UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT
REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 22, 2014
Acorda Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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000-50513 |
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13-3831168 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(I.R.S. Employer
Identification No.) |
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420 Saw Mill River Road,
Ardsley, NY |
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10502 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (914) 347-4300
Not Applicable
Former
name or former address, if changed since last report
Check the appropriate box below
if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
INTRODUCTORY NOTE
As previously disclosed in its Current Report on Form 8-K filed by Acorda Therapeutics, Inc. (Acorda) with the Securities and
Exchange Commission on October 24, 2014 (the Form 8-K), on October 22, 2014, Acorda, a Delaware corporation, completed the merger (the Merger) of Five A Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Acorda (Merger Sub), with Civitas Therapeutics, Inc., a Delaware corporation (Civitas), in accordance with the Agreement and Plan of Merger, dated as of September 24, 2014 (the Merger
Agreement), by and among Acorda, Merger Sub, Civitas and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the securityholders representative. Pursuant to the terms of the Merger
Agreement, Merger Sub has merged with and into Civitas, which is the surviving corporation in the Merger and which is continuing as a wholly-owned subsidiary of Acorda under the Civitas name.
This Current Report on Form 8-K/A (the Form 8-K/A) amends the Form 8-K to include the financial statements of Civitas and the pro
forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K, respectively, and to include the exhibits under Item 9.01(d) of this Form 8-K/A.
ITEM 9.01. |
FINANCIAL STATEMENTS AND EXHIBITS |
(a) |
Financial Statements of Businesses Acquired. |
The audited Financial Statements of
Civitas as of and for each of the years ended December 31, 2013 and 2012, and for the period from June 17, 2009 (Inception) to December 31, 2013, are filed herewith as Exhibit 99.1 and are incorporated in this Item 9.01(a) by reference.
The unaudited Condensed Financial Statements of Civitas as of September 30, 2014 and December 31, 2013, for each of the
nine-month periods ended September 30, 2014 and 2013, and for the period from June 17, 2009 (Inception) to September 30, 2014, are filed herewith as Exhibit 99.2 and are incorporated in this Item 9.01(a) by reference.
(b) |
Pro Forma Financial Information. |
The Unaudited Pro Forma Condensed Combined
Balance Sheet as of September 30, 2014 and Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2013 and the nine month period ended September 30, 2014 and explanatory notes are filed
herewith as Exhibit 99.3 and are incorporated in this Item 9.01(b) by reference.
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Exhibit Number |
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Description |
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23.1 |
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Consent of Ernst & Young LLP Independent Registered Public Accounting Firm of Civitas Therapeutics, Inc. |
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99.1 |
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Audited Financial Statements of Civitas Therapeutics, Inc. as of and for each of the years ended December 31, 2013 and 2012 and for the period from June 17, 2009 (Inception) to December 31, 2013. |
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99.2 |
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Unaudited Condensed Financial Statements of Civitas Therapeutics, Inc. as of September 30, 2014 and December 31, 2013, for the nine-month periods ended September 30, 2014 and 2013 and for the period from June 17, 2009 (Inception) to
September 30, 2014. |
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99.3 |
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Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2014 and Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 and
explanatory notes. |
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
hereunto duly authorized.
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Acorda Therapeutics, Inc. |
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January 7, 2015 |
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By: |
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/s/ Michael Rogers |
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Name: |
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Michael Rogers |
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Title: |
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Chief Financial Officer |
EXHIBIT INDEX
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Exhibit Number |
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Description |
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23.1 |
|
Consent of Ernst & Young LLP Independent Registered Public Accounting Firm of Civitas Therapeutics, Inc. |
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99.1 |
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Audited Financial Statements of Civitas Therapeutics, Inc. as of and for each of the years ended December 31, 2013 and 2012 and for the period from June 17, 2009 (Inception) to December 31, 2013. |
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99.2 |
|
Unaudited Condensed Financial Statements of Civitas Therapeutics, Inc. as of September 30, 2014 and December 31, 2013, for the nine-month periods ended September 30, 2014 and 2013 and for the period from June 17, 2009 (Inception) to
September 30, 2014. |
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99.3 |
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Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2014 and Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 and
explanatory notes. |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
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(1) |
Registration Statement (Form S-3 Nos. 333-196803, 333-164312 and 333-152826) of Acorda Therapeutics, Inc., and |
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(2) |
Registration Statement (Form S-8 Nos. 333-194375, 333-164626, 333-158085, 333-131846, 333-149726, 333-174785, 333-179906, and 333-187091) of Acorda Therapeutics, Inc.; |
of our report dated May 12, 2014 (except Note 17(D), as to which the date is September 15, 2014) with respect to the financial statements of Civitas
Therapeutics, Inc., included in this Current Report on Form 8-K/A of Acorda Therapeutics, Inc. filed with the Securities and Exchange Commission.
Boston, Massachusetts
January 7, 2015
Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Civitas
Therapeutics, Inc.
We have audited the accompanying balance sheets of Civitas Therapeutics, Inc., (a development stage enterprise)
(the Company) as of December 31, 2012 and 2013, and the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders (deficit) equity and cash flows for each of the years then ended and
the period from June 17, 2009 (Inception) to December 31, 2013. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Civitas
Therapeutics, Inc. (a development stage enterprise) at December 31, 2012 and 2013, and the results of its operations and its cash flows for each of the years then ended and the period from June 17, 2009 (Inception) to December 31,
2013, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
May 12, 2014, except for Note 17(D)
as to which the date is September 15, 2014
1
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Balance sheets
(In
thousands, except share and per share data)
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December 31, |
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2012 |
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2013 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
13,539 |
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$ |
24,052 |
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Prepaid expenses and other current assets |
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390 |
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146 |
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Deferred tax asset |
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13 |
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Total current assets |
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13,942 |
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24,198 |
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Property and equipment, net |
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1,062 |
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2,487 |
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Restricted cash |
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1,012 |
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1,012 |
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Goodwill |
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550 |
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550 |
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Intangible assets, net |
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8,069 |
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7,876 |
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Total assets |
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$ |
24,635 |
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$ |
36,123 |
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Liabilities, redeemable convertible preferred stock and stockholders (deficit) equity |
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Current liabilities: |
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Accounts payable |
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$ |
944 |
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$ |
1,297 |
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Accrued liabilities and other |
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214 |
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2,046 |
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Current portion of deferred rent |
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52 |
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52 |
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Total current liabilities |
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1,210 |
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3,395 |
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Deferred rent |
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104 |
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52 |
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Contingent consideration |
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15,294 |
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20,549 |
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Deferred tax liability |
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81 |
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117 |
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Convertible notes |
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9,043 |
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Other long-term liabilities |
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750 |
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Total liabilities |
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25,732 |
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24,863 |
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Commitments and contingencies (Note 10) |
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Redeemable convertible preferred stock: |
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Series A Preferred Stock, $0.001 par value; 28,529,412 shares authorized, issued and outstanding at December 31, 2012 and 2013;
(aggregate liquidation preference of $34,229 at December 31, 2013) |
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31,733 |
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34,069 |
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Series B Preferred Stock, $0.001 par value; 7,270,000 and 28,825,492 shares authorized at December 31, 2012 and 2013,
respectively; no shares issued and outstanding at December 31, 2012 and 28,825,492 shares issued and outstanding at December 31, 2013; (aggregate liquidation preference of $41,713 at December 31, 2013) |
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41,543 |
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Stockholders (deficit) equity: |
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Common stock, $0.001 par value; 49,270,000 shares authorized at December 31, 2012 and 80,000,000 shares authorized at
December 31, 2013; 1,134,469 and 1,556,289 shares issued at December 31, 2012 and 2013, respectively; 967,524 and 1,389,344 shares outstanding at December 31, 2012 and 2013, respectively |
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1 |
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|
1 |
|
Deficit accumulated during the development stage |
|
|
(32,831 |
) |
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|
(64,353 |
) |
Treasury stock, at cost; 166,945 shares at December 31, 2012 and 2013 |
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Total stockholders (deficit) equity |
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(32,830 |
) |
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(64,352 |
) |
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Total liabilities, redeemable convertible preferred stock and stockholders (deficit) equity |
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$ |
24,635 |
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$ |
36,123 |
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|
See accompanying notes.
2
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Statements of operations and comprehensive loss
(In thousands, except share and per share data)
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Year ended December 31, |
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Period from June 17, 2009 (Inception) to December 31, |
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2012 |
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2013 |
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2013 |
|
Service revenue |
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$ |
535 |
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$ |
53 |
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$ |
1,043 |
|
Operating expenses: |
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Research and development |
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9,272 |
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|
15,526 |
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|
|
31,270 |
|
General and administrative |
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|
2,538 |
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|
4,812 |
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|
|
9,759 |
|
Re-measurement of contingent consideration |
|
|
4,998 |
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|
|
5,255 |
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|
|
14,476 |
|
Amortization of purchased intangible assets |
|
|
224 |
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|
|
193 |
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|
|
644 |
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|
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|
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|
|
|
|
|
|
|
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Total operating expenses |
|
|
17,032 |
|
|
|
25,786 |
|
|
|
56,149 |
|
Loss from operations |
|
|
(16,497 |
) |
|
|
(25,733 |
) |
|
|
(55,106 |
) |
Other income (expense), net: |
|
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|
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|
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Interest expense, net |
|
|
(56 |
) |
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|
(2,141 |
) |
|
|
(2,196 |
) |
Loss on extinguishment of convertible notes |
|
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|
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|
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(534 |
) |
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|
(534 |
) |
Other |
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6 |
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|
10 |
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16 |
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|
|
|
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|
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Other income (expense), net |
|
|
(50 |
) |
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|
(2,665 |
) |
|
|
(2,714 |
) |
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|
|
|
|
|
|
|
|
|
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Loss before provision for income taxes |
|
|
(16,547 |
) |
|
|
(28,398 |
) |
|
|
(57,820 |
) |
Provision for income taxes |
|
|
49 |
|
|
|
49 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss |
|
$ |
(16,596 |
) |
|
$ |
(28,447 |
) |
|
$ |
(57,937 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive loss |
|
$ |
(16,596 |
) |
|
$ |
(28,447 |
) |
|
$ |
(57,937 |
) |
|
|
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|
|
|
|
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|
Reconciliation of net loss to net loss applicable to common stockholders: |
|
|
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|
|
|
|
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Net loss |
|
$ |
(16,596 |
) |
|
$ |
(28,447 |
) |
|
$ |
(57,937 |
) |
Accretion and dividends on redeemable convertible preferred stock |
|
|
(2,386 |
) |
|
|
(3,420 |
) |
|
|
(7,040 |
) |
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|
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|
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Net loss attributable to common stockholdersbasic and diluted |
|
$ |
(18,982 |
) |
|
$ |
(31,867 |
) |
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$ |
(64,977 |
) |
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|
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Net loss per share applicable to common stockholdersbasic and diluted |
|
$ |
(22.84 |
) |
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$ |
(28.13 |
) |
|
$ |
(121.32 |
) |
Weighted-average number of common shares used in computing net loss per share applicable to common stockholdersbasic and
diluted |
|
|
831,025 |
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1,132,798 |
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535,590 |
|
See accompanying notes.
3
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Statements of redeemable convertible preferred stock and stockholders (deficit) equity
(In thousands, except share data)
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Series A redeemable convertible preferred stock |
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Series B redeemable convertible preferred stock |
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Common stock |
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Additional paid-in capital |
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Deficit accumulated during the development stage |
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Treasury stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Par Value |
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Shares |
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Amount |
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Total |
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Balance at Inception (June 17, 2009) |
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$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
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|
|
$ |
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|
|
$ |
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|
|
$ |
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|
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$ |
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|
|
$ |
|
|
Issuance of restricted stock (2010) |
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2 |
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2 |
|
Purchase of Company common stock (2010) |
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166,945 |
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|
|
|
|
|
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|
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $349(2010) |
|
|
11,764,706 |
|
|
|
11,415 |
|
|
|
|
|
|
|
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|
|
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|
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|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A preferred stock, net of issuance costs of $66(2011) |
|
|
16,764,706 |
|
|
|
16,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Exercise of stock options (2011) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,180 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
1 |
|
Vesting of restricted stock |
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|
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|
712,424 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
Accretion and dividends on redeemable convertible preferred stock |
|
|
|
|
|
|
1,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109 |
) |
|
|
(1,125 |
) |
|
|
|
|
|
|
|
|
|
|
(1,234 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,894 |
) |
|
|
|
|
|
|
|
|
|
|
(12,894 |
) |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011 |
|
|
28,529,412 |
|
|
$ |
29,347 |
|
|
|
|
|
|
$ |
|
|
|
|
713,604 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
(14,019 |
) |
|
|
166,945 |
|
|
$ |
|
|
|
$ |
(14,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and dividends on redeemable convertible preferred stock |
|
|
|
|
|
|
2,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170 |
) |
|
|
(2,216 |
) |
|
|
|
|
|
|
|
|
|
|
(2,386 |
) |
Vesting of restricted common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,596 |
) |
|
|
|
|
|
|
|
|
|
|
(16,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
28,529,412 |
|
|
$ |
31,733 |
|
|
|
|
|
|
$ |
|
|
|
|
967,524 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
(32,831 |
) |
|
|
166,945 |
|
|
$ |
|
|
|
$ |
(32,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B redeemable convertible preferred stock, net of issuance costs of $185 (includes conversion of debt) |
|
|
|
|
|
|
|
|
|
|
28,825,492 |
|
|
|
40,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and dividends on redeemable convertible preferred stock |
|
|
|
|
|
|
2,336 |
|
|
|
|
|
|
|
1,084 |
|
|
|
|
|
|
|
|
|
|
|
(345 |
) |
|
|
(3,075 |
) |
|
|
|
|
|
|
|
|
|
|
(3,420 |
) |
Vesting of restricted common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330 |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,318 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,447 |
) |
|
|
|
|
|
|
|
|
|
|
(28,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
28,529,412 |
|
|
$ |
34,069 |
|
|
|
28,825,492 |
|
|
$ |
41,543 |
|
|
|
1,389,344 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
(64,353 |
) |
|
|
166,945 |
|
|
$ |
|
|
|
$ |
(64,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Statements of cash flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from June 17, 2009
(Inception) to
December 31, |
|
|
|
Year ended December 31, |
|
|
|
|
2012 |
|
|
2013 |
|
|
2013 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(16,596 |
) |
|
$ |
(28,447 |
) |
|
$ |
(57,937 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
687 |
|
|
|
764 |
|
|
|
1,993 |
|
Share-based compensation expense |
|
|
170 |
|
|
|
330 |
|
|
|
607 |
|
Re-measurement of contingent consideration |
|
|
4,998 |
|
|
|
5,255 |
|
|
|
14,476 |
|
Non-cash interest expense |
|
|
57 |
|
|
|
2,143 |
|
|
|
2,200 |
|
Loss on extinguishment of convertible notes |
|
|
|
|
|
|
534 |
|
|
|
534 |
|
Gain on disposal of equipment |
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
Deferred rent |
|
|
(52 |
) |
|
|
(52 |
) |
|
|
24 |
|
Deferred taxes |
|
|
49 |
|
|
|
49 |
|
|
|
117 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
(1,012 |
) |
Prepaid expenses and other current assets |
|
|
(348 |
) |
|
|
238 |
|
|
|
(146 |
) |
Accounts payable and accrued expenses |
|
|
569 |
|
|
|
1,860 |
|
|
|
2,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(10,472 |
) |
|
|
(17,326 |
) |
|
|
(36,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
|
|
|
|
6 |
|
|
|
6 |
|
Purchases of property and equipment |
|
|
(366 |
) |
|
|
(1,671 |
) |
|
|
(2,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(366 |
) |
|
|
(1,665 |
) |
|
|
(2,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock, net |
|
|
|
|
|
|
28,739 |
|
|
|
53,322 |
|
Proceeds from convertible notes, net |
|
|
8,986 |
|
|
|
|
|
|
|
8,986 |
|
Proceeds from issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
2 |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
15 |
|
|
|
16 |
|
Proceeds from other material financing arrangements |
|
|
|
|
|
|
750 |
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
8,986 |
|
|
|
29,504 |
|
|
|
63,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(1,852 |
) |
|
|
10,513 |
|
|
|
24,052 |
|
Cash and cash equivalents at beginning of period |
|
|
15,391 |
|
|
|
13,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
13,539 |
|
|
$ |
24,052 |
|
|
$ |
24,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment additions included in accounts payable and accrued expenses |
|
$ |
43 |
|
|
$ |
368 |
|
|
$ |
368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A Preferred Stock as consideration for acquisition |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes for Series B Preferred Stock |
|
$ |
|
|
|
$ |
9,000 |
|
|
$ |
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and dividends on redeemable convertible preferred stock |
|
$ |
2,386 |
|
|
$ |
3,420 |
|
|
$ |
7,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
5
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. Nature of business
Civitas
Therapeutics, Inc. (the Company) was incorporated on June 17, 2009 as a Delaware corporation with operations based in Chelsea, Massachusetts. The Company is a clinical stage biopharmaceutical company dedicated to developing inhaled therapies
using the ARCUS® therapeutic technology. The first product candidate using the ARCUS® technology, CVT-301, is focused on treating OFF
episodes in patients with Parkinsons disease.
Liquidity
For the year ended December 31, 2013, the Company incurred a net loss of $28,447, and has a deficit accumulated during the development
stage of $64,352 as of December 31, 2013. On September 3, 2013, the Company completed a Series B redeemable convertible preferred stock (Series B Preferred Stock) financing in which it issued 28,825,492 shares of Series B Preferred Stock
at $1.41 per share, which included the conversion of outstanding convertible notes into 8,311,862 shares of Series B Preferred Stock, for net proceeds of $28,739.
The Company believes that its cash resources at December 31, 2013, together with the proceeds available from the closing of a Loan and
Security Agreement in March 2014 (Note 17), will be sufficient to allow the Company to fund its current business plan and continue as a going concern through at least January 1, 2015. While the Companys current business plan does not
require additional financing prior to January 1, 2015, if the Company is unable to meet its business plan, additional financing will be required to support its planned expenditures. There can be no assurances, however, that the business plan
will be achieved or that additional resources, if necessary, will be available on terms acceptable to the Company, or at all. Thereafter, the Company will be required to obtain additional funding in order to continue to fund its operations and
intends to pursue a public offering of its common stock to fund future operations. However, if the Company is unable to complete a sufficient public offering in a timely manner it would need to pursue other financing alternatives, such as private
financing of debt or equity or collaboration agreements. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, or at all.
The Company is subject to a number of risks similar to other companies in the industry, including rapid technological change, uncertainty in
regulatory approval of product candidates, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, interruptions at the Companys manufacturing facility,
protection of proprietary technology, dependence on third parties and dependence on key individuals.
Since inception, the Company has
devoted substantially all of its efforts to research and development, business planning, recruiting management and staff, and raising capital. The Company has not recognized any revenue from its planned principal operations and, as a result, is
considered to be in the development stage.
2. Summary of significant accounting policies
Basis of presentation
The accompanying
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States
generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
Use of estimates
The preparation of the
Companys financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from such estimates. The Company utilizes certain estimates in the determination of the fair value of its common stock, share-based compensation, valuation of goodwill, intangible assets, derivatives, and
6
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
contingent consideration and to record expenses relating to research and development contracts. These contract estimates, which are primarily related to the length of service and stage of each
contract, are determined by the Company based on input from internal project management, as well as from third-party service providers.
Cash and cash
equivalents
Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase.
Segment information
Operating segments
are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and
assess performance. The Company views its operations and manages its business in one operating segment. All material long-lived assets of the Company reside in the United States. All revenue recognized was earned in the United States.
Restricted cash
Restricted cash
represents cash deposits held in connection with obligations under facility leases or other operating agreements. Amounts are reported as non-current unless restrictions are expected to be released in the next twelve months.
Concentrations of credit risk
Cash and
cash equivalents are financial instruments that potentially subject the Company to concentrations of credit risk. At December 31, 2012 and 2013, substantially all of the Companys cash was deposited in accounts at one financial
institution. The Company maintains its cash, which at times may exceed the federally insured limits, with a large financial institution and, accordingly, the Company believes such funds are subject to minimal credit risk. The Company has no
significant off-balance sheet risks, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
Fair value of
financial instruments
The Company accounts for certain of its financial assets and liabilities and non-financial assets and non-
financial liabilities at fair value. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The three-tier hierarchy prioritizes valuation inputs into
three levels based on the extent to which inputs used in measuring fair value are observable in the market.
Fair value measurements are
classified and disclosed in one of the following three categories:
|
|
|
Level 1Quoted unadjusted prices for identical instruments in active markets. |
|
|
|
Level 2Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and
significant value-drivers are observable in active markets. |
|
|
|
Level 3Model derived valuations in which one or more significant inputs or significant value-drivers are unobservable, including assumptions developed by the Company. |
Property and equipment
Property and
equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful life of the Companys assets are periodically reviewed for reasonableness. Changes in useful lives are
accounted for prospectively. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. The estimated useful lives of property and equipment are as follows:
|
|
|
|
|
Estimated useful life (years) |
Manufacturing equipment |
|
3 |
Office and computer equipment |
|
3 to 5 |
Furniture |
|
5 |
Leasehold improvements |
|
Shorter of useful life or remaining lease term |
7
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Construction in-process is stated at cost, which includes the cost of construction and other
direct costs attributable to the recommissioning of the Companys large-scale equipment and manufacturing facility. No depreciation expense is made on construction-in-process until such time as the relevant assets are completed and put into
use.
Business acquisitions
On
December 27, 2010, the Company entered into the Asset Purchase and License Agreement (the Alkermes Agreement) with Alkermes, Inc. (Alkermes) in which the Company licensed or acquired from Alkermes certain pulmonary development programs and
investigational new drug applications (INDs), underlying intellectual property and laboratory equipment associated with the pulmonary business of Alkermes. The Companys financial statements include the operations of this acquired business
after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed be recognized at
their estimated fair values as of the acquisition date, with limited exceptions, and that the fair value of acquired in-process research and development (IPR&D) be recorded on the balance sheet. Also, transaction costs are expensed as incurred.
Any excess of the acquisition consideration over the assigned values of the net assets acquired is recorded as goodwill. Contingent consideration is included within the acquisition cost and is recognized at its fair value on the acquisition date. A
liability resulting from contingent consideration is re- measured to fair value at each reporting date until the contingency is resolved and changes in fair value are recognized in earnings. The contingent consideration is based upon the fair value
of future royalties on net product sales from products developed from licensed technology under the Alkermes Agreement.
Valuation of contingent
purchase price consideration
Acquisitions may include contingent consideration payments based on the achievement of certain future
development and financial performance measures. The Company estimates the fair value of the contingent consideration based on revenue projections and estimated probabilities of achievement. The Company believes that its estimates and assumptions are
reasonable; however, there is significant judgment involved. The Company evaluates, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value
estimate at the time of the acquisition, are reflected in income or expense in the statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the
timing and forecasted levels of sales and changes in probability assumptions with respect to the likelihood of achieving the measures. Any changes in the estimated fair value of contingent consideration may have a material impact on the
Companys operating results.
Goodwill
Goodwill represents the excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed. The Company
operates in a single reporting unit. The annual test for goodwill impairment is a multiple step process. The first step is a qualitative assessment of operational and financial information to determine if it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If so, a two-step process begins with a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If this step indicates impairment, then in the
second step, the loss is measured as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities. The Company
tests goodwill for impairment annually on October 1st, or when events or circumstances indicate that the fair value may be below the carrying value of the asset. The Company has not recorded any impairments during the years ended
December 31, 2012 or 2013 or the period from June 17, 2009 (Inception) to December 31, 2013.
8
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Intangible assets
Intangible assets with finite useful lives consist primarily of purchased developed technology and are amortized on a straight-line basis over
their estimated useful lives, which range from 18 to 19 years. The estimated useful lives associated with finite-lived intangible assets are consistent with the estimated lives of the associated patents and may be modified when circumstances
warrant. Changes in useful life are accounted for prospectively.
Intangible assets with finite lives are reviewed for impairment when
events or circumstances indicate that the carrying value of an asset may not be recoverable. If the asset becomes impaired, the carrying amount of the related intangible asset is written down to its fair value and an impairment charge would be
recognized in the period in which estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference
between the carrying value and the fair value of the impaired asset. The Company has not recorded any impairments during the years ending December 31, 2012 or 2013 or the period from June 17, 2009 (Inception) to December 31, 2013.
The fair value of IPR&D acquired through a business combination is capitalized as an indefinite-lived intangible asset until the
completion or abandonment of the related research and development activities. IPR&D is not amortized, but is tested for impairment annually on October 1st, or when events or circumstances indicate that the fair value may be below the
carrying value of the asset. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets would become finite-lived and would then be amortized over their estimated
useful lives.
Research and development costs
Costs incurred in the research and development of the Companys product candidates are expensed as incurred. Research and development
expenses consist of costs incurred in performing research and development activities and include salaries and benefits, preclinical and clinical activities, manufacturing development, scale- up and research-related facility and overhead costs,
laboratory supplies and equipment and other contract services. Payments made in advance of services incurred are recorded as prepaid expense.
Revenue
The Company has primarily generated service revenue from research and development grant programs and contracted manufacturing
activities.
The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Accordingly, revenue is recognized
when all of the following criteria are met:
|
|
|
Persuasive evidence of an arrangement exists |
|
|
|
Delivery has occurred or services have been rendered |
|
|
|
The sellers price to the buyer is fixed or determinable |
|
|
|
Collectability is reasonably assured |
Amounts received prior to satisfying the revenue
recognition criteria are recorded as deferred revenue in the Companys balance sheets. Amounts expected to be recognized as revenue within the twelve months following the balance sheet date are classified as deferred revenue, current portion.
Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as deferred revenue, net of current portion.
9
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Service revenue
The Company generates service revenue through agreements with a non-profit entity, which is recognized using the proportional performance
method. The Company also has performed contract manufacturing services for pharmaceutical and biotechnology companies and recognizes revenue under such arrangements upon completion of performance.
Funded research and development
The
Company evaluates grants received for the performance of research and development services to assess whether the amounts received should be accounted for as a financing arrangement. The Company considers whether it is obligated to repay any funds
received from such parties regardless of the ultimate success of the research and development. In circumstances in which the financial risk has not been transferred to the funding party, the Company accounts for such funds received as a liability.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Companys comprehensive loss equals reported net loss for all periods presented.
Share-based
compensation
The Company records share-based compensation for options granted to employees based on the grant date fair value of
awards issued, and the expense is recorded on a straight-line basis over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the fair value of stock
options on the date of grant using an option-pricing model is affected by the Companys common stock price, as well as a number of other subjective variables.
The Company accounts for share-based compensation arrangements with non-employees based upon the fair value of the consideration received or
the equity instruments issued, whichever is more reliably measurable. The measurement date for non-employee awards is generally the date performance of services required from the non-employee is complete, resulting in periodic adjustments to
share-based compensation during the vesting period for changes in the fair value of the awards. Share-based compensation costs for non-employee service awards are recognized as services are provided, which is generally the vesting period, on a
straight-line basis. The unvested portion of the awards are subject to re-measurement over the vesting period.
Net loss per share
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period,
determined using the treasury stock method and the if-converted method, for convertible securities, if inclusion of these is dilutive.
Income taxes
The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
Companys financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to
reduce the deferred tax assets to the amount that will more likely than not be realized.
The Company applies ASC 740, Income Taxes,
in accounting for uncertainty in income taxes. The Company does not have any material uncertain tax positions for which reserves would be required. The Company will recognize interest and penalties related to uncertain tax positions, if any, in
income tax expense.
10
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
3. Restricted cash
At December 31, 2012 and 2013, the Company had $1,000 of restricted cash in the form of a letter of credit on behalf of Alkermes. The bank
requires that the Company maintain this deposit as collateral for the letter of credit, which serves as the security deposit on the lease of the Companys facility in Chelsea, Massachusetts. The remaining amounts were deposits for various
operating activity agreements for corporate matters.
4. Fair value of financial instruments
For financial instruments, including cash, restricted cash, accounts payable and accrued expenses, the carrying amount approximates fair value
due to their short-term nature.
A financial instruments level within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. During the twelve months ended December 31, 2012 and 2013, there was no reclassification in financial assets or liabilities between Level 1, 2 or 3 categories.
The following tables set forth by level, within the fair value hierarchy, the Companys assets and liabilities as of December 31,
2012 and 2013 that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
Quoted prices in active markets for identical assets (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13,539 |
|
|
$ |
13,539 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,539 |
|
|
$ |
13,539 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitionrelated contingent consideration |
|
$ |
15,294 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,294 |
|
Convertible notes derivative liability |
|
|
1,668 |
|
|
|
|
|
|
|
|
|
|
|
1,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,962 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
Quoted prices in active markets for identical assets (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,052 |
|
|
$ |
24,052 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,052 |
|
|
$ |
24,052 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitionrelated contingent consideration |
|
$ |
20,549 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,549 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation technique used to measure the fair value of the contingent consideration is based on a
probability-weighted discounted cash flow model. This method estimates the fair value of the liability based on the present value of its future economic costs and is predicated upon estimates of future net sales of the Companys products that
would result in royalties owed to Alkermes (Note 12). Significant assumptions incorporated within the estimates of future net sales include the estimated usage of the Companys products, the estimated selling prices of the Companys
products, and the discount rate to be applied over the royalty periods.
11
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The Company entered into a convertible note financing (Note 11) that was deemed to include an
embedded derivative related to the conversion option within the convertible notes. The embedded derivative was required to be bifurcated from the host instrument because the derivative was not clearly and closely related to the host instrument. The
Company determined the fair value of its embedded derivative on the date of issuance and at the end of each reporting period. The Company classified the embedded derivative with its convertible notes within the balance sheet and changes in the fair
market value are included in interest expense. The valuation technique used to measure the convertible notes derivative liability was a probability-weighted discounted cash flow model predicated upon the estimated probability of the Company
completing its next Qualified Financing, as defined in the Note Purchase Agreement for the convertible notes, subsequent to the issuance of the convertible notes.
Each of these liabilities will be re-measured at each reporting period until settlement.
Level 3 changes:
The following is
a reconciliation of the beginning and ending balances for the contingent consideration measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods ending December 31, 2012 and 2013:
|
|
|
|
|
Balances at December 31, 2011 |
|
$ |
10,296 |
|
Change in fair value of contingent consideration |
|
|
4,998 |
|
|
|
|
|
|
Balances at December 31, 2012 |
|
|
15,294 |
|
Change in fair value of contingent consideration |
|
|
5,255 |
|
|
|
|
|
|
Balances at December 31, 2013 |
|
$ |
20,549 |
|
|
|
|
|
|
The following is a reconciliation of the beginning and ending balances for the convertible notes derivative
liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods ending December 31, 2012 and 2013:
|
|
|
|
|
Balances at December 31, 2011 |
|
$ |
|
|
Issuance of convertible notes with embedded derivative at fair value of the derivative liability |
|
|
1,630 |
|
Change in fair value of derivative liability |
|
|
38 |
|
|
|
|
|
|
Balances at December 31, 2012 |
|
|
1,668 |
|
Change in fair value of derivative liability |
|
|
682 |
|
Settlement of the derivative liability |
|
|
(2,350 |
) |
|
|
|
|
|
Balances at December 31, 2013 |
|
$ |
|
|
|
|
|
|
|
During the year ended December 31, 2013, the Company did not change any of the valuation techniques used
to measure its liabilities at fair value.
12
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
5. Property and equipment
Property and equipment consists of the following as of December 31, 2012 and 2013:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2012 |
|
|
2013 |
|
Manufacturing equipment |
|
$ |
948 |
|
|
$ |
1,177 |
|
Office and computer equipment |
|
|
138 |
|
|
|
242 |
|
Furniture |
|
|
25 |
|
|
|
26 |
|
Leasehold improvements |
|
|
729 |
|
|
|
734 |
|
Construction in-process |
|
|
|
|
|
|
1,657 |
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
1,840 |
|
|
|
3,836 |
|
Accumulated depreciation |
|
|
(778 |
) |
|
|
(1,349 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
1,062 |
|
|
$ |
2,487 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $463, $571 and $1,349 for the years ended December 31, 2012 and 2013 and for the
period from June 17, 2009 (Inception) to December 31, 2013, respectively.
6. Intangible assets and goodwill
Intangible assets related to acquired developed and in-process technologies reflect the estimated fair value of the rights acquired through the
Alkermes Agreement (Note 12). Acquired developed technologies are finite- lived intangible assets and are being amortized over their estimated lives ranging from 18 to 19 years.
The excess of the total acquisition consideration over the fair value amounts assigned to the assets acquired and the liabilities assumed
represents the goodwill amount resulting from the acquisition. There have been no changes in the carrying amount of goodwill since the acquisition.
The gross carrying amounts and net book values of our intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Accumulated amortization |
|
|
Net book value |
|
As of December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
ARCUS PlatformDevice IO |
|
$ |
2,430 |
|
|
$ |
(272 |
) |
|
$ |
2,158 |
|
ARCUS platformFormulation IP |
|
|
1,160 |
|
|
|
(179 |
) |
|
|
981 |
|
CVT301 Project (indefinite-lived) |
|
|
4,930 |
|
|
|
|
|
|
|
4,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,520 |
|
|
$ |
(451 |
) |
|
$ |
8,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
ARCUS PlatformDevice IO |
|
$ |
2,430 |
|
|
$ |
(407 |
) |
|
$ |
2,023 |
|
ARCUS platformFormulation IP |
|
|
1,160 |
|
|
|
(237 |
) |
|
|
923 |
|
CVT301 Project (indefinite-lived) |
|
|
4,930 |
|
|
|
|
|
|
|
4,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,520 |
|
|
$ |
(644 |
) |
|
$ |
7,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization was $224, $193 and $644 for the years ended December 31, 2012 and 2013 and for the period
from June 17, 2009 (Inception) to December 31, 2013, respectively.
13
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
As of December 31, 2013, future estimated amortization expense is as follows:
|
|
|
|
|
|
|
Future amortization expense |
|
Year ending December 31, |
|
|
|
|
2014 |
|
$ |
193 |
|
2015 |
|
|
193 |
|
2016 |
|
|
193 |
|
2017 |
|
|
193 |
|
2018 |
|
|
193 |
|
2019 and thereafter |
|
|
1,981 |
|
|
|
|
|
|
|
|
$ |
2,946 |
|
|
|
|
|
|
7. Accrued expenses
The components of accrued expenses as of December 31, 2012 and 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2012 |
|
|
2013 |
|
Research and development expenses |
|
$ |
|
|
|
$ |
1,203 |
|
Employee vacation |
|
|
97 |
|
|
|
177 |
|
Severance |
|
|
|
|
|
|
334 |
|
Bonus |
|
|
|
|
|
|
148 |
|
Other |
|
|
117 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
214 |
|
|
$ |
2,046 |
|
|
|
|
|
|
|
|
|
|
On June 17, 2013, the Company amended and restated the employment agreement with Mr. Glenn
Batchelder, former Chief Executive Officer (CEO), to include several additions to Mr. Batchelders compensation package. As part of these additions, Mr. Batchelder earned a special bonus calculated as $54 upon the occurrence of the
Series B Preferred Stock financing on September 3, 2013 (Note 8) and a retention bonus of $94 for remaining employed with the Company until the occurrence of the financing. In addition, the restated agreement added termination benefits,
including nine months continued salary after termination and reimbursement of certain of Mr. Batchelders costs for eighteen months after termination. In the fourth quarter of 2013, the Company deemed it probable that the termination costs
would be paid to Mr. Batchelder. All compensation, bonus, and severance costs associated with the restated employment agreement were expensed and accrued at December 31, 2013.
8. Stockholders (deficit) equity
Common stock
Each share of common stock is entitled to one vote. The holders of record of the shares of common stock, exclusively and as a separate
class, shall be entitled to elect one director of the Company. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of
holders of all classes of stock outstanding. On December 22, 2010, the Company executed a stock split of 3.526945 shares issued for every 1 common share issued (with no fractional shares issued). All share numbers listed as issued prior to this
date have been adjusted to reflect the number of shares issued post the stock split.
14
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The Company executed a one-for-4.237 reverse stock split of its issued and outstanding common
stock on September 12, 2014. All share and per share amounts related to issued and outstanding common stock and outstanding options exercisable for common stock included in these financial statements and notes to the these financial statements
have been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to deficit accumulated during the development stage.
Restricted common stock
At various dates
in 2009 and 2010, the Company issued an aggregate of 1,746,958 shares of restricted common stock to its employee and non-employee founders at a fair value of $0.04 per share, which represented the fair value of the Companys common stock as
determined by management and the Board of Directors on the dates of issuance.
These awards of restricted common stock were not made under
the 2010 Stock Incentive Plan, but are subject to transfer restrictions and are subject to repurchase by the Company and, therefore, not accounted for as outstanding until they vest. On December 22, 2010, the Company repurchased 166,945
non-vested shares from one of its founders at cost. These shares are classified as treasury stock as of December 31, 2012 and 2013.
The following is a summary of restricted common stock activity outside of the 2010 Stock Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Weighted- average grant date fair value |
|
Non-vested shares at December 31, 2012 |
|
|
613,669 |
|
|
$ |
0.04 |
|
Issued |
|
|
|
|
|
|
|
|
Vested |
|
|
(369,502 |
) |
|
$ |
0.04 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares at December 31, 2013 |
|
|
244,167 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vested was $357, $609 and $1,337 for the years ended December 31, 2012 and
2013 and for the period from June 17, 2009 (Inception) to December 31, 2013, respectively.
Redeemable convertible preferred stock
Redeemable convertible preferred stock consisted of the following as of December 31, 2012 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date |
|
|
Preferred shares issued and outstanding |
|
|
Carrying value December 31, 2012 |
|
|
Carrying value December 31, 2013 |
|
Series A |
|
|
December 27, 2010 |
|
|
|
11,764,706 |
|
|
$ |
13,485 |
|
|
$ |
14,470 |
|
|
|
|
April 15, 2011 |
|
|
|
2,500,000 |
|
|
|
2,812 |
|
|
|
3,019 |
|
|
|
|
December 20, 2011 |
|
|
|
14,264,706 |
|
|
|
15,436 |
|
|
|
16,580 |
|
Series B |
|
|
September 3, 2013 |
|
|
|
28,825,492 |
|
|
|
|
|
|
|
41,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
57,354,904 |
|
|
$ |
31,733 |
|
|
$ |
75,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 27, 2010, the Company completed a Series A redeemable convertible preferred stock (Series A
Preferred Stock) financing and issued 11,764,706 shares of Series A Preferred Stock at $1 per share, for gross proceeds of approximately $11,764.
On April 15, 2011, the Company completed a second closing of the Series A Preferred Stock financing and issued 2,500,000 shares of Series
A Preferred Stock at $1 per share, for gross proceeds of approximately $2,500 from a new investor.
15
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The Series A Preferred Stock purchase investors also agreed to purchase up to an additional
14,264,706 shares of Series A Preferred Stock in one subsequent closing, at a fixed price of $1 per share, subject to the Companys attainment of certain milestones. The Company concluded that the forward purchase contract was an embedded
feature that was not legally detachable and did not require separate accounting treatment. The milestones were met and the final tranche was closed on December 20, 2011 where the then current investors purchased 14,264,706 shares of Series A
Preferred Stock at $1 per share, for gross proceeds of approximately $14,264.
On September 3, 2013, the Company completed a Series B
Preferred Stock financing and issued 28,825,492 shares of Series B Preferred Stock at $1.41 per share. Of the 28,825,492 shares issued, 20,513,630 shares were sold for proceeds of $28,924, while 8,311,862 shares were issued at a value of $11,720 as
a result of the conversion of the convertible notes plus accrued interest (Note 11).
The Company assessed all terms and features of the
Preferred Stock in order to identify any potential embedded features that would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessed the economic characteristics and risks of its Preferred Stock,
including conversion and liquidation features, as well as dividend and voting rights. Based on the Companys determination that its Preferred Stock is an equity host, the Company determined that all features of the Preferred Stock
are most clearly and closely associated with an equity host, and, although the Preferred Stock includes conversion features, such conversion features do not require bifurcation as a derivative liability.
The Series A Preferred Stock and Series B Preferred Stock, herein referred to as Preferred Stock, have the following rights and preferences:
Voting
Preferred
stockholders are entitled to a number of votes equal to the number of whole shares of common stock into which the Preferred Stock is convertible on the date of record. Holders of the Preferred Stock shall vote together with the holders of common
stock as a single class, except for the election of the Board of Directors. For such election, the preferred stockholders shall vote exclusively as a separate class to elect six directors. Any remaining director(s) of the Company shall be elected by
the holders of common stock and the preferred stockholders voting as a single class.
The approval of 68% of the outstanding shares of
Preferred Stock is required for certain events that may impact the rights and preferences of the preferred stock, including to liquidate, wind up or dissolve the business, increase or decrease the number of shares of preferred or common stock to be
issued, amend any provision of the certificate of incorporation, purchase or redeem or pay or declare dividends on shares of capital stock, authorize any debt security exceeding $1,000 or adopt or amend equity-based compensation plans.
Dividends
Dividends accrue on
Preferred Stock from and after the date of issuance at a rate of $0.08 and $0.1128 per annum per share of Series A and Series B Stock, respectively, whether or not declared by the Companys Board of Directors and are cumulative. Such dividends
shall be payable only when, as, and if declared by the Companys Board of Directors. For the period from June 17, 2009 (Inception) to December 31, 2013, no dividends have been declared or paid.
Liquidation preference
In the
event of any liquidation, dissolution, or winding up of the affairs of the Company, the holders of the then-outstanding Preferred Stock shall receive distribution, before any payment shall be made to the holders of common stock, the greater of
(1) Original Issue Price, which is $1 per share for Series A Preferred Stock and $1.41 per share for Series B Preferred Stock, plus any accrued, but unpaid, dividends whether or not declared, or (2) such amount per share of Preferred Stock
payable as if converted into common stock. After the payment of any preferential amount to the preferred stockholders, any remaining assets of the Company shall be distributed ratably among the holders of common stock. If the assets to be
16
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
distributed to the holders of the Preferred Stock are insufficient to permit the payment to such holders of their full preferential amount, the assets legally available for distribution shall be
distributed first to the Series B Preferred Stock holders and then the remaining funds shall be distributed to the Series A Preferred Stock holders.
Conversion
Each share of
Preferred Stock, at the option of the holder, is convertible into a number of fully paid shares of common stock as determined by dividing the initial Conversion Price, which is $1 per share for Series A Preferred Stock and $1.41 per share for Series
B Preferred Stock, by the conversion price in effect at the time of conversion. The initial Conversion Price of the Preferred Stock is subject to adjustment upon the occurrence of certain events, such as stock splits and stock dividends. Conversion
is mandatory upon the closing of a firm-commitment underwritten public offering in which the public offering price equals or exceeds $4.23 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or
other similar recapitalization with respect to the common stock) and the gross proceeds are not less than $50,000 or at the date and time or the occurrence of an event specified by vote or written consent of the holders of at least 68% of the
then-outstanding shares of Preferred Stock.
Redemption
Upon delivery of notice in writing on or after September 3, 2017 by the holders of at least 68% of the then outstanding Preferred Stock
voting together as a single class and not as separate series, and on an as-converted basis, requesting all shares of Preferred Stock be redeemed, the Company will be required to redeem each share of Preferred Stock. The redemption price shall be
equal to the applicable Original Issue Price per share plus accrued but unpaid dividends on such shares, whether or not declared or such amount per share of Preferred Stock payable as if converted into common stock.
Stock incentive plan
The Companys
2010 Stock Incentive Plan (2010 Plan) provides for the issuance of a total of 2,159,539 shares of common stock in the form of incentive stock options, non-qualified stock options, restricted stock, restricted stock units and other stock-based awards
to directors, officers, employees, advisors and consultants of the Company as of December 31, 2013.
Generally, stock options are
granted at not less than fair value as determined by the Board of Directors, expire no later than ten years from the date of grant, and vest over various periods not exceeding four years. At December 31, 2013, 60,826 shares were available for
future grant under the 2010 Plan.
The following is a summary of activity under the 2010 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Weighted- average exercise price per share |
|
|
Weighted- average remaining contractual term (in years) |
|
|
Aggregate intrinsic value |
|
Outstanding at December 31, 2012 |
|
|
617,053 |
|
|
$ |
1.04 |
|
|
|
9.1 |
|
|
$ |
300 |
|
Granted |
|
|
1,480,479 |
|
|
$ |
1.69 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(52,318 |
) |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
2,045,214 |
|
|
$ |
1.55 |
|
|
|
9.3 |
|
|
$ |
1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2013 |
|
|
381,201 |
|
|
$ |
1.22 |
|
|
|
8.5 |
|
|
$ |
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2013 |
|
|
1,872,453 |
|
|
$ |
1.53 |
|
|
|
9.3 |
|
|
$ |
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The fair values of options granted to employees and non-employees in 2012 and 2013 were
calculated using the following estimated weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2012 |
|
|
2013 |
|
Risk-free interest rate |
|
|
1.07 |
% |
|
|
1.79 |
% |
Expected dividend yield |
|
|
|
% |
|
|
|
% |
Expected volatility |
|
|
65 |
% |
|
|
69 |
% |
Expected term (years) |
|
|
6.4 |
|
|
|
6.4 |
|
The weighted average grant date fair value of options granted during the years ended December 31, 2012
and 2013 and for the period from June 17, 2009 (Inception) to December 31, 2013 was $0.84, $1.08 and $0.94 per share, respectively.
The expected term utilized in the Black-Scholes option-pricing model for employees was determined according to the simplified method which
reflects the average of the vesting tranche dates and the contractual term. For non-employee options the contractual term was utilized for expected term. As there has been no public market for the Companys common stock, the Company has
determined the volatility for options granted based on an analysis of reported data for a representative group of companies that issued options with substantially similar terms. The risk-free rate is determined by reference to U.S. Treasury
zero-coupon issues with remaining maturities consistent with the expected term of the options. The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to
be zero. The Company estimates forfeitures at the time of grant and revises the estimates in subsequent periods if actual forfeitures differ from the estimates.
The following table summarizes the share-based compensation expense for stock options and restricted common stock granted to employees and
non-employees that was recorded in the Companys statements of operations for the years ended December 31, 2012 and 2013 and for the period from June 17, 2009 (Inception) to December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Period from June 17, 2009 (Inception) to December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2013 |
|
Research and development |
|
$ |
127 |
|
|
$ |
167 |
|
|
$ |
389 |
|
General and administrative |
|
|
43 |
|
|
|
163 |
|
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
170 |
|
|
$ |
330 |
|
|
$ |
607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013, there was $1,623 of total unrecognized compensation cost related to non- vested
equity awards. Total unrecognized compensation cost will be adjusted for future changes in forfeitures, if any. The Company expects to recognize that cost over a remaining weighted-average period of 3.0 years.
The total intrinsic value of options exercised during the year ended December 31, 2013 and the period from June 17, 2009 (Inception)
to December 31, 2013 was $75 and $76, respectively. No options were exercised during the year ended December 31, 2012. The intrinsic value is calculated as the difference between the fair value and the exercise price of the shares at the
date of exercise.
18
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Shares reserved for future issuance
The Company has reserved the following shares of common stock, for the potential conversion of outstanding Preferred Stock, vesting of
restricted common stock, exercise of warrants to purchase redeemable convertible preferred stock and the exercise of stock options as of December 31, 2013:
|
|
|
|
|
Conversion of Series A Preferred Stock |
|
|
6,733,397 |
|
Conversion of Series B Preferred Stock |
|
|
6,803,274 |
|
Vesting of restricted stock |
|
|
244,167 |
|
Options to purchase common stock |
|
|
2,106,040 |
|
|
|
|
|
|
Total |
|
|
15,886,878 |
|
|
|
|
|
|
9. Income taxes
The Company recorded a provision for income taxes of $49, $49 and $117 for the years ended December 31, 2012 and 2013 and the period from
June 17, 2009 (Inception) to December 31, 2013, respectively. The income tax provision is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Period from June 17, 2009 (Inception) to December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2013 |
|
Current provision |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
39 |
|
|
|
39 |
|
|
|
94 |
|
State |
|
|
10 |
|
|
|
10 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
49 |
|
|
|
49 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
49 |
|
|
$ |
49 |
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deferred tax provision for 2012 and 2013 is the result of amortization for tax purposes of
indefinite-lived intangible assets and tax-deductible goodwill for which there is no corresponding book deduction. This results in a deferred tax liability, the reversal of which cannot be forecasted and therefore cannot be used as a source of
income to reduce the Companys valuation allowance on deferred tax assets.
As of December 31, 2012 and 2013, the Company had
federal net operating loss carryforwards of approximately $18,718 and $38,705, respectively, and state net operating loss carryforwards of approximately $18,423 and $38,185, respectively, which may be available to offset future taxable income and
which expire at various dates through 2033. As of December 31, 2012 and 2013, the Company also had federal and state research and development tax credit carryforwards of approximately $269 and $1,165, respectively. The federal and state
research and development tax credits begin to expire in 2026. The net operating losses and research and development credits are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. These tax attributes
may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue
Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the
value of the company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not, as yet, conducted a study to determine if any such changes have occurred that could
limit its ability to use the net operating losses and tax credit carryforwards.
19
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The significant components of the Companys deferred tax assets and deferred tax
liabilities consist of the following at December 31, 2012 and 2013:
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2013 |
|
Net operating loss carryforwards |
|
$ |
7,337 |
|
|
$ |
15,176 |
|
Tax credits |
|
|
269 |
|
|
|
1,165 |
|
Contingent consideration |
|
|
3,622 |
|
|
|
5,651 |
|
Embedded derivative |
|
|
640 |
|
|
|
|
|
Depreciation |
|
|
110 |
|
|
|
199 |
|
Intangibles |
|
|
132 |
|
|
|
175 |
|
Other temporary differences |
|
|
301 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
12,411 |
|
|
|
22,667 |
|
Valuation allowance |
|
|
(11,771 |
) |
|
|
(22,667 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
640 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Convertible notes |
|
$ |
(640 |
) |
|
$ |
|
|
Goodwill |
|
|
(7 |
) |
|
|
(12 |
) |
IPR&D asset |
|
|
(61 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
(708 |
) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(68 |
) |
|
$ |
(117 |
) |
|
|
|
|
|
|
|
|
|
ASC 740 requires a valuation allowance to reduce the deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance of $11,771 and $22,667
at December 31, 2012 and 2013, respectively, because the Company has determined that it is more likely than not that these assets will not be fully realized. The increase in the overall valuation allowance relates primarily to U.S. operating
losses for which the Company currently provides no tax benefit.
As of December 31, 2012 and 2013, the Company had a net deferred tax
liability of $68 and $117, respectively. This net deferred tax liability is the result of the difference in accounting for IPR&D assets and goodwill which are amortizable over 15 years for tax purposes, but not amortized for book purposes. These
deferred tax liabilities cannot be used as sources of income to reduce the valuation allowance against the Companys deferred tax assets since they relate to indefinite-lived assets and reversal of these liabilities cannot be anticipated.
A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the financial
statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2012 |
|
|
2013 |
|
Federal income tax expense at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
State income tax, net of federal benefit |
|
|
5.2 |
% |
|
|
4.7 |
% |
Permanent differences |
|
|
(0.5 |
)% |
|
|
(3.6 |
)% |
Research and development credit |
|
|
0.6 |
% |
|
|
3.1 |
% |
Change in valuation allowance |
|
|
(39.6 |
)% |
|
|
(38.4 |
)% |
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
(0.3 |
)% |
|
|
(0.2 |
)% |
|
|
|
|
|
|
|
|
|
On June 17, 2009 (Inception), the Company adopted the provision for uncertain tax positions under ASC
740-10. The Company had no uncertain positions or unrecorded liabilities for uncertain tax positions upon adoption and the adoption did not have an impact on the Companys balance sheet or retained earnings. As of December 31, 2012
and 2013, the Company has no recorded liabilities for uncertain tax positions.
20
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Interest and penalty charges, if any, related to uncertain tax positions would be classified
as income tax expense in the accompanying consolidated statements of operations. As of December 31, 2012 and 2013, the Company had no accrued interest or penalties related to uncertain tax positions.
The statute of limitations for assessment by the Internal Revenue Service (IRS) and state tax authorities remains open for all tax years. The
Company files income tax returns in the United States and Massachusetts. There are currently no federal or state audits in progress.
10. Commitments
and contingencies
Leases
In
January 2011, the Company entered into a sublease for its facility in Chelsea, Massachusetts. The sublease is with Alkermes, a related party (Note 12). The sublease term ends in December 2015. The sublease includes a free rent period, and the rent
expense is being recognized on a straight-line basis over the sublease term. The sublease agreement provides for two five-year extensions upon the completion of the sublease term. For each extension period, the economic terms of the sublease will be
determined by a process set forth in the sublease, and we will be required to provide a letter of credit in an amount equal to the full five-year lease obligation for each extension period.
As of December 31, 2013, the future minimum lease payments under the non-cancelable operating lease are as follows:
|
|
|
|
|
Year ending December 31, |
|
|
|
|
2014 |
|
$ |
722 |
|
2015 |
|
|
722 |
|
|
|
|
|
|
Total |
|
$ |
1,444 |
|
|
|
|
|
|
Rent expense for the years ended December 31, 2012 and 2013 and for the period from June 17, 2009
(Inception) to December 31, 2013, was $670, $670 and $2,017, respectively.
License agreement
The Company has a license agreement to a portfolio of patents from the Massachusetts Institute of Technology (MIT). Pursuant to the terms of
the license agreement, the Company agreed to make minimum annual payments to the university. The minimum annual payments are $100 for each year starting upon the assignment of the license in 2010 and ending when the patents expire in 2017. The
Company is obligated to pay royalties on the commercial sale of such licensed product through the end of 2017 or when the patents expire. The Company has included license expense as a component of research and development expense in the amounts of
$100, $100 and $300 for the years ended December 31, 2012 and 2013 and for the period from June 17, 2009 (Inception) to December 31, 2013, respectively.
Contingencies
The Company has certain
contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably
estimated. There were no contingent liabilities accrued as of December 31, 2012 or 2013.
21
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
11. Convertible notes
On December 19, 2012, the Company issued convertible notes (the Notes) to the Preferred Stock investors for $9,000. These Notes held a 6%
annual interest rate and were due and payable by the Company on demand by election of 66% of the holders of the Notes (the Majority Note Holders) at any time after December 18, 2013, unless converted to shares of the Companys stock prior
to such date. Under the terms of the Notes, the principal and unpaid accrued interest of the Notes would automatically convert upon the occurrence of the Companys next Qualified Financing, one that involves at least one bona fide venture
capital or institutional investor who is not a stockholder of the Company and results in at least $10,000 in aggregate gross proceeds. Upon written election of the Majority Note Holders, a financing not meeting such criteria would also qualify as a
Qualified Financing.
On September 3, 2013, the Company completed the Series B Preferred Stock financing, which constituted a
Qualified Financing, and the principal and unpaid accrued interest of the Notes automatically converted to shares of Series B Preferred Stock at a conversion price equal to 80% of the price paid per share in the financing.
The Company concluded that the feature which provided for the settlement of the Notes in shares of the Companys stock was an embedded
derivative as it was not clearly and closely related to the debt host, which was the Notes. As a result, the Company bifurcated the embedded derivative and calculated its fair value at issuance to be $1,630. The value of the derivative and accrued
interest were included in the total value of the Notes on the balance sheet at December 31, 2012. For the years ended December 31, 2012 and 2013, and for the period from June 17, 2009 (Inception) to December 31, 2013, the Company
recorded a change in the fair value of the embedded derivative of $38, $682, and $720, respectively. These changes have been recorded as a component of interest expense in each respective period.
The conversion of the Notes into Series B Preferred Stock was treated as an extinguishment of the Notes and embedded derivative. The Notes and
embedded derivative were removed at their carrying amounts, after a final adjustment to fair value on September 3, 2013. The shares of Series B Preferred Stock issued upon conversion of the Notes were recorded at fair value. The difference
between the carrying amount of the Notes and embedded derivative and the fair value of Series B Preferred Stock issued of $534 was recorded as a loss on the extinguishment of the Notes.
12. Alkermes agreement
On
December 27, 2010, the Company entered into the Alkermes Agreement, in which the Company licensed or acquired from Alkermes certain pulmonary development programs and INDs, underlying intellectual property and laboratory equipment associated
with the pulmonary business of Alkermes. The assets acquired includes (i) patents, patent applications and related know-how and documentation; (ii) a formulation of inhaled L-dopa; (iii) several other pulmonary development programs
and INDs, which are part of the platform device and formulation IP; (iv) instruments, laboratory equipment and apparatus; and (v) inhalers, inhaler molds, tools, and the associated assembled equipment. In addition, the Company signed the
sublease for the facility where the Alkermes operations were housed in Chelsea, Massachusetts. The Company considered these programs, intellectual property and laboratory equipment to be an integrated set of activities and assets that is capable of
being conducted and managed for the purpose of providing a return directly to investors and participants. These items were considered by the Company to be inputs and processes that could be managed as a business by a market participant and was
therefore accounted for as a business combination.
Under the terms of the Alkermes Agreement, the Company will also pay to Alkermes
royalties for each licensed product as follows: (i) for all licensed products sold by the Company, the Company will pay Alkermes a mid-single digit percentage of net sales of such licensed products and (ii) for all licensed products sold
by a Company collaboration partner, the Company will pay Alkermes the lower of a mid-single digit percentage of net sales of such licensed products in a given calendar year or a percentage in the low-to-mid-double digits of all collaboration partner
revenue received in such calendar year. Notwithstanding the foregoing, in no event shall the royalty paid be less than a low-single digit percentage of net sales of a licensed product in any calendar year.
22
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
13. Defined contribution plan
The Company has a 401(k) defined contribution plan (the 401(k) Plan) for substantially all of its employees. Eligible employees may make pretax
contributions to the 401(k) Plan up to statutory limits. At the election of the Board of Directors, the Company may elect to match employee contributions, but did not as of December 31, 2012 and 2013 or for the period from June 17, 2009
(Inception) to December 31, 2013.
14. Revenue
In 2011, the Company received a $313 grant to fund research and development services from the Michael J. Fox Foundation for Parkinsons
Research (MJFF). Revenues recognized under this award have been recorded as service revenue during the years ended December 31, 2012 and 2013.
The Company recognized additional revenues under arrangements to perform manufacturing services of $275 and $730 for the year ended
December 31, 2012 and for the period from June 17, 2009 (Inception) to December 31, 2013, respectively.
15. Other material arrangements
In June 2013, the Company received a new award from MJFF for $1,000. Within the terms of the award, a repayment provision will require
the Company to return payment to MJFF for the $1,000 of research and development funding received upon attaining specific levels of future product sales, or if the Company elects to suspend or cancel further product development.
The award was determined to be a financing arrangement in substance and has been recorded as a non- current monetary liability as of
December 31, 2013. The Company recognizes the liability when cash is received from MJFF upon completion of predetermined milestones. As of December 31, 2013, a total of $750 has been received and recognized as an other long-term liability.
16. Net loss per share
Because the
Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share.
The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if- converted method, have been
excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact due to the losses reported:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2012 |
|
|
2013 |
|
Options to purchase common stock |
|
|
617,053 |
|
|
|
2,045,214 |
|
Conversion of redeemable convertible preferred stock |
|
|
6,733,397 |
|
|
|
13,536,671 |
|
Unvested restricted stock |
|
|
613,669 |
|
|
|
244,167 |
|
Convertible notes |
|
|
1,062,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,026,191 |
|
|
|
15,826,052 |
|
|
|
|
|
|
|
|
|
|
17. Subsequent events
The Company considers events or transactions that occur after the balance sheet date, but prior to the issuance of the financial statements, to
provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date these financial statements were issued.
23
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
|
A. |
Senior secured credit facility (unaudited) |
On March 21, 2014, the Company entered
into a Loan and Security Agreement (the senior secured credit facility) with Oxford Finance LLC and Silicon Valley Bank (the Lenders) and made an initial draw of $5,000. The initial draw will require monthly amortization payments commencing on
May 1, 2015. A second draw of up to $15,000 was available to the Company through September 30, 2014, subject to the satisfaction of certain conditions, including a determination by the Board of Directors to proceed with a CVT-301 Phase 3
clinical trial. Interest on the initial draw will accrue at the rate of 7.95% per annum, payable monthly. All outstanding principal, plus a 6% final interest payment, will be due and payable on October 1, 2017. The senior secured credit
facility draws are subject to a prepayment fee of 3% in the first year, 2% in the second year and 1% in the third year. In conjunction with the senior secured credit facility, the Company incurred issuance costs of $211.
In connection with the initial $5,000 draw, the Company issued to the Lenders warrants to purchase 106,383 shares of Series B Preferred Stock
at an exercise price of $1.41 per share. The warrants expire in March 2024. If the Company makes the second draw under the senior secured credit facility, the Lenders will receive a proportionate amount of additional warrants.
Future principal payments on the initial draw are as follows:
|
|
|
|
|
Year ending December 31, |
|
|
|
|
2015 |
|
$ |
1,238 |
|
2016 |
|
|
1,984 |
|
2017 |
|
|
1,778 |
|
|
|
|
|
|
Total debt principal payments |
|
$ |
5,000 |
|
|
|
|
|
|
|
B. |
Expansion of stock incentive plan and adoption of equity-based compensation plans (unaudited) |
In January, 2014 and August, 2014, the Companys Board of Directors and Companys shareholders increased the options available to
issue under the plan to a total of 3,482,313 shares. As of September 12, 2014, there were no shares remaining to be issued under this plan.
On September 12, 2014, the Companys Board of Directors and the Companys shareholders adopted its 2014 Equity Incentive Plan
(2014 Plan), which will replace the 2010 Plan. The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards to
directors, officers, employees, advisors and consultants of the Company.
The Company has initially reserved 1,760,000 shares of its
common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2015, by
four percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Companys Board of Directors.
On September 12, 2014, the Companys Board of Directors and the shareholders adopted its 2014 Employee Stock Purchase Plan (2014
ESPP), which will become effective on a date determined by the Companys Board of Directors. Once effective, the 2014 ESPP will enable eligible employees to purchase shares of the Companys common stock at a discount following the date of
the offering.
The 2014 ESPP authorizes the initial issuance of up to a total of 576,945 shares of the Companys common stock to
participating eligible employees. Unless otherwise determined by the administrator of the 2014 ESPP, the first offering will begin on the first business day in January and July of each year.
24
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
|
C. |
Series C Preferred Stock (unaudited) |
On August 22, 2014, the Company completed a
Series C Preferred Stock financing and issued 17,000,000 shares at $3.25 per share for gross proceeds of approximately $55,250.
In
connection with the Companys August 2014 Series C Preferred Stock financing, the following changes occurred in the rights and preferences of the Companys capital stock as the Series C Preferred Stock has rights and preferences senior to
the Preferred Stock.
For voting, the approval of a majority of the then outstanding shares of Series C Preferred Stock and the Preferred
Stock, together as a single class and not as separate series and on an as-converted basis, is required for certain events that may impact the rights and preferences of the preferred stock or common stock to be issued, amend any provisions of the
certificate of incorporation, purchase or redeem or pay or declare dividends on shares of capital stock, authorize any debt security exceeding $1,000 or adopt or amend equity-based compensation plans.
In the event of a liquidation or dissolution or winding-up of the Company, including a change in control, the holders of the Series C
Preferred Stock have preference to the assets of the Company equal to the greater of (1) the Original Issue Price, $3.25 per share for Series C Preferred Stock, plus any accrued, but unpaid dividends, whether or not declared or (2) such
amount per share of Series C Preferred Stock payable as if converted into common stock. Dividends accrue from and after the date of issuance at a rate of $0.26 per annum per share of Series C Preferred Stock whether or not declared by the
Companys Board of Directors and are cumulative.
If assets of the Company to be distributed to the holders of the Series C Preferred
Stock and the Preferred Stock are insufficient to permit the payment to such holders of their full preferential amount, the assets legally available for distribution shall be distributed first to the Series C Preferred holders and then the remaining
funds shall be distributed to the Series B Preferred Stock holders and then the remaining funds shall be distributed to the Series A Preferred Stock holders and then the remaining funds shall be distributed to the common stockholders.
Conversion is mandatory upon the closing of a firm-commitment underwritten public offering in which the public offering price equals or
exceeds $3.25 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the common stock) and the gross proceeds are not less than $50,000 or at the
date and time or the occurrence of an event specified by vote or written consent of the holders of at least a majority of the then-outstanding shares of Series C Preferred Stock and Preferred Stock, together as a single class. The Series C Preferred
Stock is convertible into a number of fully paid shares of common stock as determined by dividing the initial Conversion Price, which is $3.25 per share, by the conversion price in effect at the time of conversion.
Upon delivery of notice in writing on or after August 22, 2017 by holders of at least a majority of the Series C Preferred Stock and
Preferred Stock, voting together as a single class and not as a separate series and on an as- converted basis, the Company will be required to redeem each share of preferred stock.
The Company executed a one-for-4.237 reverse stock split of its
issued and outstanding common stock on September 12, 2014. All share and per share amounts related to issued and outstanding common stock and outstanding options exercisable for common stock included in these financial statements and note to
the these financial statements have been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to deficit accumulated during the
development stage.
25
Exhibit 99.2
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Balance sheets
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2013 |
|
|
2014 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,052 |
|
|
$ |
59,174 |
|
Prepaid expenses and other current assets |
|
|
146 |
|
|
|
938 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
24,198 |
|
|
|
60,112 |
|
Property and equipment, net |
|
|
2,487 |
|
|
|
3,858 |
|
Restricted cash |
|
|
1,012 |
|
|
|
1,002 |
|
Goodwill |
|
|
550 |
|
|
|
550 |
|
Intangible assets, net |
|
|
7,876 |
|
|
|
7,732 |
|
Other assets |
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
36,123 |
|
|
$ |
73,329 |
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable convertible preferred stock and stockholders (deficit) equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,297 |
|
|
$ |
2,153 |
|
Accrued liabilities and other |
|
|
2,046 |
|
|
|
5,348 |
|
Current portion of deferred rent |
|
|
52 |
|
|
|
52 |
|
Current portion of long-term debt, net |
|
|
|
|
|
|
736 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,395 |
|
|
|
8,289 |
|
Deferred rent |
|
|
52 |
|
|
|
13 |
|
Contingent consideration |
|
|
20,549 |
|
|
|
44,076 |
|
Deferred tax liability |
|
|
117 |
|
|
|
154 |
|
Warrants to purchase redeemable convertible preferred stock |
|
|
|
|
|
|
485 |
|
Long-term debt, net |
|
|
|
|
|
|
4,124 |
|
Other long-term liabilities |
|
|
750 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
24,863 |
|
|
|
58,141 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock: |
|
|
|
|
|
|
|
|
Series A Preferred Stock, $0.001 par value; 28,529,412 shares authorized, issued and outstanding at December 31, 2013 and
September 30, 2014 (aggregate liquidation preference of $35,936 at September 30, 2014) |
|
|
34,069 |
|
|
|
35,807 |
|
Series B Preferred Stock, $0.001 par value; 28,825,492 and 28,931,875 shares authorized at December 31, 2013 and
September 30, 2014, respectively; 28,825,492 shares issued and outstanding at December 31, 2013 and September 30, 2014 (aggregate liquidation preference of $44,145 at September 30, 2014) |
|
|
41,543 |
|
|
|
44,010 |
|
Series C Preferred Stock, $0.001 par value; no shares authorized, issued and outstanding at December 31, 2013; 17,000,000 shares
authorized, issued and outstanding at September 30, 2014 (aggregate liquidation preference of $55,726 at September 30, 2014) |
|
|
|
|
|
|
55,638 |
|
Stockholders (deficit) equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 80,000,000 shares authorized at December 31, 2013 and 105,000,000 shares authorized at
September 30, 2014; 1,556,289 shares issued at December 31, 2013 and 1,560,867 shares issued at September 30, 2014; 1,389,344 shares outstanding at December 31, 2013 and 1,560,867 shares outstanding at September 30,
2014 |
|
|
1 |
|
|
|
2 |
|
Deficit accumulated during the development stage |
|
|
(64,353 |
) |
|
|
(120,269 |
) |
Treasury stock, at cost; 166,945 shares at December 31, 2013 and none at September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity |
|
|
(64,352 |
) |
|
|
(120,267 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and stockholders (deficit) equity |
|
$ |
36,123 |
|
|
$ |
73,329 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
1
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Statements of operations and comprehensive loss
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
Period from June 17, 2009 (Inception) to September 30, |
|
|
|
2013 |
|
|
2014 |
|
|
2014 |
|
Service revenue |
|
$ |
53 |
|
|
$ |
|
|
|
$ |
1,043 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
10,687 |
|
|
|
18,162 |
|
|
|
49,432 |
|
General and administrative |
|
|
3,021 |
|
|
|
10,681 |
|
|
|
20,440 |
|
Re-measurement of contingent consideration |
|
|
2,187 |
|
|
|
23,527 |
|
|
|
38,003 |
|
Amortization of purchased intangible assets |
|
|
144 |
|
|
|
144 |
|
|
|
788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
16,039 |
|
|
|
52,514 |
|
|
|
108,663 |
|
Loss from operations |
|
|
(15,986 |
) |
|
|
(52,514 |
) |
|
|
(107,620 |
) |
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(2,142 |
) |
|
|
(329 |
) |
|
|
(2,525 |
) |
Loss on extinguishment of convertible notes |
|
|
(534 |
) |
|
|
|
|
|
|
(534 |
) |
Other |
|
|
|
|
|
|
(346 |
) |
|
|
(330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
(2,676 |
) |
|
|
(675 |
) |
|
|
(3,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(18,662 |
) |
|
|
(53,189 |
) |
|
|
(111,009 |
) |
Provision for income taxes |
|
|
37 |
|
|
|
37 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,699 |
) |
|
$ |
(53,226 |
) |
|
$ |
(111,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(18,699 |
) |
|
$ |
(53,226 |
) |
|
$ |
(111,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net loss to net loss applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,699 |
) |
|
$ |
(53,226 |
) |
|
$ |
(111,163 |
) |
Accretion and dividends on redeemable convertible preferred stock |
|
|
(1,993 |
) |
|
|
(4,683 |
) |
|
|
(11,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholdersbasic and diluted |
|
$ |
(20,692 |
) |
|
$ |
(57,909 |
) |
|
$ |
(122,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholdersbasic and diluted |
|
$ |
(19.34 |
) |
|
$ |
(39.62 |
) |
|
$ |
(184.39 |
) |
Weighted-average number of common shares used in computing net loss per share applicable to common stockholdersbasic and
diluted |
|
|
1,069,870 |
|
|
|
1,461,609 |
|
|
|
666,441 |
|
See accompanying notes.
2
CIVITAS THERAPEUTICS, INC.
(A development stage company)
Statements of cash flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Period from June 17, 2009 (Inception) to September 30, |
|
|
|
2013 |
|
|
2014 |
|
|
2014 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,699 |
) |
|
$ |
(53,226 |
) |
|
$ |
(111,163 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
539 |
|
|
|
604 |
|
|
|
2,597 |
|
Share-based compensation expense |
|
|
237 |
|
|
|
1,965 |
|
|
|
2,572 |
|
Re-measurement of contingent consideration |
|
|
2,187 |
|
|
|
23,527 |
|
|
|
38,003 |
|
Re-measurement of warrants to purchase redeemable convertible preferred stock |
|
|
|
|
|
|
346 |
|
|
|
346 |
|
Non-cash interest expense |
|
|
2,143 |
|
|
|
122 |
|
|
|
2,322 |
|
Loss on extinguishment of convertible notes |
|
|
534 |
|
|
|
|
|
|
|
534 |
|
Gain on disposal of equipment |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Deferred rent |
|
|
(39 |
) |
|
|
(39 |
) |
|
|
(15 |
) |
Deferred taxes |
|
|
37 |
|
|
|
37 |
|
|
|
154 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
10 |
|
|
|
(1,002 |
) |
Prepaid expenses and other current assets |
|
|
100 |
|
|
|
(778 |
) |
|
|
(924 |
) |
Accounts payable and accrued expenses |
|
|
1,669 |
|
|
|
4,520 |
|
|
|
7,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(11,292 |
) |
|
|
(22,912 |
) |
|
|
(59,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Purchases of property and equipment |
|
|
(512 |
) |
|
|
(2,193 |
) |
|
|
(5,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(506 |
) |
|
|
(2,193 |
) |
|
|
(5,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock, net |
|
|
28,739 |
|
|
|
55,160 |
|
|
|
108,482 |
|
Proceeds from convertible notes, net |
|
|
|
|
|
|
|
|
|
|
8,986 |
|
Proceeds from issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
2 |
|
Proceeds from exercise of stock options |
|
|
3 |
|
|
|
28 |
|
|
|
44 |
|
Proceeds from other material financing arrangements |
|
|
250 |
|
|
|
250 |
|
|
|
1,000 |
|
Cash paid for issuance costs |
|
|
|
|
|
|
(109 |
) |
|
|
(109 |
) |
Proceeds from long-term debt, net |
|
|
|
|
|
|
4,898 |
|
|
|
4,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
28,992 |
|
|
|
60,227 |
|
|
|
123,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
17,194 |
|
|
|
35,122 |
|
|
|
59,174 |
|
Cash and cash equivalents at beginning of period |
|
|
13,539 |
|
|
|
24,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
30,733 |
|
|
$ |
59,174 |
|
|
$ |
59,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment additions included in accounts payable and accrued expenses |
|
$ |
382 |
|
|
$ |
6 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A Preferred Stock as consideration for acquisition |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes for Series B Preferred Stock |
|
$ |
9,000 |
|
|
$ |
|
|
|
$ |
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and dividends on redeemable convertible preferred stock |
|
$ |
1,993 |
|
|
$ |
4,683 |
|
|
$ |
11,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
177 |
|
|
$ |
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
3
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. Nature of business
Civitas
Therapeutics, Inc. (the Company) was incorporated on June 17, 2009 as a Delaware corporation with operations based in Chelsea, Massachusetts. The Company is a clinical stage biopharmaceutical company dedicated to developing inhaled therapies
using the ARCUS® therapeutic technology. The first product candidate using the ARCUS® technology, CVT-301, is focused on treating OFF
episodes in patients with Parkinsons disease.
Sale of Company
On October 22, 2014, the Company was acquired by a wholly-owned subsidiary (Merger Sub) of Acorda Therapeutics, Inc. (Acorda) in
accordance with the Agreement and Plan of Merger, dated as of September 24, 2014 (the Merger Agreement), by and among Acorda, Merger Sub, the Company and Shareholder Representative Services LLC, a Colorado limited liability company, solely in
its capacity as the securityholders representative (SRS). Pursuant to the terms of the Merger Agreement, Merger Sub has merged with and into the Company, which is the surviving corporation in the Merger and which is continuing as a
wholly-owned subsidiary of Acorda under the Civitas name. Pursuant to the terms of the Merger Agreement, all outstanding shares of the Companys common stock and preferred stock, options to purchase shares of the Companys common stock and
warrants to purchase shares of the Companys preferred stock, other than shares of the Companys common stock and the Companys preferred stock held by the Company (which were cancelled as a result of the Merger) were converted into
the right to receive $525,000 in cash in the aggregate, without interest, less (i) $5,300 due and payable under the Companys existing secured loan facility, consisting of $5,000 in principal and $300 in prepayment fees, (ii) $30,000
due and payable to Alkermes, Inc. (Alkermes) in connection with the exercise by the Company of its option to purchase manufacturing facility equipment from Alkermes and (iii) a portion of the Companys transaction expenses.
Since inception, the Company has devoted substantially all of its efforts to research and development, business planning, recruiting
management and staff, and raising capital. The Company has not recognized any revenue from its planned principal operations and, as a result, is considered to be in the development stage.
2. Summary of significant accounting policies
Basis
of presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and
Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
Use of estimates
The preparation of the Companys financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates. The Company utilizes certain estimates in the determination
of the fair value of its common and redeemable convertible preferred stock, share-based compensation, valuation of goodwill, intangible assets, derivatives, warrants to purchase redeemable convertible preferred stock and contingent consideration and
to record expenses relating to research and development contracts. These contract estimates, which are primarily related to the length of service and stage of each contract, are determined by the Company based on input from internal project
management, as well as from third-party service providers.
Cash and cash equivalents
Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase.
4
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Segment information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business in one operating segment. All material
long-lived assets of the Company reside in the United States. All revenue recognized was earned in the United States.
Restricted cash
Restricted cash represents cash deposits held in connection with obligations under facility leases or other operating agreements. Amounts are
reported as non-current unless restrictions are expected to be released in the next twelve months.
Concentrations of credit risk
Cash and cash equivalents are financial instruments that potentially subject the Company to concentrations of credit risk. At December 31,
2013 and September 30, 2014, substantially all of the Companys cash was deposited in accounts at one financial institution. The Company maintains its cash, which at times may exceed the federally insured limits, with a large financial
institution and, accordingly, the Company believes such funds are subject to minimal credit risk. The Company has no significant off-balance sheet risks, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
Fair value of financial instruments
The Company accounts for certain of its financial assets and liabilities and non-financial assets and non- financial liabilities at fair value.
Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The three-tier hierarchy prioritizes valuation inputs into three levels based on the extent to which
inputs used in measuring fair value are observable in the market.
Fair value measurements are classified and disclosed in one of the
following three categories:
|
|
|
Level 1Quoted unadjusted prices for identical instruments in active markets. |
|
|
|
Level 2Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and
significant value-drivers are observable in active markets. |
|
|
|
Level 3Model derived valuations in which one or more significant inputs or significant value-drivers are unobservable, including assumptions developed by the Company. |
Property and equipment
Property and
equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful life of the Companys assets are periodically reviewed for reasonableness. Changes in useful lives are
accounted for prospectively. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. The estimated useful lives of property and equipment are as follows:
|
|
|
|
|
Estimated useful life (years) |
Manufacturing equipment |
|
3 to 5 |
Office and computer equipment |
|
3 to 5 |
Furniture |
|
5 |
Leasehold improvements |
|
Shorter of useful life or remaining lease term |
5
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Construction in-process is stated at cost, which includes the cost of construction and other
direct costs attributable to the recommissioning of the Companys large-scale equipment and manufacturing facility. No depreciation expense is made on construction-in-process until such time as the relevant assets are completed and put into
use.
Business acquisitions
On
December 27, 2010, the Company entered into the Asset Purchase and License Agreement (the Alkermes Agreement) with Alkermes, Inc. (Alkermes) in which the Company licensed or acquired from Alkermes certain pulmonary development programs and
investigational new drug applications (INDs), underlying intellectual property and laboratory equipment associated with the pulmonary business of Alkermes. The Companys financial statements include the operations of this acquired business
after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed be recognized at
their estimated fair values as of the acquisition date, with limited exceptions, and that the fair value of acquired in-process research and development (IPR&D) be recorded on the balance sheet. Also, transaction costs are expensed as incurred.
Any excess of the acquisition consideration over the assigned values of the net assets acquired is recorded as goodwill. Contingent consideration is included within the acquisition cost and is recognized at its fair value on the acquisition date. A
liability resulting from contingent consideration is re-measured to fair value at each reporting date until the contingency is resolved and changes in fair value are recognized in earnings. The contingent consideration is based upon the fair value
of future royalties on net product sales from products developed from licensed technology under the Alkermes Agreement.
Valuation of contingent
purchase price consideration
Acquisitions may include contingent consideration payments based on the achievement of certain future
development and financial performance measures. The Company estimates the fair value of the contingent consideration based on revenue projections and estimated probabilities of achievement. The Company believes that its estimates and assumptions are
reasonable; however, there is significant judgment involved. The Company evaluates, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value
estimate at the time of the acquisition, are reflected in income or expense in the statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the
timing and forecasted levels of sales and changes in probability assumptions with respect to the likelihood of achieving the measures. Any changes in the estimated fair value of contingent consideration may have a material impact on the
Companys operating results.
Goodwill
Goodwill represents the excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed. The Company
operates in a single reporting unit. The annual test for goodwill impairment is a multiple step process. The first step is a qualitative assessment of operational and financial information to determine if it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If so, a two-step process begins with a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If this step indicates impairment, then in the
second step, the loss is measured as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities. The Company
tests goodwill for impairment annually on October 1st, or when events or circumstances indicate that the fair value may be below the carrying value of the asset. The Company has not recorded any impairments of its goodwill.
Intangible assets
Intangible assets with
finite useful lives consist primarily of purchased developed technology and are amortized on a straight-line basis over their estimated useful lives, which range from 18 to 19 years. The estimated useful lives associated with finite-lived intangible
assets are consistent with the estimated lives of the associated patents and may be modified when circumstances warrant. Changes in useful life are accounted for prospectively.
6
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Intangible assets with finite lives are reviewed for impairment when events or circumstances
indicate that the carrying value of an asset may not be recoverable. If the asset becomes impaired, the carrying amount of the related intangible asset is written down to its fair value and an impairment charge would be recognized in the period in
which estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference between the carrying value and the
fair value of the impaired asset. The Company has not recorded any impairments of its intangible assets.
The fair value of IPR&D
acquired through a business combination is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities. IPR&D is not amortized, but is tested for impairment annually
on October 1st, or when events or circumstances indicate that the fair value may be below the carrying value of the asset. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the
associated assets would become finite-lived and would then be amortized over their estimated useful lives.
Research and development costs
Costs incurred in the research and development of the Companys product candidates are expensed as incurred. Research and development
expenses consist of costs incurred in performing research and development activities and include salaries and benefits, preclinical and clinical activities, manufacturing development, scale-up and research-related facility and overhead costs,
laboratory supplies and equipment and other contract services. Payments made in advance of services incurred are recorded as prepaid expense.
Revenue
The Company has primarily generated service revenue from research and development grant programs and contracted manufacturing
activities.
The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Accordingly, revenue is recognized
when all of the following criteria are met:
|
|
|
Persuasive evidence of an arrangement exists |
|
|
|
Delivery has occurred or services have been rendered |
|
|
|
The sellers price to the buyer is fixed or determinable |
|
|
|
Collectability is reasonably assured |
Amounts received prior to satisfying the revenue
recognition criteria are recorded as deferred revenue in the Companys balance sheets. Amounts expected to be recognized as revenue within the twelve months following the balance sheet date are classified as deferred revenue, current portion.
Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as deferred revenue, net of current portion.
Service revenue
The Company
generates service revenue through agreements with a non-profit entity, which is recognized using the proportional performance method. The Company also has performed contract manufacturing services for pharmaceutical and biotechnology companies and
recognizes revenue under such arrangements upon completion of performance.
Funded research and development
The Company evaluates grants received for the performance of research and development services to assess whether the amounts received should be
accounted for as a financing arrangement. The Company considers whether it is obligated to repay any funds received from such parties regardless of the ultimate success of the research and development. In circumstances in which the financial risk
has not been transferred to the funding party, the Company accounts for such funds received as a liability.
7
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Companys comprehensive loss equals reported net loss for all periods presented.
Share-based
compensation
The Company records share-based compensation for options granted to employees based on the grant date fair value of
awards issued, and the expense is recorded on a straight-line basis over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the fair value of stock
options on the date of grant using an option-pricing model is affected by the Companys common stock price, as well as a number of other subjective variables.
The Company accounts for share-based compensation arrangements with non-employees based upon the fair value of the consideration received or
the equity instruments issued, whichever is more reliably measurable. The measurement date for non-employee awards is generally the date performance of services required from the non-employee is complete, resulting in periodic adjustments to
share-based compensation during the vesting period for changes in the fair value of the awards. Share-based compensation costs for non-employee service awards are recognized as services are provided, which is generally the vesting period, on a
straight-line basis. The unvested portion of the awards are subject to re-measurement over the vesting period.
Net loss per share
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period,
determined using the treasury stock method and the if-converted method, for convertible securities, if inclusion of these is dilutive.
Income taxes
The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
Companys financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to
reduce the deferred tax assets to the amount that will more likely than not be realized.
The Company applies ASC 740, Income Taxes,
in accounting for uncertainty in income taxes. The Company does not have any material uncertain tax positions for which reserves would be required. The Company will recognize interest and penalties related to uncertain tax positions, if any, in
income tax expense.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes all
existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the
company expects to receive for those goods or services. The new standard will be effective for the Company for annual reporting periods after December 15, 2016 and early adoption is not permitted for public entities. The Company is currently
evaluating the potential impact that ASU 2014-09 may have on its financial position and results of operations.
8
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities
(Topic 915) Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (ASU 2014-10). The amendments in this update will simplify
financial reporting for development stage entities by eliminating inception-to-date reporting requirements specific to development stage entities. Instead, ASU 2014-10 clarifies how these entities should tailor existing disclosures to explain the
risks and uncertainties related to their activities. ASU 2014-10 also eliminates certain consolidation guidance, which may cause companies with interests in entities in a development stage to identify more of them as variable interest entities and
may change prior consolidation decisions. ASU 2014-10 is effective for the Company after December 15, 2014 and is applied retrospectively. The adoption of this standard will impact our financial statement presentation, but will not have a
material impact on the Companys financial position or results of operations.
Deferred issuance costs
Deferred issuance costs, which primarily consist of direct incremental legal and accounting fees relating to debt or the IPO, are capitalized.
For debt transactions, the deferred issuance costs paid to the lenders will be offset against the debt proceeds. The deferred issuance costs paid to non-lenders in debt transactions are capitalized. Both amounts are recognized as additional interest
expense using the effective interest method over the term of the debt.
The deferred issuance costs related to the proposed offering of
the Companys common stock will be offset against the IPO proceeds upon the consummation of the offering. In the event the offering is aborted, deferred issuance costs will be expensed. During the nine months ended September 30, 2014, the
Company expensed $3,148 of deferred issuance costs related to the aborted offering of the Companys common stock, which are included in general and administrative expenses in the statement of operations. No such amounts were capitalized as of
December 31, 2013 or September 30, 2014.
3. Restricted cash
At December 31, 2013 and September 30, 2014, the Company had $1,000 of restricted cash in the form of a letter of credit on behalf of
Alkermes. The bank requires that the Company maintain this deposit as collateral for the letter of credit, which serves as the security deposit on the lease of the Companys facility in Chelsea, Massachusetts. The remaining amounts were
deposits for various operating activity agreements for corporate matters.
4. Fair value of financial instruments
For financial instruments, including cash, restricted cash, accounts payable and accrued expenses, the carrying amount approximates fair value
due to their short-term nature. The fair value of the Companys long-term debt is determined using an effective interest calculation based on the long-term debt and is a Level 3 liability within the fair value hierarchy. The fair value of the
Companys long-term debt at September 30, 2014 was $4,860 which was computed using the effective interest rate which considers the timing of the interest and principal payments and the discount on the long-term debt. Please refer to Note
16 for further information regarding the Companys long-term debt.
A financial instruments level within the fair value
hierarchy is based on the lowest level of any input that is significant to the fair value measurement. During the twelve months ended December 31, 2013 and the nine months ended September 30, 2014, there was no reclassification in
financial assets or liabilities between Level 1, 2 or 3 categories.
9
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The following tables set forth by level, within the fair value hierarchy, the Companys
assets and liabilities as of December 31, 2013 and September 30, 2014 that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
Quoted prices in active markets for identical assets (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,052 |
|
|
$ |
24,052 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,052 |
|
|
$ |
24,052 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitionrelated contingent consideration |
|
$ |
20,549 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,549 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014 |
|
|
Quoted prices in active markets for identical assets (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
59,174 |
|
|
$ |
59,174 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59,174 |
|
|
$ |
59,174 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitionrelated contingent consideration |
|
$ |
44,076 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44,076 |
|
Warrant Liability |
|
|
485 |
|
|
|
|
|
|
|
|
|
|
|
485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,561 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation technique used to measure the fair value of the contingent consideration is based on a
probability-weighted discounted cash flow model. This method estimates the fair value of the liability based on the present value of its future economic costs and is predicated upon estimates of future net sales of the Companys products that
would result in royalties owed to Alkermes (Note 11). Significant assumptions incorporated within the estimates of future net sales include the estimated usage of the Companys products, the estimated selling prices of the Companys
products, and the discount rate to be applied over the royalty periods.
The Company entered into a convertible note financing (Note 10)
that was deemed to include an embedded derivative related to the conversion option within the convertible notes. The embedded derivative was required to be bifurcated from the host instrument because the derivative was not clearly and closely
related to the host instrument. The Company determined the fair value of its embedded derivative on the date of issuance and at the end of each reporting period. The Company classified the embedded derivative with its convertible notes within the
balance sheet and changes in the fair market value are included in interest expense. The valuation technique used to measure the convertible notes derivative liability was a probability-weighted discounted cash flow model predicated upon the
estimated probability of the Company completing its next Qualified Financing, as defined in the Note Purchase Agreement for the convertible notes, subsequent to the issuance of the convertible notes.
In March 2014, the Company issued warrants to purchase an aggregate of 106,383 shares of Series B redeemable convertible preferred stock
(Series B Preferred Stock) at an exercise price of $1.41 per share in connection with the Loan and Security Agreement (Note 16). The warrants are exercisable immediately and have a ten year life. The warrants were initially valued at $139 using the
Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.73%; expected dividend yield of zero; expected volatility of 68%; and an expected term of ten years, and were treated as a discount on the long-term debt
which is being expensed as additional interest over the term of the long-term debt using the effective interest method. In accordance with ASC 480, Distinguishing Liabilities from Equity, the characteristics of these warrants and the rights
and privileges of the underlying Series B Preferred Stock result in the classification of these warrants as a liability that is carried at fair value. Changes to the fair value of the warrants are recognized as a component of other income (expense),
net in the statement of operations and comprehensive loss.
Each of these liabilities will be re-measured at each reporting period until
settlement.
10
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Level 3 changes:
The following is a reconciliation of the beginning and ending balances for the contingent consideration measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) during the periods ending December 31, 2013 and September 30, 2014:
|
|
|
|
|
Balances at December 31, 2012 |
|
$ |
15,294 |
|
Change in fair value of contingent consideration |
|
|
5,255 |
|
|
|
|
|
|
Balances at December 31, 2013 |
|
$ |
20,549 |
|
Change in fair value of contingent consideration |
|
|
23,527 |
|
|
|
|
|
|
Balances at September 30, 2014 |
|
$ |
44,076 |
|
|
|
|
|
|
The following is a reconciliation of the beginning and ending balances for the convertible notes derivative
liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ending December 31, 2013:
|
|
|
|
|
Balances at December 31, 2012 |
|
$ |
1,668 |
|
Change in fair value of derivative liability |
|
|
682 |
|
Settlement of the derivative liability |
|
|
(2,350 |
) |
|
|
|
|
|
Balances at December 31, 2013 |
|
$ |
|
|
|
|
|
|
|
The Company estimated the fair value of the warrants using the Black-Scholes option pricing model based on the
following assumptions as of September 30, 2014:
|
|
|
|
|
Expected volatility |
|
|
68 |
% |
Expected term (years) |
|
|
9.48 |
|
Risk-free interest rate |
|
|
2.53 |
% |
Expected dividend yield |
|
|
|
% |
The following is a reconciliation of the beginning and ending balances for the warrant liability measured at
fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2014:
|
|
|
|
|
Balances at December 31, 2013 |
|
$ |
|
|
Issuance of warrants to purchase redeemable convertible preferred stock |
|
|
139 |
|
Change in fair value of warrant liability |
|
|
346 |
|
|
|
|
|
|
Balances at September 30, 2014 |
|
$ |
485 |
|
|
|
|
|
|
There were no exercises, cancellations, or expirations of warrants during the nine months ended
September 30, 2014.
During the year ended December 31, 2013 and the nine months ended September 30, 2014, the Company did
not change any of the valuation techniques used to measure its liabilities at fair value.
11
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
5. Property and equipment
Property and equipment consists of the following as of December 31, 2013 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
|
September 30, 2014 |
|
Manufacturing equipment |
|
$ |
1,177 |
|
|
$ |
2,444 |
|
Office and computer equipment |
|
|
242 |
|
|
|
374 |
|
Furniture |
|
|
26 |
|
|
|
43 |
|
Leasehold improvements |
|
|
734 |
|
|
|
2,806 |
|
Construction in-process |
|
|
1,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
3,836 |
|
|
|
5,667 |
|
Accumulated depreciation |
|
|
(1,349 |
) |
|
|
(1,809 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
2,487 |
|
|
$ |
3,858 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $395 and $460 for the nine months ended September 30, 2013 and 2014,
respectively, and $1,809 and for the period from June 17, 2009 (Inception) to September 30, 2014.
6. Intangible assets and goodwill
Intangible assets related to acquired developed and in-process technologies reflect the estimated fair value of the rights acquired through the
Alkermes Agreement (Note 11). Acquired developed technologies are finite- lived intangible assets and are being amortized over their estimated lives ranging from 18 to 19 years.
The excess of the total acquisition consideration over the fair value amounts assigned to the assets acquired and the liabilities assumed
represents the goodwill amount resulting from the acquisition. There have been no changes in the carrying amount of goodwill since the acquisition.
The gross carrying amounts and net book values of our intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Accumulated amortization |
|
|
Net book value |
|
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
ARCUS PlatformDevice IP |
|
$ |
2,430 |
|
|
$ |
(407 |
) |
|
$ |
2,023 |
|
ARCUS platformFormulation IP |
|
|
1,160 |
|
|
|
(237 |
) |
|
|
923 |
|
CVT301 Project (indefinite-lived) |
|
|
4,930 |
|
|
|
|
|
|
|
4,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,520 |
|
|
|
(644 |
) |
|
|
7,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
ARCUS PlatformDevice IP |
|
$ |
2,430 |
|
|
$ |
(509 |
) |
|
$ |
1,921 |
|
ARCUS platformFormulation IP |
|
|
1,160 |
|
|
|
(279 |
) |
|
|
881 |
|
CVT301 Project (indefinite-lived) |
|
|
4,930 |
|
|
|
|
|
|
|
4,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,520 |
|
|
|
(788 |
) |
|
|
7,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization was $144 for each of the nine months ended September 30, 2013 and 2014, and $788 for the
period from June 17, 2009 (Inception) to September 30, 2014.
12
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
7. Accrued expenses
The components of accrued expenses as of December 31, 2013 and September 30, 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
|
September 30, 2014 |
|
Research and development expenses |
|
$ |
1,203 |
|
|
$ |
2,528 |
|
Employee vacation |
|
|
177 |
|
|
|
275 |
|
Severance |
|
|
334 |
|
|
|
56 |
|
Bonus |
|
|
148 |
|
|
|
716 |
|
Legal and professional fees |
|
|
|
|
|
|
1,519 |
|
Payroll costs |
|
|
|
|
|
|
211 |
|
Other |
|
|
184 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,046 |
|
|
$ |
5,348 |
|
|
|
|
|
|
|
|
|
|
On June 17, 2013, the Company amended and restated the employment agreement with Mr. Glenn
Batchelder, former Chief Executive Officer (CEO), to include several additions to Mr. Batchelders compensation package. As part of these additions, Mr. Batchelder earned a special bonus calculated as $54 upon the occurrence of the
Series B Preferred Stock financing on September 3, 2013 (Note 8) and a retention bonus of $94 for remaining employed with the Company until the occurrence of the financing. In addition, the restated agreement added termination benefits,
including nine months continued salary after termination and reimbursement of certain of Mr. Batchelders costs for eighteen months after termination. In the fourth quarter of 2013, the Company deemed it probable that the termination costs
would be paid to Mr. Batchelder. All compensation, bonus, and severance costs associated with the restated employment agreement were expensed and accrued at December 31, 2013.
8. Stockholders (deficit) equity
Common stock
Each share of common stock is entitled to one vote. The holders of record of the shares of common stock, exclusively and as a separate
class, shall be entitled to elect one director of the Company. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of
holders of all classes of stock outstanding. On December 22, 2010, the Company executed a stock split of 3.526945 shares issued for every 1 common share issued (with no fractional shares issued). All share numbers listed as issued prior to this
date have been adjusted to reflect the number of shares issued post the stock split.
The Company executed a one-for-4.237 reverse stock
split of its issued and outstanding common stock on September 12, 2014. All share and per share amounts related to issued and outstanding common stock and outstanding options exercisable for common stock included in these financial statements
and notes to these financial statements have been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to deficit accumulated
during the development stage. The conversion ratios of the Companys Preferred Stock have also been adjusted to reflect the reverse stock split.
Restricted common stock
At various dates
in 2009 and 2010, the Company issued an aggregate of 1,746,958 shares of restricted common stock to its employee and non-employee founders at a fair value of $0.04 per share, which represented the fair value of the Companys common stock as
determined by management and the Board of Directors on the dates of issuance.
These awards of restricted common stock were not made under
the 2010 Stock Incentive Plan, but are subject to transfer restrictions and are subject to repurchase by the Company and, therefore, not accounted for as outstanding until they vest. On December 22, 2010, the Company repurchased 166,945
non-vested shares from one of its founders at cost. These shares are classified as treasury stock as of December 31, 2013. These shares were retired in 2014 and are no longer outstanding as of September 30, 2014.
13
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The following is a summary of restricted common stock activity outside of the 2010 Stock
Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Weighted- average grant date fair value |
|
Non-vested shares at December 31, 2013 |
|
|
244,167 |
|
|
$ |
0.04 |
|
Issued |
|
|
|
|
|
|
|
|
Vested |
|
|
(131,877 |
) |
|
$ |
0.04 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares at September 30, 2014 |
|
|
112,290 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vested was $530, $1,092 and $2,428 for the nine months ended September 30,
2013 and 2014 and for the period from June 17, 2009 (Inception) to September 30, 2014, respectively.
Redeemable convertible preferred stock
Redeemable convertible preferred stock consisted of the following as of December 31, 2013 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date |
|
Preferred shares issued and outstanding |
|
|
Carrying value December 31, 2013 |
|
|
Carrying value September 30, 2014 |
|
Series A |
|
December 27, 2010 |
|
|
11,764,706 |
|
|
$ |
14,470 |
|
|
$ |
15,207 |
|
|
|
April 15, 2011 |
|
|
2,500,000 |
|
|
|
3,019 |
|
|
|
3,175 |
|
|
|
December 20, 2011 |
|
|
14,264,706 |
|
|
|
16,580 |
|
|
|
17,425 |
|
Series B |
|
September 3, 2013 |
|
|
28,825,492 |
|
|
|
41,543 |
|
|
|
44,010 |
|
Series C |
|
August 22, 2014 |
|
|
17,000,000 |
|
|
|
|
|
|
|
55,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
74,354,904 |
|
|
$ |
75,612 |
|
|
$ |
135,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 27, 2010, the Company completed a Series A redeemable convertible preferred stock (Series A
Preferred Stock) financing and issued 11,764,706 shares of Series A Preferred Stock at $1 per share, for gross proceeds of approximately $11,764.
On April 15, 2011, the Company completed a second closing of the Series A Preferred Stock financing and issued 2,500,000 shares of Series
A Preferred Stock at $1 per share, for gross proceeds of approximately $2,500 from a new investor.
The Series A Preferred Stock purchase
investors also agreed to purchase up to an additional 14,264,706 shares of Series A Preferred Stock in one subsequent closing, at a fixed price of $1 per share, subject to the Companys attainment of certain milestones. The Company concluded
that the forward purchase contract was an embedded feature that was not legally detachable and did not require separate accounting treatment. The milestones were met and the final tranche was closed on December 20, 2011 where the then current
investors purchased 14,264,706 shares of Series A Preferred Stock at $1 per share, for gross proceeds of approximately $14,264.
On
September 3, 2013, the Company completed a Series B Preferred Stock financing and issued 28,825,492 shares of Series B Preferred Stock at $1.41 per share. Of the 28,825,492 shares issued, 20,513,630 shares were sold for proceeds of $28,924,
while 8,311,862 shares were issued at a value of $11,720 as a result of the conversion of the convertible notes plus accrued interest (Note 10).
14
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
On August 22, 2014, the Company completed a Series C Preferred Stock financing and
issued 17,000,000 shares at $3.25 per share for gross proceeds of approximately $55,250.
The Company assessed all terms and features of
the Preferred Stock in order to identify any potential embedded features that would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessed the economic characteristics and risks of its Preferred
Stock, including conversion and liquidation features, as well as dividend and voting rights. Based on the Companys determination that its Preferred Stock is an equity host, the Company determined that all features of the Preferred
Stock are most clearly and closely associated with an equity host, and, although the Preferred Stock includes conversion features, such conversion features do not require bifurcation as a derivative liability.
The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, herein referred to as Preferred Stock, have the following
rights and preferences:
Voting
Preferred stockholders are entitled to a number of votes equal to the number of whole shares of common stock into which the Preferred Stock is
convertible on the date of record. Holders of the Preferred Stock shall vote together with the holders of common stock as a single class, except for the election of the Board of Directors. For such election, the preferred stockholders shall vote
exclusively as a separate class to elect six directors. Any remaining director(s) of the Company shall be elected by the holders of common stock and the preferred stockholders voting as a single class.
The approval of a majority of the outstanding shares of Preferred Stock is required for certain events that may impact the rights and
preferences of the preferred stock, including to liquidate, wind up or dissolve the business, increase or decrease the number of shares of preferred or common stock to be issued, amend any provision of the certificate of incorporation, purchase or
redeem or pay or declare dividends on shares of capital stock, authorize any debt security exceeding $1,000 or adopt or amend equity-based compensation plans.
Dividends
Dividends accrue on
Preferred Stock from and after the date of issuance at a rate of $0.08, $0.1128 and $0.26 per annum per share of Series A, Series B and Series C Preferred Stock, respectively, whether or not declared by the Companys Board of Directors and are
cumulative. Such dividends shall be payable only when, as, and if declared by the Companys Board of Directors. For the period from June 17, 2009 (Inception) to September 30, 2014, no dividends have been declared or paid.
Liquidation preference
In the
event of any liquidation, dissolution, or winding up of the affairs of the Company, the holders of the then-outstanding Preferred Stock shall receive distribution, before any payment shall be made to the holders of common stock, the greater of
(1) Original Issue Price, which is $1 per share for Series A Preferred Stock, $1.41 per share for Series B Preferred Stock and $3.25 per share for Series C Preferred Stock, plus any accrued, but unpaid, dividends whether or not declared, or
(2) such amount per share of Preferred Stock payable as if converted into common stock. After the payment of any preferential amount to the preferred stockholders, any remaining assets of the Company shall be distributed ratably among the
holders of common stock. If the assets to be distributed to the holders of the Preferred Stock are insufficient to permit the payment to such holders of their full preferential amount, the assets legally available for distribution shall be
distributed first to the Series C Preferred Stock holders and then the remaining funds shall be distributed to the Series B Preferred Stock holders and then the remaining funds shall be distributed to the Series A Preferred Stock holders.
15
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Conversion
Each share of Preferred Stock, at the option of the holder, is convertible into a number of fully paid shares of common stock as determined by
dividing the initial Conversion Price, which is $4.237 per share for Series A Preferred Stock, $5.974 per share for Series B Preferred Stock and $13.77 per share for Series C Preferred Stock, by the conversion price in effect at the time of
conversion. The initial Conversion Price of the Preferred Stock is subject to adjustment upon the occurrence of certain events, such as stock splits and stock dividends. Conversion is mandatory upon the closing of a firm-commitment underwritten
public offering in which the public offering price equals or exceeds $13.77 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock)
and the gross proceeds are not less than $50,000 or at the date and time or the occurrence of an event specified by vote or written consent of the holders of at least the majority of the then-outstanding shares of Preferred Stock.
Redemption
Upon delivery of
notice in writing on or after August 22, 2017 by the holders of at least the majority of the then outstanding Preferred Stock voting together as a single class and not as separate series, and on an as-converted basis, requesting all shares of
Preferred Stock be redeemed, the Company will be required to redeem each share of Preferred Stock. The redemption price shall be equal to the applicable Original Issue Price per share plus accrued but unpaid dividends on such shares, whether or not
declared or such amount per share of Preferred Stock payable as if converted into common stock.
Stock incentive plan
The Companys 2010 Stock Incentive Plan (2010 Plan) provides for the issuance of a total of 3,482,313 shares of common stock in the form
of incentive stock options, non-qualified stock options, restricted stock, restricted stock units and other stock-based awards to directors, officers, employees, advisors and consultants of the Company as of September 30, 2014.
Generally, stock options are granted at not less than fair value as determined by the Board of Directors, expire no later than ten years from
the date of grant, and vest over various periods not exceeding four years. At September 30, 2014, no shares were available for future grant under the 2010 Plan.
The following is a summary of activity under the 2010 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Weighted- average exercise price per share |
|
|
Weighted- average remaining contractual term (in years) |
|
|
Aggregate intrinsic value |
|
Outstanding at December 31, 2013 |
|
|
2,045,214 |
|
|
$ |
1.55 |
|
|
|
9.3 |
|
|
$ |
1,027 |
|
Granted |
|
|
1,563,453 |
|
|
$ |
5.43 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(39,646 |
) |
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
(179,853 |
) |
|
$ |
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2014 |
|
|
3,389,168 |
|
|
$ |
3.33 |
|
|
|
9.0 |
|
|
$ |
63,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2014 |
|
|
796,384 |
|
|
$ |
1.54 |
|
|
|
8.3 |
|
|
$ |
16,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at September 30, 2014 |
|
|
3,389,168 |
|
|
$ |
3.33 |
|
|
|
9.0 |
|
|
$ |
63,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of options granted to employees and non-employees for the nine months ended September 30,
2013 and 2014 were calculated using the following estimated weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2013 |
|
|
2014 |
|
Risk-free interest rate |
|
|
1.28 |
% |
|
|
1.84 |
% |
Expected dividend yield |
|
|
|
% |
|
|
|
% |
Expected volatility |
|
|
69 |
% |
|
|
80 |
% |
Expected term (years) |
|
|
6.0 |
|
|
|
6.0 |
|
16
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The weighted average grant date fair value of options granted during the nine months ended
September 30, 2013 and 2014 and for the period from June 17, 2009 (Inception) to September 30, 2014 was $0.94, $3.96 and $2.23 per share, respectively.
The expected term utilized in the Black-Scholes option-pricing model for employees was determined according to the simplified method which
reflects the average of the vesting tranche dates and the contractual term. For non-employee options the contractual term was utilized for expected term. As there has been no public market for the Companys common stock, the Company has
determined the volatility for options granted based on an analysis of reported data for a representative group of companies that issued options with substantially similar terms. The risk-free rate is determined by reference to U.S. Treasury
zero-coupon issues with remaining maturities consistent with the expected term of the options. The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to
be zero. The Company estimates forfeitures at the time of grant and revises the estimates in subsequent periods if actual forfeitures differ from the estimates.
The following table summarizes the share-based compensation expense for stock options and restricted common stock granted to employees and
non-employees that was recorded in the Companys statements of operations for the nine months ended September 30, 2013 and 2014 and for the period from June 17, 2009 (Inception) to September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
Period from June 17, 2009 (Inception) to September 30, |
|
|
|
2013 |
|
|
2014 |
|
|
2014 |
|
Research and development |
|
$ |
104 |
|
|
$ |
578 |
|
|
$ |
967 |
|
General and administrative |
|
|
133 |
|
|
|
1,387 |
|
|
|
1,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
237 |
|
|
$ |
1,965 |
|
|
$ |
2,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2014 , there was $8,279 of total unrecognized compensation cost related to non-
vested equity awards. Total unrecognized compensation cost will be adjusted for future changes in forfeitures, if any. The Company expects to recognize that cost over a remaining weighted-average period of 3.0 years.
The total intrinsic value of options exercised during the nine months ended September 30, 2013 and 2014 and the period from June 17,
2009 (Inception) to September 30, 2014 was $7, $278 and $353, respectively. The intrinsic value is calculated as the difference between the fair value and the exercise price of the shares at the date of exercise.
On September 12, 2014, the Companys Board of Directors and the Companys shareholders adopted its 2014 Equity Incentive Plan
(2014 Plan), which will replace the 2010 Plan. The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards to
directors, officers, employees, advisors and consultants of the Company.
The Company has initially reserved 1,760,000 shares of its
common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2015, by
four percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Companys Board of Directors.
On September 12, 2014, the Companys Board of Directors and the shareholders adopted its 2014 Employee Stock Purchase Plan (2014
ESPP), which will become effective on a date determined by the Companys Board of Directors. Once effective, the 2014 ESPP will enable eligible employees to purchase shares of the Companys common stock at a discount following the date of
the offering.
The 2014 ESPP authorizes the initial issuance of up to a total of 576,945 shares of the Companys common stock to
participating eligible employees. Unless otherwise determined by the administrator of the 2014 ESPP, the first offering will begin on the first business day in January and July of each year.
17
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Shares reserved for future issuance
The Company has reserved the following shares of common stock, for the potential conversion of outstanding Preferred Stock, vesting of
restricted common stock, exercise of warrants to purchase redeemable convertible preferred stock and the exercise of stock options as of September 30, 2014:
|
|
|
|
|
Conversion of Series A Preferred Stock |
|
|
6,733,397 |
|
Conversion of Series B Preferred Stock |
|
|
6,803,274 |
|
Conversion of Series C Preferred Stock |
|
|
4,012,264 |
|
Vesting of restricted stock |
|
|
112,290 |
|
Options to purchase common stock |
|
|
5,149,168 |
|
Shares available under the 2014 ESPP |
|
|
576,945 |
|
Warrants to purchase redeemable convertible preferred stock |
|
|
25,107 |
|
|
|
|
|
|
Total |
|
|
23,412,445 |
|
|
|
|
|
|
9. Commitments and contingencies
Leases
In January 2011, the Company
entered into a sublease for its facility in Chelsea, Massachusetts. The sublease is with Alkermes, a related party (Note 10). The sublease term ends in December 2015. The sublease includes a free rent period, and the rent expense is being recognized
on a straight-line basis over the sublease term. The sublease agreement provides for two five-year extensions upon the completion of the sublease term. For each extension period, the economic terms of the sublease will be determined by a process set
forth in the sublease, and we will be required to provide a letter of credit in an amount equal to the full five-year lease obligation for each extension period.
As of September 30, 2014, the future minimum lease payments under the non-cancelable operating lease are as follows:
|
|
|
|
|
Year ending December 31, |
|
|
|
|
2014 (3 months) |
|
$ |
181 |
|
2015 |
|
|
722 |
|
|
|
|
|
|
Total |
|
$ |
903 |
|
|
|
|
|
|
Rent expense for the nine months ended September 30, 2013 and 2014 and for the period from June 17,
2009 (Inception) to September 30, 2014, was $502, $502 and $2,512, respectively
License agreement
The Company has a license agreement to a portfolio of patents from the Massachusetts Institute of Technology (MIT). Pursuant to the terms of
the license agreement, the Company agreed to make minimum annual payments to the university. The minimum annual payments are $100 for each year starting upon the assignment of the license in 2010 and ending when the patents expire in 2017. The
Company is obligated to pay royalties on the commercial sale of such licensed product through the end of 2017 or when the patents expire. The Company has included license expense as a component of research and development expense in the amounts of
$75, $75 and $375 for the nine months ended September 30, 2013 and 2014 and for the period from June 17, 2009 (Inception) to September 30, 2014, respectively.
18
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Contingencies
The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for
contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no contingent liabilities accrued as of December 31, 2013 or September 30, 2014.
10. Convertible notes
On
December 19, 2012, the Company issued convertible notes (the Notes) to the Preferred Stock investors for $9,000. These Notes held a 6% annual interest rate and were due and payable by the Company on demand by election of 66% of the holders of
the Notes (the Majority Note Holders) at any time after December 18, 2013, unless converted to shares of the Companys stock prior to such date. Under the terms of the Notes, the principal and unpaid accrued interest of the Notes would
automatically convert upon the occurrence of the Companys next Qualified Financing, one that involves at least one bona fide venture capital or institutional investor who is not a stockholder of the Company and results in at least $10,000 in
aggregate gross proceeds. Upon written election of the Majority Note Holders, a financing not meeting such criteria would also qualify as a Qualified Financing.
On September 3, 2013, the Company completed the Series B Preferred Stock financing, which constituted a Qualified Financing, and the
principal and unpaid accrued interest of the Notes automatically converted to shares of Series B Preferred Stock at a conversion price equal to 80% of the price paid per share in the financing.
The Company concluded that the feature which provided for the settlement of the Notes in shares of the Companys stock was an embedded
derivative as it was not clearly and closely related to the debt host, which was the Notes. As a result, the Company bifurcated the embedded derivative and calculated its fair value at issuance to be $1,630. The value of the derivative and accrued
interest were included in the total value of the Notes on the balance sheet at December 31, 2012. For the nine months ended September 30, 2013 and 2014, and for the period from June 17, 2009 (Inception) to September 30, 2014, the
Company recorded a change in the fair value of the embedded derivative of $682, $0, and $720, respectively. These changes have been recorded as a component of interest expense in each respective period.
The conversion of the Notes into Series B Preferred Stock was treated as an extinguishment of the Notes and embedded derivative. The Notes and
embedded derivative were removed at their carrying amounts, after a final adjustment to fair value on September 3, 2013. The shares of Series B Preferred Stock issued upon conversion of the Notes were recorded at fair value. The difference
between the carrying amount of the Notes and embedded derivative and the fair value of Series B Preferred Stock issued of $534 was recorded as a loss on the extinguishment of the Notes.
11. Alkermes agreement
On
December 27, 2010, the Company entered into the Alkermes Agreement, in which the Company licensed or acquired from Alkermes certain pulmonary development programs and INDs, underlying intellectual property and laboratory equipment associated
with the pulmonary business of Alkermes. The assets acquired includes (i) patents, patent applications and related know-how and documentation; (ii) a formulation of inhaled L-dopa; (iii) several other pulmonary development programs
and INDs, which are part of the platform device and formulation IP; (iv) instruments, laboratory equipment and apparatus; and (v) inhalers, inhaler molds, tools, and the associated assembled equipment. In addition, the Company signed the
sublease for the facility where the Alkermes operations were housed in Chelsea, Massachusetts. The Company considered these programs, intellectual property and laboratory equipment to be an integrated set of activities and assets that is capable of
being conducted and managed for the purpose of providing a return directly to investors and participants. These items were considered by the Company to be inputs and processes that could be managed as a business by a market participant and was
therefore accounted for as a business combination.
Under the terms of the Alkermes Agreement, the Company will also pay to Alkermes
royalties for each licensed product as follows: (i) for all licensed products sold by the Company, the Company will pay Alkermes a mid-single digit percentage of net sales of such licensed products and (ii) for all licensed products sold
by a Company collaboration partner, the
19
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Company will pay Alkermes the lower of a mid-single digit percentage of net sales of such licensed products in a given calendar year or a percentage in the low-to-mid-double digits of all
collaboration partner revenue received in such calendar year. Notwithstanding the foregoing, in no event shall the royalty paid be less than a low-single digit percentage of net sales of a licensed product in any calendar year.
12. Defined contribution plan
The
Company has a 401(k) defined contribution plan (the 401(k) Plan) for substantially all of its employees. Eligible employees may make pretax contributions to the 401(k) Plan up to statutory limits. At the election of the Board of Directors, the
Company may elect to match employee contributions, but did not as of December 31, 2013 and September 30, 2014 or for the period from June 17, 2009 (Inception) to September 30, 2014.
13. Revenue
In 2011, the Company
received a $313 grant to fund research and development services from the Michael J. Fox Foundation for Parkinsons Research (MJFF). Revenues recognized under this award have been recorded as service revenue during the nine months ended
September 30, 2013. There were no revenues for the nine months ended September 30, 2014.
The Company recognized additional
revenues under arrangements to perform manufacturing services of $730 for the period from June 17, 2009 (Inception) to September 30, 2014, respectively.
14. Other material arrangements
In June
2013, the Company received a new award from MJFF for $1,000. Within the terms of the award, a repayment provision will require the Company to return payment to MJFF for the $1,000 of research and development funding received upon attaining specific
levels of future product sales, or if the Company elects to suspend or cancel further product development.
The award was determined to be
a financing arrangement in substance and has been recorded as a non- current monetary liability as of December 31, 2013 and September 30, 2014. The Company recognizes the liability when cash is received from MJFF upon completion of
predetermined milestones. As of September 30, 2014, a total of $1,000 has been received and recognized as an other long-term liability.
15. Net
loss per share
Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as
basic net loss per common share.
20
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The following potentially dilutive securities outstanding, prior to the use of the treasury
stock method or if- converted method, have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact due to the losses reported:
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2013 |
|
|
2014 |
|
Options to purchase common stock |
|
|
919,270 |
|
|
|
3,389,168 |
|
Conversion of redeemable convertible preferred stock |
|
|
13,536,671 |
|
|
|
17,548,935 |
|
Unvested restricted stock |
|
|
288,143 |
|
|
|
112,290 |
|
Warrants to purchase redeemable convertible preferred stock |
|
|
|
|
|
|
25,107 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,744,084 |
|
|
|
21,075,500 |
|
|
|
|
|
|
|
|
|
|
16. Senior secured credit facility
On March 21, 2014, the Company entered into a Loan and Security Agreement (the senior secured credit facility) with Oxford Finance LLC and
Silicon Valley Bank (the Lenders) and made an initial draw of $5,000. The initial draw will require monthly amortization payments commencing on May 1, 2015. A second draw of up to $15,000 was available to the Company through September 30,
2014, subject to the satisfaction of certain conditions, including a determination by the Board of Directors to proceed with a CVT-301 Phase 3 clinical trial. The second draw was not elected to be drawn. Interest on the initial draw will accrue at
the rate of 7.95% per annum, payable monthly. All outstanding principal, plus a 6% final interest payment, will be due and payable on October 1, 2017. The senior secured credit facility draws are subject to a prepayment fee of 3% in the
first year, 2% in the second year and 1% in the third year. In conjunction with the senior secured credit facility, the Company incurred issuance costs of $211.
In connection with the initial $5,000 draw, the Company issued to the Lenders warrants to purchase 106,383 shares of Series B Preferred Stock
at an exercise price of $1.41 per share. The warrants expire in March 2024. If the Company makes the second draw under the senior secured credit facility, the Lenders will receive a proportionate amount of additional warrants.
Future principal payments on the initial draw are as follows:
|
|
|
|
|
Year ending December 31, |
|
|
|
|
2015 |
|
$ |
1,238 |
|
2016 |
|
|
1,984 |
|
2017 |
|
|
1,778 |
|
|
|
|
|
|
Total debt principal payments |
|
$ |
5,000 |
|
|
|
|
|
|
Long-term debt, net as of September 30, 2014 is as follows:
|
|
|
|
|
Total debt principal payments |
|
$ |
5,000 |
|
Less current portion of long-term debt, net |
|
|
(736 |
) |
Plus accrued final interest payments |
|
|
56 |
|
Less unamortized discount |
|
|
(196 |
) |
|
|
|
|
|
Total long-term debt, net |
|
$ |
4,124 |
|
|
|
|
|
|
17. Subsequent events
The Company considers events or transactions that occur after the balance sheet date, but prior to the issuance of the financial statements, to
provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date these financial statements were issued.
21
CIVITAS THERAPEUTICS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Sale of Company
On October 22, 2014, the Company was acquired by a wholly-owned subsidiary (Merger Sub) of Acorda in accordance with the Agreement and
Plan of Merger, dated as of September 24, 2014 (the Merger Agreement), by and among Acorda, Merger Sub, the Company and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the
securityholders representative (SRS). Pursuant to the terms of the Merger Agreement, Merger Sub has merged with and into the Company, which is the surviving corporation in the Merger and which is continuing as a wholly-owned subsidiary of
Acorda under the Civitas name. Pursuant to the terms of the Merger Agreement, all outstanding shares of the Companys common stock and preferred stock, options to purchase shares of the Companys common stock and warrants to purchase
shares of the Companys preferred stock, other than shares of the Companys common stock and the Companys preferred stock held by the Company (which were cancelled as a result of the Merger) were converted into the right to receive
$525,000 in cash in the aggregate, without interest, less (i) $5,300 due and payable under the Companys existing secured loan facility, consisting of $5,000 in principal and $300 in prepayment fees, (ii) $30,000 due and payable to
Alkermes in connection with the exercise by the Company of its option to purchase manufacturing facility equipment from Alkermes and (iii) a portion of the Companys transaction expenses.
22
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 22, 2014, Acorda Therapeutics, Inc. (Acorda) completed its acquisition of Civitas Therapeutics, Inc.
(Civitas) and obtained global rights to CVT-301, a Phase 3 treatment candidate for OFF episodes of Parkinsons disease (PD). OFF episodes are characterized by a re-emergence of PD symptoms such as tremor, muscle
stiffness and impaired ability to move. CVT-301 is a novel, self-administered inhaled therapy designed to provide rapid, reliable delivery of a precise dose of levodopa (L-dopa) through the lungs to return people with PD to an ON state. An ON state
is when a patients symptoms are adequately controlled, allowing people with PD to more readily perform daily activities. The standard of care for the treatment of PD symptoms is oral L-dopa. Oral dosing of L-dopa is associated with wide
variability in the timing and amount of L-dopa absorption into the bloodstream, leading to the unreliable control of symptoms resulting in the emergence of OFF episodes. These OFF episodes, which increase in frequency and severity during the course
of the disease, are experienced by a majority of PD patients and are considered one of the greatest unmet medical needs facing PD patients.
The acquisition also included rights to the proprietary ARCUS® pulmonary delivery
technology, and a manufacturing facility with commercial-scale capabilities based in Chelsea, MA.
In accordance with the Agreement and
Plan of Merger, dated as of September 24, 2014, (the Merger Agreement), by and among Acorda, Five A Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Acorda (Merger Sub), Civitas and
Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the securityholders representative (SRS), Merger Sub has merged with and into Civitas, which is the surviving corporation in
the Merger and which is continuing as a wholly-owned subsidiary of Acorda under the Civitas name. Pursuant to the terms of the Merger Agreement, all outstanding shares of Civitas common stock and Civitas preferred stock, options to purchase shares
of Civitas common stock and warrants to purchase shares of Civitas preferred stock, other than shares of Civitas common stock and Civitas preferred stock held by Civitas (which were cancelled as a result of the Merger) were converted into the right
to receive $525.0 million in cash in the aggregate, without interest, less (i) $5.3 million due and payable under Civitas existing secured loan facility, consisting of $5.0 million in principal and $0.3 million in prepayment fees,
(ii) $30.0 million due and payable to Alkermes, Inc. (Alkermes) in connection with the exercise by Civitas of its option to purchase manufacturing facility equipment from Alkermes and (iii) a portion of Civitas
transaction expenses. Also pursuant to the Merger Agreement, upon consummation of the Merger, $39.375 million of the aggregate consideration was deposited into escrow to secure the indemnification obligations of Civitas and Civitas
securityholders, and an additional $0.5 million of the aggregate consideration was deposited with SRS for reimbursements payable to SRS under the terms of the Merger Agreement. Acorda also paid approximately $4.5 million in Civitas transactions
costs associated with this acquisition at closing.
The aggregate consideration for acquisition accounting, including extinguishment of
Civitas debt approximated $530 million, calculated as follows (in thousands):
|
|
|
|
|
Cash paid |
|
$ |
524,201 |
|
Extinguishment of long-term debt |
|
|
5,325 |
|
|
|
|
|
|
Fair value of consideration transferred |
|
$ |
529,526 |
|
|
|
|
|
|
1
The Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2014 gives
effect to the acquisition and related transactions as if they had been completed on September 30, 2014. The Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2013 and for the nine months ended
September 30, 2014 give effect to the acquisition and related transactions as if they had occurred on January 1, 2013.
The
Unaudited Pro Forma Condensed Combined Financial Statements, referred to as the Unaudited Pro Forma Financial Statements, were derived from and should be read in conjunction with the following:
|
|
|
Consolidated Financial Statements of Acorda as of and for the year ended December 31, 2013 and the related notes included in Acordas Annual Report on Form 10-K for the year ended December 31, 2013;
|
|
|
|
Consolidated Financial Statements of Acorda as of and for the nine months ended September 30, 2014 and the related notes included in Acordas Quarterly Report on Form 10-Q for the three and nine months ended
September 30, 2014; |
|
|
|
Audited Consolidated Financial Statements of Civitas as of and for the years ended December 31, 2013 and 2012 and for the period from June 17, 2009 (Inception) to December 31, 2013 and the related notes
included as Exhibit 99.1 to this current report on Form 8-K/A; and |
|
|
|
Unaudited Consolidated Financial Statements of Civitas as of September 30, 2014 and December 31, 2013, for the nine-month periods ended September 30, 2014 and 2013 and for the period from June 17,
2009 (Inception) to September 30, 2014 and the related notes included as Exhibit 99.2 to this current report on Form 8-K/A. |
Acorda has been treated as the acquirer for accounting purposes. The allocation of the purchase price was based upon the estimated fair value
of the assets acquired and liabilities assumed.
The Unaudited Pro Forma Financial Statements have been prepared in a manner consistent
with Acordas accounting policies. The unaudited pro forma adjustments were based on certain assumptions and estimates that Acorda believes are reasonable. Pro forma adjustments have been included only to the extent adjustments are directly
attributable to the transaction, and appropriate information is known, factually supportable and reasonably available to Acorda. There were no transactions between Acorda and Civitas during the periods presented in the Unaudited Pro Forma Financial
Statements that needed to be eliminated. The accompanying Unaudited Pro Forma Financial Statements are presented in accordance with Article 11 of Regulation S-X.
The Unaudited Pro Forma Financial Statements have been prepared using the acquisition method of accounting under generally accepted accounting
principles in the U.S. (U.S. GAAP). Under the acquisition method of accounting, the purchase price is allocated to
2
underlying assets acquired and liabilities assumed based on their respective fair market values, with any excess purchase price allocated to goodwill. The pro forma purchase price allocation has
been derived from estimates of the fair market value of the tangible and intangible assets and liabilities of Civitas based upon managements estimates using established valuation techniques. Acorda managements judgments used to determine
the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact Acordas results of operations. The total purchase price has been allocated on a preliminary basis to
identifiable assets acquired and liabilities assumed based upon valuation procedures performed to date. This allocation is subject to change pending a final analysis of the total purchase price paid, and the estimated fair value of the assets
acquired and liabilities assumed. The differences between the initial and final allocation of purchase price could be material. Acorda will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event
later than one year following the acquisition date.
The Unaudited Pro Forma Financial Statements are not necessarily indicative of what
the combined companys financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, the Unaudited Pro Forma Financial Statements do not purport to project the future
financial position or operating results of the combined company. Accordingly, the Unaudited Pro Forma Financial Statements do not reflect any cost savings or other synergies that the combined company may achieve as a result of the merger or the
potential costs to integrate the operations of Acorda and Civitas or the costs necessary to achieve these cost savings and other synergies. The effects of the foregoing items may materially impact the Unaudited Pro Forma Financial Statements.
3
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acorda |
|
|
Civitas |
|
|
Pro Forma Adjustments (See Note 4) |
|
|
Pro Forma Combined |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, restricted cash and short-term investments |
|
$ |
766,635 |
|
|
$ |
59,174 |
|
|
$ |
(529,526 |
) |
|
|
a |
|
|
$ |
296,283 |
|
Accounts receivable |
|
|
24,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,792 |
|
Prepaid expenses |
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
Finished goods inventory held by the Company |
|
|
26,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,645 |
|
Finished goods inventory held by the others |
|
|
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
570 |
|
Deferred tax asset |
|
|
5,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,873 |
|
Other current assets |
|
|
10,374 |
|
|
|
938 |
|
|
|
(13 |
) |
|
|
h |
|
|
|
11,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
843,889 |
|
|
|
60,112 |
|
|
|
(529,539 |
) |
|
|
|
|
|
|
374,462 |
|
Property and equipment |
|
|
17,089 |
|
|
|
3,858 |
|
|
|
24,055 |
|
|
|
b |
|
|
|
45,002 |
|
Goodwill |
|
|
|
|
|
|
550 |
|
|
|
178,422 |
|
|
|
c |
|
|
|
178,972 |
|
Deferred tax asset |
|
|
84,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,885 |
|
Intangible assets |
|
|
16,865 |
|
|
|
7,732 |
|
|
|
413,268 |
|
|
|
d |
|
|
|
437,865 |
|
Deferred expenses |
|
|
|
|
|
|
75 |
|
|
|
(75 |
) |
|
|
h |
|
|
|
|
|
Non-current portion of deferred cost of license revenue |
|
|
3,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,698 |
|
Restricted cash |
|
|
|
|
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
1,002 |
|
Other assets |
|
|
6,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
972,767 |
|
|
$ |
73,329 |
|
|
$ |
86,131 |
|
|
|
|
|
|
$ |
1,132,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
20,507 |
|
|
$ |
2,153 |
|
|
$ |
|
|
|
|
|
|
|
$ |
22,660 |
|
Accrued expenses and other current liabilities |
|
|
39,785 |
|
|
|
5,348 |
|
|
|
2,740 |
|
|
|
e |
|
|
|
47,840 |
|
|
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
h |
|
|
|
|
|
Deferred product revenueZanaflex |
|
|
29,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,515 |
|
Current portion of deferred rent |
|
|
|
|
|
|
52 |
|
|
|
(52 |
) |
|
|
f |
|
|
|
|
|
Deferred collaborative revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of deferred license revenue |
|
|
9,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,057 |
|
Current portion of revenue interest liability |
|
|
913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913 |
|
Long-term obligationscurrent portion |
|
|
|
|
|
|
736 |
|
|
|
(736 |
) |
|
|
h |
|
|
|
|
|
Current portion of convertible notes payable |
|
|
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
100,921 |
|
|
|
8,289 |
|
|
|
1,919 |
|
|
|
|
|
|
|
111,129 |
|
Convertible senior notes |
|
|
285,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,825 |
|
Non-current portion of deferred license revenue |
|
|
52,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,835 |
|
Non-current portion of revenue interest liability |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Non-current portion of convertible notes payable |
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,159 |
|
Warrants to purchase redeemable convertible preferred stock |
|
|
|
|
|
|
485 |
|
|
|
(485 |
) |
|
|
g |
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
8,100 |
|
|
|
4,124 |
|
|
|
(4,124 |
) |
|
|
h |
|
|
|
8,100 |
|
Deferred rent |
|
|
|
|
|
|
13 |
|
|
|
(13 |
) |
|
|
f |
|
|
|
|
|
Contingent consideration |
|
|
|
|
|
|
44,076 |
|
|
|
6,324 |
|
|
|
i |
|
|
|
50,400 |
|
Deferred taxes |
|
|
|
|
|
|
154 |
|
|
|
100,438 |
|
|
|
j |
|
|
|
100,592 |
|
Other non-current liabilities |
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
449,854 |
|
|
|
58,141 |
|
|
|
104,059 |
|
|
|
|
|
|
|
612,054 |
|
Series A Preferred stock |
|
|
|
|
|
|
35,807 |
|
|
|
(35,807 |
) |
|
|
k |
|
|
|
|
|
Series B Preferred stock |
|
|
|
|
|
|
44,010 |
|
|
|
(44,010 |
) |
|
|
k |
|
|
|
|
|
Series C Preferred stock |
|
|
|
|
|
|
55,638 |
|
|
|
(55,638 |
) |
|
|
k |
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
41 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
k |
|
|
|
41 |
|
Treasury stock |
|
|
(329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329 |
) |
Additional paid-in capital |
|
|
743,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743,776 |
|
Accumulated deficit |
|
|
(220,741 |
) |
|
|
(120,269 |
) |
|
|
120,269 |
|
|
|
k |
|
|
|
(223,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
(2,740 |
) |
|
|
e |
|
|
|
|
|
Accumulated other comprehensive income |
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
522,913 |
|
|
|
15,188 |
|
|
|
(17,928 |
) |
|
|
|
|
|
|
520,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and stockholders equity |
|
$ |
972,767 |
|
|
$ |
73,329 |
|
|
$ |
86,131 |
|
|
|
|
|
|
$ |
1,132,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these
statements
4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acorda |
|
|
Civitas |
|
|
Pro Forma Adjustments (See Note 4) |
|
|
Pro Forma Combined |
|
|
|
(In thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product revenues |
|
$ |
310,317 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
310,317 |
|
Service revenue |
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
53 |
|
Royalty revenues |
|
|
17,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,056 |
|
License revenues |
|
|
9,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
336,430 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
336,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
66,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,009 |
|
Cost of milestone and license revenue |
|
|
634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634 |
|
Research and development |
|
|
53,877 |
|
|
|
15,526 |
|
|
|
2,918 |
|
|
|
l |
|
|
|
72,321 |
|
Selling, general and administrative |
|
|
185,545 |
|
|
|
4,812 |
|
|
|
|
|
|
|
|
|
|
|
190,357 |
|
Remeasurement of contingent consideration |
|
|
|
|
|
|
5,255 |
|
|
|
|
|
|
|
|
|
|
|
5,255 |
|
Amortization of purchased intangible |
|
|
|
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
306,065 |
|
|
|
25,786 |
|
|
|
2,918 |
|
|
|
|
|
|
|
334,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
30,365 |
|
|
|
(25,733 |
) |
|
|
(2,918 |
) |
|
|
|
|
|
|
1,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (net): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and amortization of debt discount expense |
|
|
(2,170 |
) |
|
|
(2,141 |
) |
|
|
|
|
|
|
|
|
|
|
(4,311 |
) |
Loss on extinguishment of convertible notes |
|
|
|
|
|
|
(534 |
) |
|
|
|
|
|
|
|
|
|
|
(534 |
) |
Interest income |
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668 |
|
Other income (expense) |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense (net) |
|
|
(1,502 |
) |
|
|
(2,665 |
) |
|
|
|
|
|
|
|
|
|
|
(4,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
28,863 |
|
|
|
(28,398 |
) |
|
|
(2,918 |
) |
|
|
|
|
|
|
(2,453 |
) |
Benefit from (provision for) income taxes |
|
|
(12,422 |
) |
|
|
(49 |
) |
|
|
13,550 |
|
|
|
o |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
16,441 |
|
|
$ |
(28,447 |
) |
|
$ |
10,632 |
|
|
|
|
|
|
$ |
(1,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.03 |
) |
Diluted |
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
40,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,208 |
|
Diluted |
|
|
41,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,208 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these
statements.
5
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acorda |
|
|
Civitas |
|
|
Pro Forma Adjustments (See Note 4) |
|
|
Pro Forma Combined |
|
|
|
(In thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product revenues |
|
$ |
262,662 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
262,662 |
|
Service revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenues |
|
|
14,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,153 |
|
License revenues |
|
|
6,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
283,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
55,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,004 |
|
Cost of milestone and license revenue |
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476 |
|
Research and development |
|
|
47,548 |
|
|
|
18,162 |
|
|
|
2,157 |
|
|
|
l |
|
|
|
67,867 |
|
Selling, general and administrative |
|
|
145,357 |
|
|
|
10,681 |
|
|
|
(2,656 |
) |
|
|
m |
|
|
|
153,382 |
|
Remeasurement of contingent consideration |
|
|
|
|
|
|
23,527 |
|
|
|
|
|
|
|
|
|
|
|
23,527 |
|
Amortization of purchased intangible |
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
248,385 |
|
|
|
52,514 |
|
|
|
(499 |
) |
|
|
|
|
|
|
300,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
35,223 |
|
|
|
(52,514 |
) |
|
|
499 |
|
|
|
|
|
|
|
(16,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (net): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and amortization of debt discount expense |
|
|
(5,116 |
) |
|
|
(329 |
) |
|
|
329 |
|
|
|
n |
|
|
|
(5,116 |
) |
Interest income |
|
|
596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
596 |
|
Other income (expense) |
|
|
|
|
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense (net) |
|
|
(4,520 |
) |
|
|
(675 |
) |
|
|
329 |
|
|
|
|
|
|
|
(4,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
30,703 |
|
|
|
(53,189 |
) |
|
|
828 |
|
|
|
|
|
|
|
(21,658 |
) |
Benefit from (provision for) income taxes |
|
|
(13,361 |
) |
|
|
(37 |
) |
|
|
23,076 |
|
|
|
o |
|
|
|
9,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
17,342 |
|
|
$ |
(53,226 |
) |
|
$ |
23,904 |
|
|
|
|
|
|
$ |
(11,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.29 |
) |
Diluted |
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.29 |
) |
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
41,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,022 |
|
Diluted |
|
|
42,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,022 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these
statements.
6
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (continued)
NOTE 1. Description of Transaction
On
October 22, 2014, Acorda Therapeutics, Inc., a Delaware corporation (Acorda or the Company) completed its acquisition of Civitas Therapeutics, Inc., a Delaware corporation (Civitas) in accordance with the
Agreement and Plan of Merger, dated as of September 24, 2014 (the Merger Agreement), by and among Acorda, Five A Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Acorda ( Merger Sub),
Civitas and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the securityholders representative (SRS). In accordance with the Merger Agreement, Merger Sub has merged with and
into Civitas, which is the surviving corporation in the Merger and which is continuing as a wholly-owned subsidiary of Acorda under the Civitas name. Pursuant to the terms of the Merger Agreement, all outstanding shares of Civitas common stock and
Civitas preferred stock, options to purchase shares of Civitas common stock and warrants to purchase shares of Civitas preferred stock, other than shares of Civitas common stock and Civitas preferred stock held by Civitas (which were cancelled as a
result of the Merger) were converted into the right to receive $525.0 million in cash in the aggregate, without interest, less (i) $5.3 million due and payable under Civitas existing secured loan facility, consisting of $5.0 million in
principal and $0.3 million in prepayment fees, (ii) $30.0 million due and payable to Alkermes, Inc. (Alkermes) in connection with the exercise by Civitas of its option to purchase manufacturing facility equipment from Alkermes and
(iii) a portion of Civitas transaction expenses. Also pursuant to the terms of the Merger Agreement, upon consummation of the Merger, $39.375 million of the aggregate consideration was deposited into escrow to secure the indemnification
obligations of Civitas and Civitas securityholders, and an additional $0.5 million of the aggregate consideration was deposited with SRS for reimbursements payable to SRS under the terms of the Merger Agreement. Acorda also paid approximately
$4.5 million in Civitas transactions costs associated with this acquisition at closing.
NOTE 2. Basis of Presentation
These Unaudited Pro Forma Financial Statements were prepared using the acquisition method of accounting in accordance with Financial
Accounting Standards Boards Accounting Standards Codification (which is referred to as ASC) 805, Business Combinations, and use the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures.
Acorda is considered to be the acquirer. ASC 805 requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The pro forma adjustments reflected in the
accompanying Unaudited Pro Forma Condensed Combined Financial Statements are based on Acordas preliminary evaluation and review of the assets acquired and liabilities assumed. Upon finalization of the valuation, the components and allocation
of the purchase price may change as those evaluations and reviews are completed.
7
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (continued)
Under ASC 805, merger-related transaction costs (such as advisory, legal, valuation
and other professional fees) are expensed in the periods in which the costs are incurred. Total estimated merger-related transaction costs, including advisory, legal, regulatory and valuation costs and expected to be incurred by Acorda are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acorda |
|
|
Civitas |
|
|
Total |
|
Total transaction costs |
|
$ |
7,248 |
|
|
$ |
9,049 |
|
|
$ |
16,297 |
|
Amount expensed as of September 30, 2014 |
|
|
(2,355 |
) |
|
|
(301 |
) |
|
|
(2,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred after September 30, 2014 |
|
$ |
4,893 |
|
|
$ |
8,748 |
|
|
$ |
13,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs to be incurred by Acorda are reflected in the Unaudited Pro Forma Condensed Combined Balance
Sheet as an increase in accumulated deficit and unpaid costs are reflected as an increase in accrued liabilities. The remaining transaction costs to be incurred by Civitas are included in the liabilities assumed in connection with the merger. All
transaction costs have been excluded from the Unaudited Pro Forma Condensed Combined Statement of Operations as they are non-recurring in nature. There were no transactions between Acorda and Civitas that need to be eliminated.
NOTE 3. Estimate of Assets to be Acquired and Liabilities to be Assumed
The allocation of the preliminary purchase price to the fair values of assets acquired and liabilities assumed reflects the estimated fair
values of Civitas assets and liabilities as of the acquisition date. The final allocation of the purchase price could differ materially from the preliminary allocation used for the pro forma financial statements.
The following is a preliminary allocation of the purchase price as of September 30, 2014 (in thousands):
|
|
|
|
|
Current assets |
|
$ |
60,099 |
|
Property and equipment |
|
|
27,913 |
|
Intangible assets |
|
|
421,000 |
|
Other noncurrent assets |
|
|
1,002 |
|
Current liabilities |
|
|
(7,468 |
) |
Contingent consideration |
|
|
(50,400 |
) |
Deferred taxes |
|
|
(100,592 |
) |
Other non-current liabilities |
|
|
(1,000 |
) |
|
|
|
|
|
Fair value of assets and liabilities acquired |
|
|
350,554 |
|
Goodwill |
|
|
178,972 |
|
|
|
|
|
|
Total Purchase Price |
|
|
529,526 |
|
Amount paid to extinguish long-term debt |
|
|
(5,325 |
) |
|
|
|
|
|
Cash Paid |
|
$ |
524,201 |
|
|
|
|
|
|
8
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (continued)
NOTE 4. Pro Forma Adjustments
Adjustments included in the columns under the heading Pro Forma Adjustments represent the following:
|
(a) |
To adjust cash for amounts paid to Civitas and its creditors totaling approximately $529,526,000. |
|
(b) |
To adjust property and equipment as a result of acquisition accounting as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Carrying Value |
|
|
Fair Value |
|
|
Adjustment |
|
|
Estimated Life |
|
Property and equipment |
|
$ |
3,858 |
|
|
$ |
27,913 |
|
|
$ |
24,055 |
|
|
|
8 years |
|
|
(c) |
Goodwill is calculated as the excess of the purchase price consideration transferred over the fair value of the underlying assets acquired and liabilities assumed. The pro forma adjustment to goodwill also includes the
elimination of goodwill on Civitas historical financial statements. Goodwill was adjusted as follows as a result of the acquisition (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Carrying Value |
|
|
Fair Value |
|
|
Adjustment |
|
Assets acquired in excess of purchase price |
|
$ |
550 |
|
|
$ |
178,972 |
|
|
$ |
178,422 |
|
|
(d) |
As of the acquisition date, identifiable intangible assets, were measured at fair value primarily using various income approaches, which required a forecast of expected future cash flows, for the use of a
multi-period excess earnings method. Intangible assets primarily relate to in process research and development related to Arcus technology and CVT-301 technology. |
To record the difference between the preliminary fair value of intangible assets and the historical carrying value of Civitass intangible
assets as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Carrying Value |
|
|
Fair Value |
|
|
Adjustment |
|
|
Estimated Life |
|
Intangible assets |
|
$ |
7,732 |
|
|
$ |
421,000 |
|
|
$ |
413,268 |
|
|
|
Indefinite |
|
|
(e) |
To record Acordas estimated transaction costs for advisory, legal, regulatory and valuation costs totaling $4,893,000, less deferred income taxes of $2,153,000. Civitas estimated transaction costs were paid
at closing. |
9
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (continued)
|
(f) |
To eliminate deferred rent as follows (in thousands): |
|
|
|
|
|
Current |
|
$ |
(52 |
) |
Noncurrent |
|
|
(13 |
) |
|
|
|
|
|
|
|
$ |
(65 |
) |
|
|
|
|
|
|
(g) |
To eliminate the warrants to purchase redeemable convertible preferred stock totaling $485,000. |
|
(h) |
To adjust for the repayment of Civitas outstanding long-term obligations current portion of $736,000 and long-term obligations, net of current portion, of $4,124,000, and related accrued interest of
$33,000, and current and non-current debt issuance costs of $13,000 and $75,000, respectively. |
|
(i) |
To adjust contingent consideration related to the potential milestone payments to fair value (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Carrying Value |
|
|
Fair Value |
|
|
Adjustment |
|
Contingent consideration |
|
$ |
44,076 |
|
|
$ |
50,400 |
|
|
$ |
6,324 |
|
|
(j) |
No adjustments to the tax basis of Civitas assets and liabilities are expected as a result of the merger. Accordingly, deferred income taxes at September 30, 2014 have been adjusted by approximately
$100,438,000 for temporary differences caused by book and tax differences after the allocation of the pro forma purchase price using Acordas statutory income tax rate (including state taxes). |
|
(k) |
To eliminate the redeemable convertible preferred stock and stockholders equity associated with assets acquired and liabilities assumed (in thousands): |
|
|
|
|
|
Series A Preferred stock |
|
$ |
35,807 |
|
Series B Preferred stock |
|
|
44,010 |
|
Series C Preferred stock |
|
|
55,638 |
|
Common Stock |
|
|
2 |
|
Accumulated deficit |
|
|
(120,269 |
) |
|
|
|
|
|
|
|
$ |
15,188 |
|
|
|
|
|
|
|
(l) |
Property and equipment will be depreciated over an estimated remaining useful life of eight years. The estimated remaining useful life was based on the useful life for similar assets adjusted for the estimated age of
Civitass equipment. |
The Company has not completed its analysis of the intangible assets. The CVT-301 technology has
not yet received FDA approval and has not been placed into production. Such analysis is expected to be finalized in the fourth quarter of 2015, but in no event later than one year following the acquisition date.
10
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (continued)
To adjust depreciation expense as follows for the year ended December 31, 2013 and for
the nine months ended September 30, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2013 |
|
|
Nine months ended September 30, 2014 |
|
Depreciation of acquired equipment |
|
$ |
2,918 |
|
|
$ |
2,157 |
|
The preliminary estimated useful lives and fair value of equipment acquired were determined in accordance with
procedures described above. With other assumptions held constant, a 10% increase in the fair value adjustment for property and equipment and intangible assets as calculated would increase annual pro forma depreciation expense by approximately
$349,000. With other assumptions held constant, a decrease of one year in the estimated remaining average useful lives of property and equipment would increase pro forma depreciation expense by approximately $498,000.
|
(m) |
To eliminate non-recurring transaction costs incurred during the nine months ended September 30, 2014 as follows (in thousands): |
|
|
|
|
|
Acorda |
|
$ |
2,355 |
|
Civitas |
|
|
301 |
|
|
|
|
|
|
|
|
$ |
2,656 |
|
|
|
|
|
|
|
(n) |
Civitas entered into a Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank on March 21, 2014. To eliminate historical interest expense of $329,000 for the nine months ended
September 30, 2014 related to Civitass debt that was repaid at closing. |
|
(o) |
To record the income tax benefit of Civitas net loss reflecting Acordas statutory tax rate (including state income taxes) of approximately 44.0%. |
11
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