make a cash payment to the party expending the greater amount to balance the
cash expenditures. We retained primary responsibility for the development of the product,
and therefore, were generally the party owed a balancing payment. Between February 2006 and
December 2006, pSivida failed to make payments to us for its share of development costs
totaling $2.0 million. For each payment not made, pSivida incurred a penalty of 50% of the
missed payment and interest began accruing at the rate of 20% per annum on the missed
payment and the penalty amount. In accordance with the terms of the agreement, pSivida was
able to remain in compliance with the terms of the February 2005 agreement as long as the
total amount of development payments past due did not exceed $2.0 million, and pSivida began
making payments again in December 2006 in order to maintain compliance with the agreement.
For financial reporting purposes we fully reserved the $2.0 million in past due development
payments and all penalties and interest due with respect to such past due payment, due to
the uncertainty of future collection. The February 2005 agreement provided that after commercialization of ILUVIEN, profits,
as defined in the agreement, would be shared equally.
In March 2008, we and pSivida amended
and restated the agreement to provide us with 80% of the net profits and pSivida with 20% of
the net profits. Total consideration to pSivida in connection with the execution of the March 2008
agreement was $33.8 million, which consisted of a cash payment of $12.0 million, the
issuance of a $15.0 million note payable, and the forgiveness of $6.8 million in outstanding
receivables. The $15.0 million promissory note accrued interest at 8% per annum, payable
quarterly and was payable in full to pSivida upon the earliest of a liquidity event as
defined in the agreement, the occurrence of an event of default under our agreement with
pSivida, or September 30, 2012. If the note was not paid in full by March 31, 2010, the
interest rate was to increase to 20% effective as of April 1, 2010, and we were required to
begin making principal payments of $500,000 per month.
On April 27, 2010, we paid pSivida approximately $15.2 million in principal and
interest to satisfy the note payable with the proceeds from our IPO.
We will owe pSivida an additional milestone payment of $25.0 million upon FDA approval
of ILUVIEN.
Our Credit
Facility
Term Loan
Agreement
On
October 14, 2010 (Effective Date), we entered into a Loan
and Security Agreement with Silicon Valley Bank and MidCap Financial LLP
(Lenders) under which we may borrow up to $12.5 million (Term Loan
Agreement). The lenders advanced $6.25 million on the Effective Date
(Initial Tranche) and may advance the remaining $6.25 million following FDA
approval of ILUVIEN, but no later than July 31, 2011 (Second Tranche).
Given the status of the FDA’s review of the NDA for ILUVIEN, it is
unlikely that FDA approval would occur prior to July 31, 2011. We are in
discussions with the Lenders to amend the terms of the Credit Facility to,
among other things, extend the availability of the term loan. However, there
are no assurances that the Credit Facility will be amended. To secure the
repayment of any amounts borrowed under the Term Loan Agreement, we granted to
the lenders a first priority security interest in all of our assets, other than
our intellectual property (provided that in the event we fail to meet certain
financial conditions, a curable lien will be imposed on our intellectual
property). We also agreed not to pledge or otherwise encumber our intellectual
property assets.
We are required to
maintain our primary operating and other
deposit accounts and securities accounts with Silicon Valley Bank, which
accounts must represent at least 50% of the dollar value of our accounts at all
financial institutions.
We will be required to
pay interest on borrowings under the Term
Loan Agreement at a rate of 11.5% on a monthly basis through July 31,
2011. Thereafter, we will be required to repay the principal, plus interest at
such rate if the Second Tranche were advanced to us prior to February 28,
2011 (and plus interest at a rate of 12% if the Second Tranche were advanced to
us after February 28, 2011), in 27 equal monthly installments. We did not
draw the Second Tranche prior to February 28, 2011. We paid to the lenders
an upfront fee of $62,500, and will pay to the lenders an additional final
payment of 3% of the total principal amount. In addition, if we repay
the Initial Tranche or the Second Tranche (if it is advanced to us)
prior to maturity, we will pay to the lenders a prepayment penalty of 5% of the
total principal amount if the prepayment occurs within one year after the
Effective Date, 3% of the total principal amount if the prepayment occurs between
one and two years after the Effective Date and 1% of the total principal amount
of the prepayment occurs thereafter (each a Prepayment Penalty), provided in
each case that such Prepayment Penalty will be reduced by 50% in the event we
are acquired.
To secure the
repayment of any amounts borrowed under the Term
Loan Agreement, we granted to the Lenders a first priority security interest in
all of our assets, other than our intellectual property, provided that, for any
date during which the notes are outstanding, our unrestricted balance sheet
cash and cash equivalents plus the excess available under the Term Loan
Agreement are less than the product of six times the monthly cash burn amount.
In the event we fail to meet this financial condition, a curable lien will be
imposed on our intellectual property. Should such a lien event take place, the
lien would remain in force until such date that the Company’s
unrestricted cash and cash equivalents plus the excess available under the Term
Loan Agreement were equal to or greater than twelve times the monthly cash burn
amount. We also agreed not to pledge or otherwise encumber our intellectual
property assets. Additionally, we must seek the Lenders’ approval prior
to the payment of any cash dividends.
In connection with
entering into this agreement, we issued to the
Lenders warrants to purchase an aggregate of up to 39,773 shares of our common
stock. Each of the warrants is exercisable immediately, has a per-share
exercise price of $11.00 and has a term of 10 years. In addition, the
Lenders will have certain registration rights with respect to the shares of
common stock issuable upon exercise of the warrants. We estimated the aggregate
fair value of the warrants, using the Black-Scholes model, to be $389,000. We
allocated a portion of the proceeds from the Term Loan Agreement to the
warrants in accordance with ASC 470-20-25-2, Debt Instruments with Detachable
Warrants. As a result, we recorded a discount of $366,000 which is being
amortized to interest expense using the effective interest method. If
the Second Tranche is advanced to us, we will issue to the lenders
warrants to purchase an aggregate of up to 39,773 shares of our
common stock.
Working
Capital Revolver
Also on the Effective
Date, we and Silicon Valley Bank entered
into a Loan and Security Agreement (Working Capital Revolver), pursuant to
which we obtained a secured revolving line of credit from Silicon Valley Bank
with borrowing availability up to $20.0 million.
The
Working Capital Revolver provides for a working capital-based
revolving line of credit in an aggregate amount of up to the
lesser of (i) $20.0 million, or (ii) 85% of eligible domestic
accounts receivable. The Working Capital Revolver matures on October 31, 2013.
Amounts advanced
under the Working Capital Revolver bear interest at an
annual rate equal to Silicon Valley Bank’s prime rate plus 2.50% (with a
rate floor of 6.50%). Interest on the Working Capital Revolver is due monthly, with the
balance due at the maturity date. We paid to Silicon Valley Bank an upfront fee
of $100,000. In addition, if we terminate the Working Capital Revolver prior to maturity,
we will pay to Silicon Valley Bank a fee of $400,000 if the termination occurs
within one year after the Effective Date and a fee of $200,000 if the
termination occurs more than one year after the Effective Date (each a
Termination Fee), provided in each case that such Termination Fee will be
reduced by 50% in the event we are acquired.
To secure the
repayment of any amounts borrowed under the
Working Capital Revolver, we granted to Silicon Valley Bank a first priority
security interest in all of our assets, other than our intellectual property,
provided that, for any date during which the notes are outstanding, our
unrestricted balance sheet cash and cash equivalents plus the excess available
under the Term Loan Agreement are less than the product of six times the
monthly cash burn amount. In the event we fail to meet this financial
condition, a curable lien will be imposed on our intellectual property. Should
such a lien event take place, the lien would remain in force until such date
that our unrestricted cash and cash equivalents plus the excess available under
the Term Loan Agreement were equal to or greater than twelve times the monthly
cash burn amount. We also agreed not to pledge or otherwise encumber its
intellectual property assets. Additionally, we must seek Silicon Valley
Bank’s approval prior to the payment of any cash dividends.
The occurrence of an
event of default could result in the
acceleration of our obligations under the Working Capital Revolver and an
increase to the applicable interest rate, and would permit Silicon Valley Bank
to exercise remedies with respect to the collateral under the Working
Capital Revolver.
Our Discontinued Non-Prescription Business
At the inception of our company, we were focused primarily on the development and
commercialization of non-prescription over-the-counter ophthalmic products. In October 2006,
due to the progress and resource requirements related to the development of ILUVIEN, we
decided to discontinue our non-prescription business. As a result, we received proceeds of
$10.0 million from the sale of our allergy products in December 2006 and $6.7 million from
the sale of our dry eye product in July 2007, both to Bausch & Lomb. If one of the allergy
products receives FDA approval, we are entitled to an additional $8.0 million payment from
Bausch & Lomb under the sales agreement. In January 2010 we received a $4.0 million option
payment from Bausch & Lomb upon the exercise by Bausch & Lomb of its option to extend the
period during which it may continue to develop this allergy product by two years. However,
there can be no assurance that Bausch & Lomb will continue the development of this allergy
product, that it will receive FDA approval or that we will receive the $8.0 million payment.
As a result of the discontinuation of our non-prescription business, all revenues and
expenses associated with our over-the-counter portfolio are included in the loss from
discontinued operations in the accompanying statements of operations.
Financial Operations Overview
Revenue
To date we have only generated revenue from our dry eye non-prescription product. From
the launch of that product in September 2004 to its sale in July 2007, we generated $4.4
million in net revenues. We do not expect to generate any significant additional revenue
unless or until we obtain regulatory approval of, and commercialize, our product candidates
or in-license additional products that generate revenue. In addition to generating revenue
from product sales, we intend to seek to generate revenue from other sources such as upfront
fees, milestone payments in connection with collaborative or strategic relationships, and
royalties resulting from the licensing of our product candidates and other intellectual
property. We expect any revenue we generate will fluctuate from quarter to quarter as a
result of the nature, timing and amount of any milestone payments we may receive from
potential collaborative and strategic relationships, as well as revenue we may receive upon
the sale of our products to the extent any are successfully commercialized.
14
Research and Development Expenses
Substantially all of our research and development expenses incurred to date related to
our continuing operations have been related to the development of ILUVIEN. In the event the
FDA approves our NDA for ILUVIEN, we will owe an additional milestone payment of $25.0
million to pSivida. We anticipate that we will incur additional research and development
expenses in the future as we evaluate and possibly pursue the development of ILUVIEN for
additional indications, or develop additional product candidates. We recognize research and
development expenses as they are incurred. Our research and development expenses consist
primarily of:
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salaries and related expenses for personnel; |
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fees paid to consultants and contract research organizations (CRO) in conjunction with independently
monitoring clinical trials and acquiring and evaluating data in conjunction with clinical trials, including
all related fees such as investigator grants, patient screening, lab work and data compilation and statistical
analysis; |
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costs incurred with third parties related to the establishment of a commercially viable manufacturing process
for our product candidates; |
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costs related to production of clinical materials, including fees paid to contract manufacturers; |
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costs related to upfront and milestone payments under in-licensing agreements; |
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costs related to compliance with FDA regulatory requirements; |
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consulting fees paid to third-parties involved in research and development activities; and |
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costs related to stock options or other stock-based compensation granted to personnel in development functions. |
We expense both internal and external development costs as they are incurred.
We expect that a large percentage of our research and development expenses in the
future will be incurred in support of our current and future technical, preclinical and
clinical development programs. These expenditures are subject to numerous uncertainties in
terms of both their timing and total cost to completion. We expect to continue to develop
stable formulations of our product candidates, test such formulations in preclinical studies
for toxicology, safety and efficacy and to conduct clinical trials for each product
candidate. We anticipate funding clinical trials ourselves, but we may engage collaboration
partners at certain stages of clinical development. As we obtain results from clinical
trials, we may elect to discontinue or delay clinical trials for certain product candidates
or programs in order to focus our resources on more promising product candidates or
programs. Completion of clinical trials by us or our future collaborators may take several
years or more, the length of time generally varying with the type, complexity, novelty and
intended use of a product candidate. The costs of clinical trials may vary significantly
over the life of a project owing to but not limited to the following:
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the number of sites included in the trials; |
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the length of time required to enroll eligible patients; |
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the number of patients that participate in the trials; |
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the number of doses that patients receive; |
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the drop-out or discontinuation rates of patients; |
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the duration of patient follow-up; |
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the phase of development the product candidate is in; and |
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the efficacy and safety profile of the product candidate. |
15
Our expenses related to clinical trials are based on estimates of the services received
and efforts expended pursuant to contracts with multiple research institutions and contract
research organizations that conduct and manage clinical trials on our behalf. The financial
terms of these agreements are subject to negotiation and vary from contract to contract and
may result in uneven payment flows. Generally, these agreements set forth the scope of work
to be performed at a fixed fee or unit price. Payments under the contracts depend on factors
such as the successful enrollment of patients or the completion of clinical trial
milestones. Expenses related to clinical trials generally are accrued based on contracted
amounts applied to the level of patient enrollment and activity according to the protocol.
If timelines or contracts are modified based upon changes in the clinical trial protocol or
scope of work to be performed, we modify our estimates of accrued expenses accordingly on a
prospective basis.
None of our product candidates has received FDA or foreign regulatory marketing
approval. In order to grant marketing approval, a health authority such as the FDA or
foreign regulatory agencies must conclude that clinical and preclinical data establish the
safety and efficacy of our product candidates with an appropriate benefit to risk profile
relevant to a particular indication, and that the product can be manufactured under current
Good Manufacturing Practice (cGMP) in a reproducible manner to deliver the products
intended performance in terms of its stability, quality, purity and potency. Until our
submissions are reviewed by health authorities, there is no way to predict the outcome of
their review. Even if the clinical studies meet their predetermined primary endpoints, and a
registration dossier is accepted for filing, a health authority could still determine that
an appropriate benefit to risk relationship does not exist for the indication that we are
seeking. We cannot forecast with any degree of certainty which of our product candidates
will be subject to future collaborations or how such arrangements would affect our
development plan or capital requirements. As a result of the uncertainties discussed above,
we are unable to determine the duration and completion costs of our development projects or
when and to what extent we will receive cash inflows from the commercialization and sale of
an approved product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in
executive and administrative functions, including finance, accounting and human resources.
Other significant costs include facilities costs and professional fees for accounting and
legal services, including legal services associated with obtaining and maintaining patents.
We anticipate incurring a significant increase in general and administrative expenses, as we
add additional employees and continue to operate as a public company. These increases will
include increased costs for insurance, costs related to the hiring of additional personnel
and payments to outside consultants, lawyers and accountants. We also expect to continue to
incur significant costs to comply with the corporate governance, internal control and
similar requirements applicable to public companies.
Marketing Expenses
Marketing expenses consist of compensation for employees responsible for
assessing the commercial opportunity of and developing market awareness and launch plans for
our product candidates. Professional fees associated with developing
brands for our product candidates and maintaining public relations. We expect significant
increases in our marketing and selling expenses as we hire additional personnel and
establish our sales and marketing capabilities in anticipation of the commercialization of
our product candidates. We intend to capitalize on our managements past experience and
expertise with eye-care products by marketing and selling ILUVIEN to the approximately 1,600
retinal specialists practicing in the approximately 900 retina centers across the U.S.
Our plan is to develop our own specialized domestic sales and marketing infrastructure,
comprised of approximately 40 people, to market ILUVIEN and other ophthalmic products that
we may acquire or develop in the future. We hired regional managers with extensive
ophthalmic-based sales experience in the third quarter of 2010 and plan to begin adding
sales representatives in the fourth quarter of 2011. We entered into a relationship with
OnCall LLC, a contract sales force company, that will utilize its employees to act as our
sales representatives if we receive approval of the ILUVIEN NDA from the FDA. We expect that
following FDA approval, the OnCall sales force will be able to access and form
relationships with retinal specialists in approximately 900 retina centers for the
commercial launch of ILUVIEN. In connection with the
commercial launch of ILUVIEN, we expect to hire additional personnel to support the
activities of customer service, post-marketing pharmacovigilance, medical affairs, and
regulatory compliance.
Interest and Other Income
Interest income consists primarily of interest earned on our cash, cash equivalents and
investments.
Interest Expense
Beginning in March 2008, we began recognizing interest on our $15.0 million note
payable to pSivida at an effective interest rate of 12.64% per annum (this note accrued
interest at the rate of 8% per annum from inception through March 31, 2010 and at the rate
of 20% per annum effective as of April 1, 2010). On April 27, 2010, we paid pSivida
approximately $15.2 million in principal and
interest to satisfy the note payable. In October 2010, we drew the Initial Tranche of
$6.25 million on our term loan from Silicon Valley Bank and MidCap Financial LLP and began recognizing interest at an effective interest rate of 13.0% per annum (interest on this term loan is payable monthly at the rate of 11.5% per annum and includes a final interest payment of 3.0% of the amount advanced).
16
Change in Fair Value of Preferred Stock Conversion Feature
Prior to being converted into common stock in connection with our IPO, our preferred
stock contained certain conversion features which were considered embedded derivatives. We
accounted for such embedded derivative financial instruments in accordance with Accounting
Standards Codification 815. We recorded derivative financial instruments as assets or
liabilities in our balance sheet measured at their fair value. We recorded the changes in
fair value of such instruments as non-cash gains or losses in the statement of operations.
The preferred stock conversion feature was eliminated upon the conversion of our preferred
stock to common stock in connection with our IPO in April 2010.
Preferred Stock Accretion
Prior to our IPO, our preferred stock was recorded at issuance at the proceeds received
net of any issuance discounts, issuance costs and the fair value of the conversion features
at issuance. The difference between the amount recorded at issuance and the original issue
price was accreted on a straight-line basis over a period extending from the date of
issuance to the date at which the preferred stock would have become redeemable at the option
of the holder. Accretion of the difference ceased upon the conversion of our preferred stock
to common stock in connection with our IPO in April 2010.
Preferred Stock Dividends
Prior to our IPO, our preferred stock accrued dividends at 8% per annum which were
recorded as an increase in the carrying amount of the respective preferred stock. At the
time our preferred stock was converted into common stock in connection with our IPO, $1.5
million of dividends accrued on our Series A preferred stock prior to November 17, 2005 were
converted into 380,301 shares of our common stock. All other preferred stock dividends were
eliminated upon conversion of the underlying preferred stock in April 2010.
Basic
and Diluted Net (Loss) Income Applicable to Common Stockholders per Common Share
We
calculated net loss per share in accordance with ASC 260. We have
determined that our previously outstanding Series A, Series B, Series C and Series C-1
preferred stock represent participating securities in accordance with ASC 260. However,
since we operate at a loss, and losses are not allocated to the preferred stock, the two
class method does not affect our calculation of earnings per share. We had a net loss from
continuing operations for all periods presented; accordingly, the inclusion of common stock
options and warrants would be anti-dilutive. Dilutive common stock equivalents would include
the dilutive effect of convertible securities, common stock options, warrants for
convertible securities and warrants for common stock equivalents. Potentially dilutive
weighted average common stock equivalents totaled approximately 1,663,298 and 24,656,608 for
the three months ended March 31, 2011 and 2010, respectively. Potentially dilutive common
stock equivalents were excluded from the diluted earnings per share denominator for all
periods of net loss from continuing operations because of their anti-dilutive effect.
Therefore, for the three months ended March 31, 2011 and 2010, respectively, the weighted
average shares used to calculate both basic and diluted loss per share are the same.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are
based on our financial statements which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and
judgments, including those described below. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual
results and experiences may differ materially from these estimates. We believe that the
following accounting policies are the most critical to aid you in fully understanding and
evaluating our reported financial results and affect the more significant judgments and
estimates that we use in the preparation of our financial statements.
17
Clinical Trial Prepaid and Accrued Expenses
We record prepaid assets and accrued liabilities related to clinical trials associated
with contract research organizations, clinical trial investigators and other vendors based
upon amounts paid and the estimated amount of work completed on each clinical trial. The
financial terms of agreements vary from vendor to vendor and may result in uneven payment
flows. As such, if we have advanced funds exceeding our estimate of the work completed, we
record a prepaid asset. If our estimate of the work completed exceeds the amount paid, an
accrued liability is recorded. All such costs are charged to research and development
expenses based on these estimates. Our estimates may or may not match the actual services
performed by the organizations as determined by patient enrollment levels and related
activities. We monitor patient enrollment levels and related activities to the extent
possible through internal reviews,
correspondence and discussions with our contract research organization and review of
contractual terms. However, if we have incomplete or inaccurate information, we may
underestimate or overestimate activity levels associated with various clinical trials at a
given point in time. In this event, we could record significant research and development
expenses in future periods when the actual level of activities becomes known. To date, we
have not experienced material changes in these estimates. Additionally, we do not expect
material adjustments to research and development expenses to result from changes in the
nature and level of clinical trial activity and related expenses that are currently subject
to estimation. In the future, as we expand our clinical trial activities, we expect to have
increased levels of research and development costs that will be subject to estimation.
Research and Development Costs
Research and development expenditures are expensed as incurred, pursuant to ASC 730.
Costs to license technology to be used in our research and development that have not reached
technological feasibility, defined as FDA approval for our current product candidates, and
have no alternative future use are expensed when incurred. Payments to licensors that relate
to the achievement of preapproval development milestones are recorded as research and
development expense when incurred.
Stock-Based Compensation
Effective January 1, 2005, we adopted the fair value recognition provisions of ASC 718 using
the modified prospective application method. We recognize the grant date fair value as compensation
cost of employee stock-based awards using the straight-line method over the actual vesting period,
adjusted for our estimates of forfeiture. Typically, we grant stock options with a requisite
service period of four years from the grant date. We have elected to use the Black-Scholes option
pricing model to determine the fair value of stock-based awards.
We concluded that this was the most appropriate method by which to value our share-based
payment arrangements, but if any share-based payment instruments should be granted for which the
Black-Scholes method does not meet the measurement objective as stated within ASC 718, we will
utilize a more appropriate method for valuing that instrument. However, we do not believe that any
instruments granted to date and accounted for under ASC 718 would require a method other than the
Black-Scholes method.
Our determination of the fair market value of share-based payment awards on the grant date
using option valuation models requires the input of highly subjective assumptions, including the
expected price volatility and option life. For the calculation of expected volatility, because we
lack significant company-specific historical and implied volatility information, we estimate our
volatility by utilizing an average of volatilities of publicly traded companies, including our own,
deemed similar to us in terms of product composition, stage of lifecycle, capitalization and scope
of operations. We intend to continue to consistently apply this process using this same index until
a sufficient amount of historical information regarding the volatility of our own share price
becomes available.
To estimate the expected term, we utilize the simplified method for plain vanilla options
as discussed within the Securities and Exchange Commissions (SEC) Statement of Accounting Bulletin
(SAB) 107. We believe that all factors listed within SAB 107 as pre-requisites for utilizing the
simplified method are true for us and for our share-based payment arrangements. We intend to
utilize the simplified method for the foreseeable future until more detailed information about
exercise behavior will be more widely available.
Total stock-based compensation expense related to all our stock option awards for the three
months ended March 31, 2011 and 2010, respectively, was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Marketing |
|
$ |
97 |
|
|
$ |
11 |
|
Research and development |
|
|
101 |
|
|
|
38 |
|
General and administrative |
|
|
217 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee stock-based compensation expense |
|
$ |
415 |
|
|
$ |
108 |
|
|
|
|
|
|
|
|
18
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of its assets and liabilities in accordance with
ASC 740. We evaluate the positive and negative evidence bearing upon the realizability of
our deferred tax assets on an annual basis. Significant management judgment is involved in
determining the provision for income taxes, deferred tax assets and liabilities, and any
valuation allowance recorded against net deferred tax assets. Due to uncertainties with
respect to the realization of our deferred tax assets due to our history of operating
losses, a valuation allowance has been established against our deferred tax asset balances
to reduce the net carrying value to an amount that is more likely than not to be realized.
As a result we have fully reserved against the deferred tax asset balances. The valuation
allowances are based on our estimates of taxable income in the jurisdictions in which we
operate and the period over which deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these estimates in future periods, a
change in the valuation allowance may be needed, which could materially impact our financial
position and results of operations. Our deferred tax assets primarily consist of net
operating loss (NOL) carry-forwards. At March 31, 2011 we had federal NOL carry-forwards of
approximately $102.3 million and state NOL carry-forwards of
approximately $85.5 million,
respectively, that are available to reduce future income otherwise taxable. If not utilized,
the federal NOL carry-forwards will expire at various dates between 2023 and 2030 and the
state NOL carry-forwards will expire at various dates between 2020 and 2030. If it is
determined that significant ownership changes have occurred since these NOLs were generated,
we may be subject to annual limitations on the use of these NOLs under Internal Revenue Code
Section 382 (or comparable provisions of state law). We have not
yet completed a formal evaluation of whether our IPO resulted in certain changes in ownership that would limit our ability to utilize a portion of our NOL carry-forwards.
In the event that we were to determine that we are able to realize any of our net
deferred tax assets in the future, an adjustment to the valuation allowance would increase
net income in the period such determination was made. We believe that the most significant
uncertainty that will impact the determination of our valuation allowance will be our
estimation of the extent and timing of future net income, if any.
We considered our income tax positions for uncertainty in accordance with ASC 740. We
believe our income tax filing positions and deductions are more likely than not of being
sustained on audit and do not anticipate any adjustments that will result in a material
change to our financial position; therefore, we have not recorded ASC 740 liabilities. We
recognize accrued interest and penalties related to unrecognized tax benefits as interest
expense and income tax expense, respectively, in our statements of operations. Our tax years
since 2003 remain subject to examination in Georgia, Tennessee, and on the federal level. We
do not anticipate any material changes to our uncertain tax positions within the next 12
months.
Results of Operations
The following selected unaudited financial and operating data are derived from our
financial statements and should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and our financial statements.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT EXPENSES |
|
$ |
1,757 |
|
|
$ |
3,065 |
|
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
1,540 |
|
|
|
904 |
|
MARKETING EXPENSES |
|
|
1,117 |
|
|
|
247 |
|
TOTAL OPERATING EXPENSES |
|
|
4,414 |
|
|
|
4,216 |
|
INTEREST AND OTHER INCOME |
|
|
12 |
|
|
|
2 |
|
INTEREST EXPENSE |
|
|
(295 |
) |
|
|
(474 |
) |
DECREASE IN FAIR VALUE OF DERIVATIVE |
|
|
|
|
|
|
3,265 |
|
LOSS FROM CONTINUING OPERATIONS |
|
$ |
(4,697) |
|
|
$ |
(1,423) |
Three months ended March 31, 2011 compared to the three months ended March 31, 2010
Research and development expenses. Research and development expenses decreased by
approximately $1.4 million, or 45.2%, to approximately $1.7 million for the three months
ended March 31, 2011 compared to approximately $3.1 million for the three months ended March
31, 2010. The decrease was primarily attributable to a decrease in
costs for our FAME Study of approximately $1.5 million primarily
attributable to decreases of $560,000 for our CRO, $510,000 for
clinical trial site costs, and $130,000 for our third party reading
center for the analysis of retinal images as the FAME Study was
completed in 2010, and $200,000 for the preparation of retinal images for our NDA incurred in the first quarter of 2010. Offsetting this decrease was an
increase of approximately $220,000 in costs associated with contracting medical science
liaisons to engage with retina specialists in the study of ILUVIEN.
19
General and administrative expenses. General and administrative expenses increased by
approximately $600,000, or 66.7%, to approximately $1.5 million for the three months ended
March 31, 2011 compared to approximately $900,000 for the three months ended March 31, 2010.
The increase was primarily attributable to increases of approximately
$270,000 in costs incurred after our IPO in April 2010
associated with operating as a public company including primarily
additional audit, tax and legal fees, increased directors and officers insurance costs, and board of directors
compensation, $160,000 in higher stock compensation costs, and
$120,000 in higher salary costs.
Marketing expenses. Marketing expenses increased by approximately $900,000 or 450.0%,
to approximately $1.1 million for the three months ended March 31, 2011 compared to
approximately $200,000 for the three months ended March 31, 2010. This increase was
primarily attributable to increases of approximately $530,000 in compensation costs related
to the hiring of additional key personnel in the second half of 2010 in advance of the
launch of ILUVIEN previously anticipated to occur in the first half
of 2011, and $230,000 in costs related to our advertising agencys
development of a detailed advertising and promotional plan for the
commercial launch of ILUVIEN.
Interest expense. Interest expense decreased by approximately $200,000, or 40.0%, to
approximately $300,000 for the three months ended March 31, 2011 compared to approximately
$500,000 for the three months ended March 31, 2010. Interest expense for the three months
ended March 31, 2011 was incurred in connection with our Credit Facility with Silicon Valley
Bank and MidCap Financial LLP, secured in the fourth quarter of 2010. Interest expense for
the three months ended March 31, 2010 was incurred in connection with our $15.0 million
dollar promissory note payable to pSivida. Our promissory note to pSivida was repaid in
April 2010.
Decrease in fair value of preferred stock conversion feature. For the three months
ended March 31, 2010, we recognized a gain of approximately $3.3 million related to the
decrease of the fair value of the conversion feature of our preferred stock. The conversion
feature of our preferred stock was eliminated in connection with our IPO in April 2010.
Income from discontinued operations
We recognized income from discontinued operations during the three months ended March
31, 2010 of $4.0 million for a payment we received from Bausch & Lomb. This payment was
related to the exercise by Bausch & Lomb of its option to extend by two years the period
during which it may continue to develop an allergy product acquired from us in 2006. We did
not have any income or loss from discontinued operations for the three months ended March
31, 2011.
Liquidity and Capital Resources
To date we have incurred recurring losses, negative cash flow from operations, and have
accumulated a deficit of $193.6 million from our inception through March 31, 2011. Prior to
our IPO in April 2010, we funded our operations through the private placement of common
stock, preferred stock, preferred stock warrants and convertible debt, as well as by the sale of certain assets of the
non-prescription business in which we were previously engaged.
On April 21, 2010, our Registration Statement on Form S-1 (as amended) was declared
effective by the SEC for our IPO, pursuant to which we sold 6,550,000 shares of our common
stock at a public offering price of $11.00 per share. We received net proceeds of
approximately $68.4 million from this transaction, after deducting underwriting discounts
and commissions. In October 2010, we obtained a $32.5 million senior secured credit facility
(Credit Facility) to help fund our working capital requirements. The Credit Facility
consists of a $20.0 million working capital revolver and a $12.5 million term loan. The
lenders have advanced $6.25 million under the term loan and may advance the remaining $6.25
million following FDA approval of ILUVIEN, but no later than July 31, 2011. Given the status
of the FDAs review of the ILUVIEN NDA, it is unlikely that FDA approval would occur prior
to July 31, 2011. We are in discussions with the lenders to amend the terms of the Credit
Facility to, among other things, extend the availability of the term
loan and the working capital revolver. However, there
are no assurances that the Credit Facility will be amended. We may draw on the working capital revolver against eligible, domestic accounts receivable, as defined, subsequent to the
launch of ILUVIEN. To secure the repayment of any amounts borrowed under the Term Loan
Agreement, we granted to the Lenders a first priority security interest in all of our
assets, other than our intellectual property, provided that, for any date during which the
notes are outstanding, our unrestricted balance sheet cash and cash equivalents plus the
excess available under the Term Loan Agreement is less than the product of six times the
monthly cash burn amount. In the event we fail to meet this financial condition, a curable
lien will be imposed on our intellectual property. Should such a lien event take place, the
lien would remain in force until such date that the Companys unrestricted cash and cash
equivalents plus the excess available under the Term Loan Agreement was equal to or greater
than twelve times the monthly cash burn amount. We also agreed not to pledge or otherwise
encumber our intellectual property assets. Additionally, we must seek the lenders approval
prior to the payment of any cash dividends. As of March 31, 2011, we had approximately $49.5
million in cash and cash equivalents and $500,000 of investments. We believe that we have
sufficient funds available to fund our operations through the
projected commercialization of ILUVIEN and the expected generation of revenue in late
2011. The commercialization of ILUVIEN is dependent upon approval by the FDA, however, and
we cannot be sure that ILUVIEN will be approved by the FDA or that, if approved, future
sales of ILUVIEN will generate enough revenue to fund the Companys operations beyond its
commercialization. Due to the uncertainty around FDA approval, management cannot be certain
that we will not need additional funds for the commercialization of ILUVIEN. If ILUVIEN is
not approved, or if approved, does not generate sufficient revenue, we may adjust our
commercial plans so that we can continue to operate with our existing cash resources or seek
to raise additional financing.
20
In the event additional financing is needed or desired, we may seek to fund our
operations through the sale of equity securities, strategic collaboration agreements and
debt financing. We cannot be sure that additional financing from any of these sources will
be available when needed or that, if available, the additional financing will be obtained on
terms favorable to us or our stockholders especially in light of the current difficult
financial environment. If we raise additional funds by issuing equity securities,
substantial dilution to existing stockholders would likely result and the terms of any new
equity securities may have a preference over our common stock. If we attempt to raise
additional funds through strategic collaboration agreements and debt financing, we may not
be successful in obtaining collaboration agreements, or in receiving milestone or royalty
payments under those agreements, or the terms of the debt may involve significant cash
payment obligations as well as covenants and specific financial ratios that may restrict our
ability to commercialize our product candidates or operate our business.
As of March 31, 2011, we had $50.0 million in cash, cash equivalents and short term
government backed securities. We have invested a substantial portion of our available cash
in money market funds placed with a reputable financial institution for which credit loss is
not anticipated. We have established guidelines relating to diversification and maturities
of our investments to preserve principle and maintain liquidity.
For the three months ended March 31, 2011, cash used in our continuing operations of
$5.0 million was primarily due to our net loss from continuing
operations of $4.7 million
offset by non-cash stock-based compensation and other expense of
$440,000. Further increasing our cash used in continuing operations was a net decrease in accounts
payable, accrued expenses and other current liabilities of
$1.1 million, offset by a decrease in prepaid expenses and
other current assets of $230,000. Accounts payable, accrued expenses and other current
liabilities decreased primarily due to net decreases of $620,000 of amounts paid to providers
of advertising, corporate communications, and medical marketing services for pre-launch
activities due to the postponement of the launch of ILUVIEN
previously anticipated to occur in the first half of 2011, $410,000 of amounts paid to investigators in our FAME study, and $280,000 of
accrued compensation that was paid in the first quarter. Prepaid and other current assets decreased primarily due to the
collection of interest receivable on a portion of our investment
portfolio that matured during the three months ended March 31, 2011.
For the three months ended March 31, 2010, cash used in our continuing operations of
$4.6 million was primarily due to our net loss from continuing
operations of $1.4 million increased by a non-cash gain
of $3.3 million related to the change in fair value of our preferred stock conversion
feature and offset by a non-cash charge of $110,000 in stock-based compensation and other expense.
Further increasing our net losses from continuing operations were increases in accounts
payable and accrued expenses and other current liabilities of $200,000 and in prepaid
expenses and other current assets of $120,000, and a decrease in other long-term liabilities
of $180,000. The increase in accounts payable and accrued and other current liabilities is
primarily attributable to increases of $400,000 of clinical trial expenses, $360,000 of
accrued short-term interest on the pSivida note payable, $240,000 of deferred financing
accrued in connection with our IPO, and $170,000 of professional services fees accrued for
the preparation of our new drug application for ILUVIEN, offset by a decrease of $1.5
million of clinical trial site accruals for payments to our investigators. Prepaid expenses
and other current assets increased primarily due to $200,000 of advances to third-party
manufacturers of ILUVIEN. The increase in other long-term liabilities is due to a portion
of the interest accrued on our promissory note to pSivida moving to a current liability
For
the three months ended March 31, 2011, net cash from our investing activities of
continuing operations was $25.8 million, which was due to the
maturation of
investments. For the three months ended March 31, 2010, cash
provided primarily by our investing
activities of $4.0 million was provided by our discontinued operations when we received $4.0
million from Bausch & Lomb upon the exercise by Bausch & Lomb of its option to extend the
period during which it may continue to develop an allergy product acquired from us in 2006
by two years.
For the three months ended March 31, 2011, net cash provided by our financing
activities was $110,000, which was primarily attributable to proceeds from the exercise of
stock options. For the three months ended March 31, 2010, net cash provided by our
financing activities was $10.1 million which was primarily attributable to the net proceeds
of $9.9 million received from the exercise of Series C-1
preferred stock warrants, and proceeds of
$150,000 from the exercise of common stock warrants.
Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and
commitments outside the ordinary course of business from those disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 25,
2011.
21
Our Credit
Facility
Term Loan
Agreement
On
October 14, 2010 (Effective Date), we entered into a Loan
and Security Agreement with Silicon Valley Bank and MidCap Financial LLP
(Lenders) under which we may borrow up to $12.5 million (Term Loan
Agreement). The lenders advanced $6.25 million on the Effective Date
(Initial Tranche) and may advance the remaining $6.25 million following FDA
approval of ILUVIEN, but no later than July 31, 2011 (Second Tranche).
Given the status of the FDA’s review of the NDA for ILUVIEN, it is
unlikely that FDA approval would occur prior to July 31, 2011. We are in
discussions with the Lenders to amend the terms of the Term Loan
Agreement to,
among other things, extend the availability of the term loan. However, there
are no assurances that the Term Loan
Agreement will be amended. To secure the
repayment of any amounts borrowed under the Term Loan Agreement, we granted to
the lenders a first priority security interest in all of our assets, other than
our intellectual property (provided that in the event we fail to meet certain
financial conditions, a curable lien will be imposed on our intellectual
property). We also agreed not to pledge or otherwise encumber our intellectual
property assets.
We are required to
maintain our primary operating and other
deposit accounts and securities accounts with Silicon Valley Bank, which
accounts must represent at least 50% of the dollar value of our accounts at all
financial institutions.
We will be required to
pay interest on the Initial Tranche at a rate of 11.5% on a monthly basis through July 31,
2011. Thereafter, we will be required to repay the principal, plus interest at
such rate if the Second Tranche were advanced to us prior to February 28,
2011 (and plus interest at a rate of 12% if the Second Tranche were advanced to
us after February 28, 2011), in 27 equal monthly installments. We did not
draw the Second Tranche prior to February 28, 2011. We paid to the lenders
an upfront fee of $62,500, and will pay to the lenders an additional final
payment of 3% of the total principal amount. In addition, if we repay
the Initial Tranche or the Second Tranche (if it is advanced to us)
prior to maturity, we will pay to the lenders a prepayment penalty of 5% of the
total principal amount if the prepayment occurs within one year after the
Effective Date, 3% of the total principal amount if the prepayment occurs between
one and two years after the Effective Date and 1% of the total principal amount
of the prepayment occurs thereafter (each a Prepayment Penalty), provided in
each case that such Prepayment Penalty will be reduced by 50% in the event we
are acquired.
To secure the
repayment of any amounts borrowed under the Term
Loan Agreement, we granted to the Lenders a first priority security interest in
all of our assets, other than our intellectual property, provided that, for any
date during which the notes are outstanding, our unrestricted balance sheet
cash and cash equivalents plus the excess available under the Term Loan
Agreement are less than the product of six times the monthly cash burn amount.
In the event we fail to meet this financial condition, a curable lien will be
imposed on our intellectual property. Should such a lien event take place, the
lien would remain in force until such date that the Company’s
unrestricted cash and cash equivalents plus the excess available under the Term
Loan Agreement were equal to or greater than twelve times the monthly cash burn
amount. We also agreed not to pledge or otherwise encumber our intellectual
property assets. Additionally, we must seek the Lenders’ approval prior
to the payment of any cash dividends.
In connection with
entering into this agreement, we issued to the
Lenders warrants to purchase an aggregate of up to 39,773 shares of our common
stock. Each of the warrants is exercisable immediately, has a per-share
exercise price of $11.00 and has a term of 10 years. In addition, the
Lenders will have certain registration rights with respect to the shares of
common stock issuable upon exercise of the warrants. We estimated the aggregate
fair value of the warrants, using the Black-Scholes model, to be $389,000. We
allocated a portion of the proceeds from the Term Loan Agreement to the
warrants in accordance with ASC 470-20-25-2, Debt Instruments with Detachable
Warrants. As a result, we recorded a discount of $366,000 which is being
amortized to interest expense using the effective interest method. If
the Second Tranche is advanced to us, we will issue to the lenders
warrants to purchase an aggregate of up to 39,773 shares of our
common stock.
Working
Capital Revolver
Also on the Effective
Date, we and Silicon Valley Bank entered
into a Loan and Security Agreement (Working Capital Revolver), pursuant to
which we obtained a secured revolving line of credit from Silicon Valley Bank
with borrowing availability up to $20.0 million. The Company is
in discussions with the lenders to amend the terms of the Working
Capital Revolver to, among other things, extend its availability.
The
Working Capital Revolver provides for a working capital-based
revolving line of credit in an aggregate amount of up to the
lesser of (i) $20.0 million, or (ii) 85% of eligible domestic
accounts receivable. The Working Capital Revolver matures on October 31, 2013.
Amounts advanced
under the Working Capital Revolver bear interest at an
annual rate equal to Silicon Valley Bank’s prime rate plus 2.50% (with a
rate floor of 6.50%). Interest on the Working Capital Revolver is due monthly, with the
balance due at the maturity date. We paid to Silicon Valley Bank an upfront fee
of $100,000. In addition, if we terminate the Working Capital Revolver prior to maturity,
we will pay to Silicon Valley Bank a fee of $400,000 if the termination occurs
within one year after the Effective Date and a fee of $200,000 if the
termination occurs more than one year after the Effective Date (each a
Termination Fee), provided in each case that such Termination Fee will be
reduced by 50% in the event we are acquired.
To secure the
repayment of any amounts borrowed under the
Working Capital Revolver, we granted to Silicon Valley Bank a first priority
security interest in all of our assets, other than our intellectual property,
provided that, for any date during which the notes are outstanding, our
unrestricted balance sheet cash and cash equivalents plus the excess available
under the Term Loan Agreement are less than the product of six times the
monthly cash burn amount. In the event we fail to meet this financial
condition, a curable lien will be imposed on our intellectual property. Should
such a lien event take place, the lien would remain in force until such date
that our unrestricted cash and cash equivalents plus the excess available under
the Term Loan Agreement were equal to or greater than twelve times the monthly
cash burn amount. We also agreed not to pledge or otherwise encumber its
intellectual property assets. Additionally, we must seek Silicon Valley
Bank’s approval prior to the payment of any cash dividends.
The occurrence of an
event of default could result in the
acceleration of our obligations under the Working Capital Revolver and an
increase to the applicable interest rate, and would permit Silicon Valley Bank
to exercise remedies with respect to the collateral under the Revolving Loan Agreement.
22
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose
entities, that would have been established for the purpose of
facilitating off-balance sheet
arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other
contractually narrow or limited purposes. As such, we are not exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in those types of
relationships. We enter into guarantees in the ordinary course of business related to the
guarantee of our own performance.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board, or FASB, or other standard setting bodies that are adopted by us as of the
specified effective date. Unless otherwise discussed, we believe that the impact of recently
issued standards that are not yet effective will not have a material impact on our financial
position or results of operations upon adoption.
ITEM 3 Qualitative and Quantitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates. As of March 31,
2011, we had approximately $50.0 million in cash, cash
equivalents, and investments. Our primary exposure to market risk is interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates, particularly because our
investments are in short-term securities. Due to the short-term duration of our investment
portfolio and the low risk profile of our investments, an immediate 10% change in interest
rates would not have a material effect on the fair market value of our portfolio.
Accordingly, we would not expect our operating results or cash flows to be affected to any
significant degree by the effect of a sudden change in market interest rates on our
securities portfolio.
We contract for the conduct of some of our clinical trials and other research and
development activities with contract research organizations and investigational sites in the
U.S., Europe and India. We may be subject to exposure to fluctuations in foreign
exchange rates in connection with these agreements. We do not hedge our foreign currency
exposures. We have not used derivative financial instruments for speculation or trading
purposes.
ITEM 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic reports filed with the SEC is recorded,
processed and summarized and reported within the time periods specified in the rules and
forms of the SEC and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and no evaluation of
controls and procedures can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Our management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Under the
supervision and with the participation of the our management, including the Chief Executive
Officer and Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of March 31, 2011. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures are effective as of March 31, 2011, the end of the period covered by this
Quarterly Report on Form 10-Q, to ensure that the information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the
three months ended March 31, 2011 that
has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
23
PART II. OTHER INFORMATION
ITEM 1A Risk Factors
In our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 25, 2011, we identify under Item 1A important factors which could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Form 10-Q. There have been no material changes in our risk factors subsequent to the filing of our Form 10-K for the fiscal year ended December 31, 2010. However, the risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
On April 21, 2010, our Registration Statement on Form S-1 (File No. 333-162782) was
declared effective by the SEC for our IPO, pursuant to which we sold 6,550,000 shares of our
common stock at a public offering price of $11.00 per share. We received net proceeds of
approximately $66.1 million from this transaction, after deducting underwriting discounts,
commissions and other offering costs. On April 27, 2010 we paid $15.2 million to pSivida to
satisfy our $15.0 million note payable and accrued but unpaid interest thereon.
There have been no material changes in our use or planned use of proceeds from the IPO
from that described in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2010, filed with the SEC on June 7, 2010.
ITEM 6 Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification of the Principal Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of the Principal Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Certification of the Chief Executive Officer and Chief
Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on
Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Quarterly Report on Form 10-Q, irrespective of any general
incorporation language contained in such filing.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
Alimera Sciences, Inc.
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|
|
/s/ C. Daniel Myers
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|
|
C. Daniel Myers |
|
|
Chief Executive Officer and President
(Principal executive officer) |
|
May 9, 2011
|
|
|
|
|
|
/s/ Richard S. Eiswirth, Jr.
|
|
|
Richard S. Eiswirth, Jr. |
|
|
Chief Operating Officer and Chief Financial Officer
(Principal financial and accounting officer) |
|
May 9, 2011
25
ALIMERA SCIENCES, INC.
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification of the Principal Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of the Principal Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Certification of the Chief Executive Officer and Acting
Chief Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002. |
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on
Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Quarterly Report on Form 10-Q, irrespective of any general
incorporation language contained in such filing.
26