Kad
mon Holdings, Inc. and Subsidiaries
Notes to consolidated financial statements
1. Organization
Nature of Business
Kadmon Holdings, Inc. (together with its subsidiaries, “Kadmon” or “Company”) is a fully integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of significant unmet medical needs. The Company is actively developing product candidates in a number of indications within autoimmune and fibrotic disease, oncology and genetic diseases. The Company leverages its multi
‑disciplinary research and clinical development team members to identify and pursue a diverse portfolio of novel product candidates, both through in-licensing products and employing its small molecule and biologics platforms. By retaining global commercial rights to its lead product candidates, the Company believes that it has the ability to progress these candidates while maintaining flexibility for commercial and licensing arrangements. The Company expects to continue to progress its clinical candidates and have further clinical trial events throughout 2017.
Corporate Conversion, Initial Public Offering and Debt Conversion
On July 26, 2016, in connection with the pricing of the Company’s IPO, Kadmon Holdings, LLC filed a certificate of conversion, whereby Kadmon Holdings, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to Kadmon Holdings, Inc. As a result of the corporate conversion, accumulated deficit was reduced to zero on the date of the corporate conversion, and the corresponding amount was credited to additional paid-in capital. In connection with this corporate conversion, the Company filed a certificate of incorporation and adopted bylaws, all of which were previously approved by the Company’s board of
directors
and
stockholders
. Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue up to
200,000,000
shares of common stock
$0.001
par value per share and
10,000,000
shares of preferred stock
$0.001
par value per share. All references in the audited consolidated financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect this conversion.
On August 1, 2016, the Company completed its IPO whereby it sold
6,250,000
shares of common stock at
$12.00
per share. The aggregate net proceeds received by the Company from the offering were
$66.0
million, net of underwriting discounts and commissions of
$5.3
million and offering expenses of
$3.7
million. Upon the closing of the IPO,
45,078,666
shares of common stock were outstanding, which includes
19,034,467
shares of common stock as a result of the conversion of the Company’s Senior Convertible Term Loan and Second Lien Convert (Note
7
). The shares began trading on the New York Stock Exchange on July 27, 2016 under the symbol “KDMN.”
Liquidity
The Company had an accumulated deficit of
$155.7
million and working capital of
$15.5
million at
December 31, 2016
. For the
year ended December 31, 2016
, the Company earned a
$2.0
million milestone payment pursuant to a license agreement entered into with Jinghua to develop products using human monoclonal antibodies and raised $5.5 million through the issuance of Class E redeemable convertible units in June 2016. Additionally, the Company raised
$66.0
million, net of underwriting discounts and commissions and offering expenses, in its IPO
and raised
gross
proceeds of
$
22.7
million in March 2017
,
$21.3
million net of
placement agent
fees,
which is expected to
enable the Company to advance its planned Phase 2 clinical studies for KD025 and tesevatinib, complete its planned
development
for KD034
and
advance certain of its other pipeline product candidates
.
On November 4, 2016, the Company executed a second amendment to the 2015 Credit Agreement. Pursuant to this amendment, the Company deferred further principal payments owed under the 2015 Credit Agreement in the amount of
$380,000
per month until August 31, 2017. Additionally, the parties amended various clinical development milestones and added a covenant pursuant to which the Company is required to raise
$40.0
million of additional equity capital by the end of the second quarter of 2017. All other material terms of the 2015 Credit Agreement, including the maturity date, remain the same. The Company maintained cash and cash equivalents of
$36.1
million at
December 31, 2016
.
Management’s plans include continuing to finance operations through the issuance of additional equity instruments and securities and increasing the commercial portfolio through the development of the current pipeline or through the acquisition of a third party or license agreement. Any transactions which occur may contain covenants that restrict the ability of management to operate the business or may have rights, preferences or privileges senior to the Company’s common stock and may dilute current stockholders of the Company. Engaging in a transaction with a third party is contingent on negotiations
among the parties; therefore, there is no certainty that the Company will enter into such an agreement should the Company so desire
.
2. Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has been dependent on funding operations through the issuance of debt and sale of equity securities. The Company expects to incur further losses over the next several years as it develops its business.
Further, at
December 31, 2016
, the Company had working capital of only
$15.5
million.
The Company’s a
ccumulated deficit amounted to
$155.7
million and
$643.8
million at
December 31, 2016 and 2015
, respectively.
Net cash used in operating activities was
$53.0
million,
$61.0
million and
$8.5
million for
years ended December 31, 2016, 2015 and 2014
.
The Company must raise additional capital to fund its continued operations and
remain in compliance with its debt covenants. The Company
may not be successful in its efforts to raise additional funds or achieve profitable operations. Amounts raised will be used for further development of the Company’s product candidates, to provide financing for marketing and promotion, to secure additional property and equipment, and for other working capital purposes. Even if the Company is able to raise additional funds through the sale of its equity securities, or loans from financial institutions, the Company’s cash needs could be greater than anticipated in which case it could be forced to raise additional capital.
In
March 2017, the Company
raised
$22.7
million in gross proceeds,
$21.3
million net of
$1.4
million in
placement agent
fees
, from the issuance of
6,767,855
shares of
its
common stock, at a price of
$3.36
per share, and warrants to purchase
2,707,138
million shares of
its
common stock at an initial exercise price of
$4.50
per share
for a term of 13 months from the date of issuance
(
See Note
21)
.
At the present time, the Company has no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to the Company on commercially acceptable terms or at all. If the Company cannot obtain the needed capital, it may not be able to become profitable and may have to curtail or cease its operations. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern
.
3. Summary of Significant Accounting Policies
Basis of Presentation
The Company operates in
one
segment considering the nature of the Company’s products and services, class of customers, methods used to distribute the products and the regulatory environment in which the Company operates.
R
esearch and development expenses, and selling, general and administrative expenses were revised to conform to the current presentation with regard to the Company’s method of allocating a portion of facility-related expenses to research and development expenses to more accurately reflect the effort spent on research and development. For the
years ended December 31, 2015 and 2014
, the Company reclassified
$3.9
million
and
$3.8
million
respectively, from selling, general and administrative expenses to research and development expenses.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Kadmon Holdings, Inc. and its domestic and international subsidiaries, all of which are wholly owned.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
Company Valuation
To estimate certain expenses and record certain transactions, it was necessary for the Company to estimate the fair value of its membership units. Given the absence of a public trading market prior to the IPO, and in accordance with the American Institute of Certified Public Accountants’ Practice Guide, “Valuation of Privately
‑Held
‑Company Equity Securities Issued as Compensation”, the Company exercised reasonable judgment and considered numerous objective and subjective factors to determine its best estimate of the fair value of its membership units (Note 4).
Revenue Recognition
The Company recognizes sales when the risk of loss has been transferred to the customer. As is typical in the pharmaceutical industry, gross product sales are subject to a variety of deductions, primarily representing rebates, chargebacks, returns, and discounts to government agencies, wholesalers, and managed care organizations. These deductions represent management’s best estimates of the related reserves and, as such, judgment is required when estimating the impact of these sales deductions on gross sales for a reporting period. If estimates are not representative of the actual future settlement, results could be materially affected. The Company’s product sales were substantially derived from the sale of its ribavirin portfolio of products during the
years ended December 31, 2016, 2015 and 2014
.
The Company accounts for revenue arrangements that contain multiple deliverables in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 605
‑25, “Revenue Recognition for Arrangements with Multiple Elements”, which addresses the determination of whether an arrangement involving multiple deliverables contains more than one unit of accounting. A delivered item within an arrangement is considered a separate unit of accounting only if both of the following criteria are met:
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the delivered item has value to the customer on a stand
‑alone basis; and
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the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in control of the vendor.
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In accordance with FASB ASC Topic 605
‑25, if both of the criteria above are not met, then separate accounting for the individual deliverables is not appropriate. Revenue recognition for arrangements with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the expected period of performance, either on a straight
‑line basis or on a modified proportional performance method.
Non
‑refundable license fees are recognized as revenue when the Company has a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the receivable is reasonably assured and the Company has no future performance obligations under the license agreement.
The Company may earn contingent payments from third parties based on the achievement of certain clinical and commercial milestones. The Company recognizes milestone revenue as the underlying criteria is achieved in accordance with FASB ASC Topic 605
‑28, “Revenue Recognition Milestone Method”.
The Company reassesses the period of performance over which the Company recognizes deferred upfront license fees and makes adjustments as appropriate in the period in which a change in the estimated period of performance is identified. In the event a licensee elects to discontinue development of a specific product candidate under a single target license, but retains its right to use the Company’s technology to develop an alternative product candidate to the same target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial pre
‑clinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a single target license were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination or through the remaining substantial involvement in the wind down of the agreement.
Foreign Revenue
Foreign product sales represented approximately
21.0%
,
10.0%
and
10%
of total product sales for the
years ended December 31, 2016, 2015 and 2014
, respectively, the majority of which were to Germany and Ireland.
Sales Returns Reserve
Revenue is recognized net of sales returns, which are estimated using the Company’s historical experience. The sales returns reserve was
$416,000
and
$526,000
at
December 31, 2016 and 2015
, respectively. Actual results could differ from original estimates resulting in future adjustments to revenue.
Reserve for Wholesaler Chargebacks and Rebates
The Company maintains a reserve for wholesaler chargebacks and rebates to properly reflect the realizable value of accounts receivable. A chargeback represents a contractual allowance provided by the Company to its wholesalers for any variances between wholesale and lower retail prices of the Company’s pharmaceutical products. The Company estimates the reserve for wholesaler chargebacks based on wholesaler inventory levels, contract prices and historical experience. Rebate reserves represent contractual allowances based on specific customer contracts. The rebate allowance is estimated as a
percentage of specific customer sales. The reserve for wholesaler chargebacks and rebates was $
145,000
and
$429,000
at
December 31, 2016 and 2015
, respectively.
Rebates Payable
The Company issues rebates related to various government programs and buying groups. In these instances, the rebates are paid in cash to the party managing the discount buying program. The estimated rebates earned but unpaid was
$443,000
and
$370,000
at
December 31, 2016 and 2015
, respectively. Such amounts have been included in accounts payable on the Company’s consolidated balance sheets.
Shipping and Handling Costs
Shipping and handling costs for raw materials and finished goods prior to their sale are classified in cost of sales. Freight charges for shipments to customers are not billed to customers and are included in selling, general and administrative expenses when incurred and were
$185,000
,
$254,000
and
$465,000
for the
years ended December 31, 2016, 2015 and 2014
, respectively.
Foreign Currencies
The consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. Gains or losses on transactions denominated in a currency other than the Company’s functional currency, which arise as a result of changes in foreign currency exchange rates, are recorded in other income on the consolidated statements of operations. The transaction gains were
$9,000
,
$124,000
and
$
134
,000
for the
years ended December 31, 2016, 2015 and 2014
, respectively.
Share
‑based Compensation Expense
The Company recognizes share
‑based compensation expense in accordance with FASB ASC Topic 718, “Stock Compens
ation” (“ASC 718”), for all share
‑based awards made to employees and board members based on estimated fair values.
ASC 718 requires companies to measure the cost of employee services incurred in exchange for the award of equity instruments based on the
estimated fair value of the share
‑based award on the grant date. The expense is recognized over the requisite service period.
All share
‑based awards to non
‑employees are accounted for in accordance with FASB ASC Topic 505
‑50, “Equity Based Payments to Non
‑Employees,” where the value of unit compensation is based on the measurement date, as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete.
The Company uses a Black
‑Scholes option
‑pricing model to value the Company’s option awards. Using this option
‑pricing model, the fair value of each employee and board member award is estimated on the grant date. The fair value is expensed on a straight
‑line basis over the vesting period. The option awards generally vest pro
‑rata annually. The expected volatility assumption is based on the volatility of the share price of comparable public companies. The expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin Numbers 107 and 110 (the midpoint between the term of the agreement and the weighted average vesting term). The risk
‑free interest rate is based on the implied yield on a U.S. Treasury security at a constant maturity with a remaining term equal to the expected term of the option granted. The dividend yield is zero, as the Company has never declared a cash dividend.
In the fourth quarter of 2016, the Company adopted
ASU 2016
‑09, “
Compensation—Stock Compensation
”
. ASU 2016-09 requires that certain other amendments relevant to the Company be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to accumulated deficit as of the beginning of the period in which the guidance is adopted. As a result of adopting ASU 2016-09 during the three months ended December 31, 2016, the Company adjusted accumulated deficit for amendments related to an entity-wide accounting policy election to recognize share-based award forfeitures only as they occur rather than an estimate by applying a forfeiture rate. The Company recorded a $2.0 million charge to accumulated deficit as of January 1, 2016 and an associated
credit
to additional paid-in capital for previously unrecognized
share-based
compensation expense as a result of applying this policy election. The Company also recorded
$0.8
million in additional
share-based
compensation expense
during
the fourth quarter of
2016 as a result of applying
estimated forfeitures recorded during the nine months ended September 30, 2016
. When the consolidated statement of operations for the three months ended March 31, J
une 30 and September 30, 2016 is
presented in future periods, it will include
$0.3
million,
$0.3
million and
$0.2
million of additional stock compensation expense.
ASU 2016-09 also requires the recognition of the income tax effects of awards in the consolidated statement of operations when the awards vest or are settled, thus eliminating addition paid-in capital pools. The Company elected to adopt
the amendments related to the presentation of excess tax benefits on the condensed consolidated statement of cash flows using a prospective transition method.
Modification of Awards
A change in any of the terms or conditions of the awards is accounted for as a modification of the award. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified, measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the modification occurs. For unvested awards, if the award is probable of vesting both before and after the change, the Company recognizes the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date over the remaining requisite service period. If the fair value of the modified award is lower than the fair value of the original award immediately before modification, the minimum compensation cost the Company recognizes is the cost of the original award.
Research and Development
Innovation is critical to the success of the Company, and drug discovery and development are time
‑consuming, expensive and unpredictable. The Company has built a pipeline of therapeutic candidates in all stages of development. The focus is on serious diseases where there is a great need and opportunity for innovative medicines. Product candidates and development strategies contemplate both immediate possibilities in medicine, such as reducing toxicity or addressing certain disease resistance and mutation, and future possibilities and medical needs. Included in research and development expense are personnel related costs, expenditures for laboratory equipment and consumables, payments made pursuant to licensing and acquisition agreements, and the cost of conducting clinical trials. Expenses incurred associated with conducting clinical trials include, but are not limited to, dosing of patients with clinical drug candidates, assistance from third party consultants and other industry experts, accumulation and interpretation of data on drug safety and efficacy, and manufacturing of active pharmaceutical ingredients and placebos for use within the clinical trial.
The Company has entered into agreements with third parties to acquire technologies and pharmaceutical product candidates for development (Note 12). Such agreements generally require an initial payment by the Company when the contract is executed, and additional payments upon the achievement of certain milestones. Additionally, the Company may be obligated to make future royalty payments in the event the Company commercializes the pharmaceutical product candidate and achieves a certain sales volume. In accordance with FASB ASC Topic 730
‑10
‑55, “Research and Development”, expenditures for research and development, including upfront licensing fees and milestone payments associated with products that have not yet been approved by the FDA, are charged to research and development expense as incurred. Future contract milestone payments will be recognized as expense when achievement of the milestone is determined to be probable. Once a product candidate receives regulatory approval, subsequent license payments are recorded as an intangible asset.
Research and development expense was
$35.8
million
,
$33.6
million
and
$32.9
million
during the
years ended December 31, 2016, 2015 and 2014
, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the asset and liability method of accounting for income taxes prescribed by FASB ASC Topic 740, “Accounting for Income Taxes” (“ASC 740”). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry
-
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment dates.
The Company follows FASB ASC Topic 740
‑10, “Accounting for Uncertainty in Income Taxes”, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.
At
December 31, 2016 and 2015
, the Company ha
d
no material uncertain tax positions to be accounted for in the financial statements. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in interest expense.
Under ASU 2016-09, all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the statement of operations. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should
recognize excess tax benefits regardless of whether the benefits reduce tax payable in the current period. The Company made an early adoption on the ASU 2016-09 effect in the fourth quarter of 2016. There is no cumulative impact as the federal
and state
excess deduction
s would be
offset by a corresponding change to the valuation allowance.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of deposits at major financial banking institutions and highly liquid investments with an original maturity of three months or less at the date of purchase. At times, cash balances deposited at major financial banking institutions exceed the federally insured limit. The Company regularly monitors the financial condition of the institutions in which it has depository accounts and believes the risk of loss is minimal.
Restricted Cash
The Company has a lease agreement for the premises it occupies in New York. A secured letter of credit in lieu of a lease deposit totaling
$2.0
million is secured by restricted cash in the same amount at
December 31, 2016 and 2015
. The secured letter of credit will remain in place for the life of the related lease, expiring in
October
2024 (Note 16). The Company also has a lease agreement for the premises it occupies in Massachusetts. A secured letter of credit in lieu of a lease deposit totaling
$91,000
was established during the third quarter of 2015 and is secured by restricted cash in the same amount
at
December 31, 2016 and 2015
. The secured letter of credit will remain in place for the life of the related lease, expiring in
April
2023 (Note 16).
Allowance for Doubtful Accounts
The Company reviews the collectability of accounts receivable based on an assessment of historic
al
experience, current economic conditions, and other collection indicators. The Company has recorded an allowance for doubtful accounts of
$0.7
million at
both
December 31, 2016 and 2015
. Adjustments to the allowance for doubtful accounts are recorded to selling, general and administrative expenses, and amounted to
$6,000
,
$5,000
,
and
$66,000
for the
years ended December 31, 2016, 2015 and 2014
, respectively. When accounts are determined to be uncollectible they are written off against the reserve balance and the reserve is reassessed. When payments are received on reserved accounts they are applied to the customer’s account and the reserve is reassessed.
Inventories
Inventories are stated at the lower of cost or market (on a first
‑in, first
‑out basis) using standard costs. Standard costs include an allocation of overhead rates, which include those costs attributable to managing the supply chain and are evaluated regularly. Variances are expensed as incurred.
Deferred Offering Costs
The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. If the equity financing is no longer considered probable of being consummated, the deferred offering costs would be expensed immediately to operating expenses in the statement of operations.
There were
$0.1
million and
$
0.9
million of deferred offering costs capitalized
at
December 31, 2016 and 2015
,
r
espectively
.
Investments
The Company follows FASB ASC Topic 323, “Investments—Equity Method and Joint Ventures” (“ASC 323”), in accounting for its investment in a joint venture. In the event the Company’s share of the joint venture’s net losses reduces the Company’s investment to zero, the Company will discontinue applying the equity method and will not provide for additional losses unless the Company has guaranteed obligations of the joint venture or is otherwise committed to provide further financial support for the joint venture. If the joint venture subsequently reports net income, the Company will resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended.
The Company follows FASB ASC Topic 325, “Investments—Other” (“ASC 325”), in accounting for its investment in the stock of another company. In the event further contributions or additional shares are purchased, the Company will increase the basis in the investment. In the event distributions are made or indications exist that the fair value of the investment has decreased below the carrying amount, the Company will decrease the value of the investment as considered appropriate.
The Company’s total investment balance totaled
$11.1
million and
$23.5
million
at
December 31, 2016 and 2015
, respectively.
For all non
‑consolidated investments, the Company will continually assess the applicability of FASB ASC Topic 810, “Consolidation” (“ASC 810”), to determine if the investments qualify for consolidation. At
December 31, 2016 and 2015
, no such investments qualified for consolidation (Note 12).
Fixed Assets
Fixed assets are recorded at cost and depreciated over their estimated useful lives. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term, using the straight
‑line method. Construction
‑in
‑progress and software under development are stated at cost and not depreciated. These items are transferred to fixed assets when the assets are placed into service.
Intangible Assets
Intangible assets are stated at cost, less accumulated amortization. The Company accounts for the purchases of intangible assets in accordance with FASB ASC Topic 350 “Intangibles—Goodwill and Other”. Intangible assets are recognized based on their acquisition cost. The assets will be tested for impairment at least once annually, if determined to have an indefinite life, or whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable. If any of the Company’s intangible or long
‑lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value. Applicable long
‑lived assets, including intangible assets with definitive lives, are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment.
Goodwill
The Company’s goodwill relates to the 2010 acquisition of Kadmon Pharmaceuticals, a Pennsylvania limited liability company that was formed in April 2000. Goodwill is not amortized, but rather is assessed for impairment annually or upon the occurrence of an event that indicates impairment may have occurred, in accordance with FASB ASC Topic 350 “Intangibles—Goodwill and Other”.
No
impairment to goodwill was recorded during the
years ended December 31, 2016, 2015 and 2014
.
Impairment of Long
‑Lived Assets
Long
‑lived assets, such as intangible assets (other than goodwill) and fixed assets, are evaluated for impairment periodically, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When any such impairment exists, a charge is recorded in the statement of operations to adjust the carrying value of the related assets.
The Company performed a trigger analysis over all other long
‑lived assets at the lowest identifiable level of cash flows and determined that an impairment existed
during the year ended
December 31, 2015 (Note 11) and no impairment triggers existed
during the years ended
December 31, 2016
and 2014.
An impairment of $31.3 million was recognized during the year ended December 31, 2015, while no such impairment was recognized during the years ended December 31, 2016 and 2014 (Note 11).
Accounting for Leases
The Company recognizes rent expense for operating leases as of the earlier of the possession date or the lease commencement date. Rental expense, inclusive of rent escalations, rent holidays, concessions and tenant allowances are recognized over the lease term on a straight
‑line basis. See Note 16 for a further discussion of operating leases.
The Company has entered into capital lease agreements for information technology and laboratory equipment. As a result of these leases, the Company capitalized
$230,000
,
$20,000
and $72,000
as office equipment and furniture during the
years ended December 31, 2016, 2015 and 2014
, respectively. The unamortized portion of capital leases totaled
$191,000
and
$54,000
at
December 31, 2016 and 2015
, respectively.
Accounting for Contingencies
The Company follows the guidance of FASB ASC Topic 450, “Contingencies” (“ASC 450”), in accounting for contingencies. If some amount within a range of loss is probable and appears at the time to be a better estimate than any other amount within the range, that amount shall be expensed. If a loss is probable, and no amount within the range is a better estimate than any other amount, the estimated minimum amount in the range shall be expensed.
Fair Value of Financial Instruments
The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). This pronouncement defines fair value, establishes a framework for measuring fair value under GAAP and requires expanded disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market
‑based measurement, not an entity
‑specific measurement, and defines fair value as the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. ASC 820 utilizes a fair value hierarchy that prioritizes inputs to fair value measurement techniques into three broad levels. The following is a brief description of those three levels:
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Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
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Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model
‑derived valuations whose inputs are observable or whose significant value drivers are observable.
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Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
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The fair value of cash
and cash equivalents
, accounts receivable, accounts payable and other milestone payable approximate their carrying amounts due to their short term nature (Note 8).
Loan Modifications and Extinguishments
The Company follows the provisions of FASB ASC Subtopic 470
‑50 “Debt Modifications and Extinguishments” (“ASC 470
‑60”) and ASC Subtopic 470
‑60, “Troubled Debt Restructurings by Debtors” (“ASC 470
‑60”). Under ASC 470
‑50, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a nontroubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the cash flow effect on a present value basis is less than 10 percent, the debt instruments are not considered to be substantially different, except in the following two circumstances:
|
·
|
|
A modification or an exchange affects the terms of an embedded conversion option, from which the change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10 percent of the carrying amount of the original debt instrument immediately before the modification or exchange.
|
|
·
|
|
A modification or an exchange of debt instruments adds a substantive conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange.
|
Under ASC 470
‑60, a restructuring of a debt constitutes a troubled debt restructuring for purposes of this Subtopic if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.
Warrants and Derivative Liabilities
The Company accounts for its derivative financial instruments in accordance with FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company does not have derivative financial instruments that are hedges. ASC 815 establishes accounting and reporting standards requiring that derivative instruments, both freestanding and embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at its fair value each reporting period. ASC 815 also requires that changes in the fair value of derivative instruments be recognized currently in the results of operations unless specific criteria are met. For embedded features that are not clearly and closely related to the host instrument, are not carried at fair value, and are derivatives, the feature will be bifurcated and recorded as an asset or liability as noted above, unless the exceptions below are not met. Freestanding instruments that do not meet these exceptions will be accounted for in the same manner.
ASC 815 provides an exception—if an embedded derivative or freestanding instrument is both indexed to the company’s own units and classified in members’ units, it can be accounted for in members’ unit. If at least one of the criteria is
not met, the embedded derivative or warrant is classified as an asset or liability and recorded to fair value each reporting period through the income statement.
The Company assesses classification of our warrants, other freestanding derivatives, and embedded features at each reporting date to determine whether a change in classification is required. The Company’s accounting for its embedded features, the warrants and the success fee, are explained further in Note 8.
Recent Accounting Pronouncements
In November
2016, the FASB issued Accounting Standards Update (“ASU”) No.
2016-18
, “
Statement of Cash Flows (Topic 230): Restricted Cash
”. This ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash
equivalents. Entities will also be required to reconcile such total amounts on the balance sheet and disclose the nature of the rest
r
ictions. The Company does not expect the standard to
have a significant
impact
on
its consolidated financial statements
as the Company’s restricted cash balances are immaterial
.
In March 2016, the FASB issued ASU No. 2016
-
09, “Compensation—Stock Compensation”. This ASU simplifies several aspects of the accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2016, with early adoption permitted. The Company early adopted this standard during 2016 which resulted in a $2.0 million charge to accumulated deficit as of January 1, 2016 and an associated charge to additional paid-in capital for previously unrecognized
share-based
compensation expense as a result of applying this policy election. The Company also recorded $0.8 million in additional
share-based
compensation expense
during 2016
as a result of applying this policy election.
In March 2016, the FASB issued ASU No. 2016
‑08, “
Revenue from Contracts with Customers
”. This ASU amends the existing accounting guidance for principal versus agent considerations when recognizing revenue from contracts with customers. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2017, with early adoption permitted. In May 2014, the FASB issued ASU No. 2014
‑09,
“Revenue from Contracts with Customers.”
Under this guidance, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity will need to use more judgment and make more estimates than under the current guidance.
The adoption of these standards will not have a significant impact its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016
‑06, “
Derivatives and Hedging
”. This ASU clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2016, with early adoption permitted. An entity should apply the amendments in this ASU on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. The Company does not expect the standard to impact its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016
‑02, “
Leases
”. This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2018, with early adoption permitted.
The Company evaluated the impact of adopting the standard on its consolidated financial statements and determined that upon adoption it will have to record a right of use asset and offsetting liability on the Company’s balance sheet.
In July 2015, the FASB issued ASU No. 2015
‑11, “
Inventory (Topic 330)
” which simplifies the subsequent measurement of inventory. It replaces the current lower of cost or market test with a lower of cost or net realizable value test. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The new guidance must be applied prospectively. The Company does not expect the standard to impact its consolidated financial statements.
4
.
Stockhold
ers’
Deficit
Conversion Event
The Class B, C and D units were required to automatically convert into Class A units pursuant to the Company’s Second Amended and Restated Limited Liability Company Operating Agreement, as amended (the “Operating Agreement”) upon certain defined conversion events including, but not limited to, dissolution of the Company or an underwritten IPO of the Company’s equity (each, a “Conversion Event”). The Conversion Event occurred on August 1, 2016, upon consummation of the Company’s IPO. The valuation of the Company at the Conversion Event was greater than
$45.8
million, which resulted in
the Class B and C units receiving
$41.7
million of the proceeds of the Conversion Event in the form of equivalent Class A units. The Class D units converted into Class A units such that the holders thereof received
$4.2
million of such proceeds. The proceeds in excess of $45.8 million were shared ratably by the other holders of Class A units.
Class A Units
Class A units represent the Company’
s common stock equivalents. At
December 31, 2016
Kadmon I, LLC (“Kadmon I”)
held
approximately
12.1%
of the total outstanding common stock of the Company and
at
December 31, 2015
Kadmon I held approximately
66%
of the total outstanding Class A units. Kadmon I is a Delaware limited liability company that was formed in August 2009 and is an affiliate of the Company (Note 1
9
). Kadmon I’s funds were raised through a private offering of
80%
of Kadmon I’s total membership interests, the other
20%
being owned by certain other members, including members of the Company’s board of
directors
and an executive officer at the time of such offering.
Once each Kadmon I investor has received aggregate distributions equal to four times the amount of their initial investment, their collective ownership percentage in additional distributions
would have
decrease
d
from 80% to
50%
, and the collective ownership percentage for the members of the Company’s board of
directors
, an executive officer and members in Kadmon I, and certain other members who received units
would have
increase
d
from 20% to
50%
. The change in ownership percentages
would have
require
d
the Company to evaluate whether such changes
would
result in additional compensation expense. As of
December 31, 2016 and 2015
, the Kadmon I investors had not received any distributions. Accordingly, no additional compensation expense was recognized.
On January 23, 2017, Kadmon I, LLC was dissolved and liquidated. Upon dissolution and liquidation, all assets of Kadmon I, LLC which consists solely of the shares of common stock in Kadmon Holdings, Inc., were distributed to the members of Kadmon I, LLC.
During the year ended December 31, 2015, the Company raised $15.0 million in net proceeds through the issuance of
1,250,000
Class A units. The Company also issued
1,500,000
Class A units pursuant to an advisory agreement entered into in April 2015. The Company recorded a deferred charge of
$9.0
million related to the issuance of these units which was classified as a prepaid expense on the Company’s balance sheet and was expensed over the one year term in the advisory agreement. The Company expensed
$
6.0
million during the
year ended December 31, 2015
related to the advisory agreement. The Company issued
5,011
Class A units as the result of stock option exercises during 2015. The Company also issued
308,334
Class A units to settle third party obligations, for which the Company expensed
$1.5
million related to these settlements during the year ended December 31, 2015.
During the
year ended December 31, 2016
, the Company issued
25,000
Class A units to settle third party obligations, for which the Company expensed
$0.1
million related to these settlements during the
year ended December 31, 2016
and issued
7,200
Class A units as the result of stock option exercises. The Company also recorded an expense of
$3.0
million during the
year ended December 31, 2016
related to the
1,500,000 Class A units issued in an
advisory agreement entered into in April 2015.
There were
53,946,001
Class A units outstanding at December 31, 2015.
The Class A units converted into common stock at the Conversion Event resulting in
no
Class A units outstanding at
December 31, 2016
.
Class B Unit
The Class B unit did not participate in distributions from the Company, did not have any preferences in relation to the Class A units, was non
‑voting, and was non
‑redeemable. The only right afforded to the Class B unit was the right to convert into Class A units pursuant to the Company’s Operating Agreement (see “Conversion Event”).
One
Class B unit was issued and
outstanding
at
December 31, 2015
. The Class B unit converted into common stock at the Conversion Event resulting in
no
Class B units outstanding at
December 31, 2016
.
Class C Unit
The Class C unit did not participate in distributions from the Company, does not have any preferences in relation to the Class A units, is non
‑voting, and is non
‑redeemable. The only right afforded to the Class C unit was the right to convert into Class A units pursuant to the Operating Agreement (see “Conversion Event”).
One
Class C unit was issued and
outstanding
at
December 31, 2015
. The Class C unit converted into common stock at the Conversion Event resulting in
no
Class C units outstanding at
December 31, 2016
.
Class D Units
The Class D units did not participate in distributions from the Company, did not have any preferences in relation to the Class A units, were non
‑voting, and were non
‑redeemable. The only right afforded to the Class D unit was the right to convert into Class A units pursuant to the Company’s Operating Agreement (see “Conversion Event”). There were
4,373,674
Class D
units issued and
outstanding
at
December 31, 2015
. The Class D units converted into common stock at the Conversion Event resulting in
no
Class D units outstanding at
December 31, 2016
.
Class E Redeemable Convertible Units
One series of Class E redeemable convertible units, the Class E Series E
‑1 units (the “Class E redeemable convertible units”), was authorized. The Company was able to issue Class E redeemable convertible units with an aggregate Class E original issue price of up to
$85
million, calculated in accordance with the terms of the Operating Agreement, of any series without being subject to preemptive rights. The Class E redeemable convertible units had voting rights and powers equal to the Class A units on an as
‑if converted basis, had a liquidation preference for liquidating distributions and participated in distributions from the Company on an as
‑converted basis on non
‑liquidating distributions. In the case of a qualified IPO, the Class E redeemable convertible units automatically converted into Class A units at a conversion price of the lower of
85%
of the value of Class A units (or the price per share of common stock of the corporate successor to the Company) or
$11.50
per unit. Prior to a qualified IPO, the Class E redeemable convertible units could be converted at
$11.50
per unit. A qualified IPO was defined as an offering of the Company’s equity interests with gross proceeds to the Company of at least
$75
million. At any time after December 31, 2017, Class E redeemable convertible units were redeemable for cash at the option of the holders of at least
80%
of all Class E redeemable convertible units at a redemption price equal to
125%
of the liquidation preference. After January 1, 2016 all Class E redeemable convertible units began to accrue a liquidation preference (payable in connection with such liquidating distribution from the Company) at a rate of
5%
per annum, compounding annually, with such liquidation preference rate increasing by
100
basis points every six months to a maximum of
10%
. Redemption was subject to the Company’s ability to make such payment under then
‑existing debt obligations.
Based on the terms of the Class E redeemable convertible units, the fair value of the Class E redeemable convertible units issued was classified as mezzanine capital on the Company’s consolidated balance sheet. The Company accreted changes in the redemption value of the Class E redeemable convertible units to paid
‑in capital using the interest method, as the Company did not have available retained earnings, from the date of issuance to the earliest redemption date.
During the year ended December 31, 2015, the Company raised
$10.9
million in gross proceeds,
$10.8
million net of
$40,000
in transaction costs, through the issuance of
945,441
Class E redeemable convertible units. The Company raised
$10.0
million through the issuance of Class E redeemable convertible units in October 2015 pursuant to a license agreement entered into with Jinghua to develop products using human monoclonal antibodies (Note 1
2
) and
$0.9
million through the issuance of Class E redeemable convertible units to other third party investors. The Company also issued
574,392
Class E redeemable convertible units to settle certain obligations totaling
$6.6
million, of which
$6.1
million was expensed in the third quarter of 2015 and
$500,000
related to the settlement of a related party loan entered into in 2014 (Note 1
9
).
During the
year ended December 31, 2016
, the Company raised
$5.5
million in gross proceeds, with no transaction costs, through the issuance of
478,266
Class E redeemable convertible units.
Dr.
Harlan W. Waksal, the Company’s President and Chief Executive Officer, certain entities affiliated with GoldenTree Asset Management LP, Bart M. Schwartz, Esq., the Company’s Chairman of the board of
directors
, and D. Dixon Boardman, a member of the Company’s board of
directors
subscribed for
86,957
,
43,479
,
21,740
and
21,740
Class E redeemable convertible units, respectively.
The Company calculated a deemed dividend on the Class E redeemable convertible units of
$13.4
million in August 2016, which equals a
15%
discount to the IPO price of the Company’s common stock of $12.00 per share upon conversion to common stock at the Conversion Event, a beneficial conversion feature. There were
4,969,252
Class E redeemable convertible units issued and outstanding
at
December 31, 2015
. The Class E redeemable convertible units converted into common stock at the Conversion Event resulting in
no
Class E redeemable convertible units outstanding at
December 31, 2016
.
5% Convertible Preferred Stock
Our certificate of incorporation permitted the Company’s board of directors to issue up to
10,000,000
shares of preferred stock from time to time in one or more classes or series. Concurrently with the closing of the Company’s IPO and pursuant to the terms of the exchange agreement entered into with the holders of the Company’s Senior Convertible Term Loan, the Company issued to such holders
30,000
shares of 5% convertible preferred stock, designated as the convertible preferred stock. Each share of convertible preferred stock was issued for an amount equal to
$1,000
per share, which is referred to as the original purchase price. Shares of convertible preferred stock with an aggregate original purchase price and initial liquidation preference of
$30.0
million were issued to the holders of the Senior Convertible Term Loan in exchange for an equivalent principal amount of the Senior Convertible Term Loan pursuant to the terms of an exchange agreement dated as of June 8, 2016, between the Company and those holders, which is referred to as the exchange agreement.
The shares of convertible preferred stock are entitled to receive dividends, when and as declared by the board of directors and to the extent of funds legally available for the payment of dividends, at an annual rate of 5% of the sum of the original purchase price per share of convertible preferred stock plus any dividend arrearages. Dividends on the convertible
preferred stock shall, at the Company’s option, either be paid in cash or added to the stated liquidation preference amount for purposes of calculating dividends at the 5% annual rate (until such time as the Company declares and pays the missed dividend in full and in cash, at which time that dividend will no longer be part of the stated liquidation preference amount). Dividends shall be payable annually on June 30 of each year and shall be cumulative from the most recent dividend payment date on which the dividend has been paid or, if no dividend has ever been paid, from the original date of issuance of the convertible preferred stock and shall accumulate from day to day whether or not declared until paid.
The convertible preferred stock converts into shares of
the Company’s
common stock at a
20%
discount to the price per share of common stock in the IPO. T
he Company calculated a deemed dividend on the
convertible preferred stock
of
$7.5
million in August 2016, which equals the 20% discount to the IPO price of the Company’s common stock of $12.00 per share, a beneficial conversion feature.
The convertible preferred stock, inclusive of accrued and unpaid dividends, is convertible into
3,191,843
shares of common stock at
December 31, 2016
.
T
he Company
accrued dividends on the convertible preferred stock of
$0.6
million for the
year ended December 31, 2016
.
T
he Company also calculated a deemed dividend
of
$0.2
million
on
the
$0.6
mil
l
ion of accrued dividends, a benefic
i
al conversion feature,
for
the
year ended December 31, 2016
.
Common Stock
Prior to the IPO, there were no shares outstanding of the Company’s common stock, par value
$0.001
per share, and no stockholders of record. The Company’s certificate of incorporation authorizes the issuance of up to
200,000,000
shares of the Company’s common stock. On August 1, 2016, the Company completed its IPO whereby it sold
6,250,000
shares of common stock at
$12.00
per share. The aggregate net proceeds received by the Company from the offering were
$66.0
million, net of underwriting discounts and commissions of
$5.3
million and offering expenses of
$3.7
million.
At
December 31, 2016
,
45,078,666
shares of common stock were outstanding, which includes
19,034,467
shares of common stock issued upon the conversion of the Company’s Senior Convertible Term Loan and Second Lien Convert (Note
7
).
Valuation
Prior to the IPO, to estimate certain expenses and record certain transactions, it was necessary for the Company to estimate the fair value of its membership units. Given the absence of a public trading market, and in accordance with the American Institute of Certified Public Accountants’ Practice Guide, “Valuation of Privately
‑Held
‑Company Equity Securities Issued as Compensation,” the Company exercised reasonable judgment and considered numerous objective and subjective factors to determine its best estimate of the fair value of its membership units. Factors considered included:
|
·
|
|
recent equity financings and the related valuations;
|
|
·
|
|
the estimated present value of the Company’s future cash flows;
|
|
·
|
|
industry information such as market size and growth;
|
|
·
|
|
market capitalization of comparable companies and the estimated value of transactions such companies have engaged in; and
|
|
·
|
|
macroeconomic conditions.
|
The Company updated the valuation of Class A units as of September 30, 2015 using a methodology consistent with prior valuations. At the time of the valuation, the Company had issued
$92.0
million in second
‑lien convertible debt, and it was deemed appropriate to place additional weighting on this consideration, as compared to prior valuations. The Company also considered equity raised through the issuance of
$15.0
million in Class A units during 2015. The Company assigned no value to the Ribasphere products to reflect changes in market conditions that have resulted in lower sales of the Ribasphere products. As a result of the revised inputs to the analysis, the estimated fair value of each Class A unit was decreased from
$39.00
to
$32.50
as of September 30, 2015.
5
. Net Loss per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding for the period. 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 for those periods. The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company
(
in thousands, except share
and per share
amounts)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Numerator – basic and diluted:
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(230,488)
|
|
$
|
(147,082)
|
|
$
|
(64,356)
|
Denominator – basic and diluted:
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding used to compute basic and diluted net loss per share
|
|
|
23,674,512
|
|
|
8,127,781
|
|
|
7,785,637
|
Net loss per share, basic and diluted
|
|
$
|
(9.74)
|
|
$
|
(18.10)
|
|
$
|
(8.27)
|
The amounts in the table below were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Convertible preferred stock
|
|
|
3,191,843
|
|
|
3,191,843
|
|
|
3,191,843
|
Options to purchase common stock
|
|
|
6,437,515
|
|
|
1,685,248
|
|
|
706,460
|
Warrants to purchase common stock
|
|
|
1,328,452
|
|
|
1,328,452
|
|
|
710,801
|
Total shares of common stock equivalents
|
|
|
10,957,810
|
|
|
6,205,543
|
|
|
4,609,104
|
6
. Commercial Partnership
On June 17, 2013, the Company entered into a series of agreements with a commercial partner AbbVie Inc. (“AbbVie”),
related
to our ribavirin products. Pursuant to an asset purchase agreement, as amended, we sold marketing authorizations and related assets for ribavirin in certain countries outside the United States
. The Company received upfront payments totaling
$64.0
million, and could receive additional contingent payments totaling
$51.0
million based on the achievement of certain milestones.
The Company earned and recognized
$27.0
million of such milestones during
2014
.
The Company did
no
t earn any such milestones during the
years ended December 31, 2016 and 2015
.
Of the $64.0 million upfront payment,
$44.0
million was considered allocable to the domestic licensing arrangement and was recorded as deferred revenue to be recognized over the
10
year term of the agreement. The Company will recognize the upfront payment to revenue on a straight
‑line basis over the life of the agreement. The Company recognized
$4.4
million of the upfront consideration
as
license revenue during each of the
years ended December 31, 2016, 2015 and 2014
.
At
December 31, 2016 and 2015
,
$28.4
million and
$32.8
million
were
recorded as deferred revenue, respectively, of which
$4.4
million
was
short
‑term.
In April 2014, the Company received a payment of
$3.0
million upon obtaining the regulatory approval of
ribavirin
in Germany, which was recognized as milestone revenue. As the milestones meet the criteria defined in ASC 605
‑28, we will consider this guidance in assessing associated revenue recognition. Additionally, we will continually assess the applicability of the guidance for each milestone.
In May 2014, the Company entered into an amendment with AbbVie
and a third party
whereby
Abb
V
ie was
granted
a non
‑exclusive, royalty
‑free sublicense to develop and commercialize
ribavirin
. The Company evaluated the terms of the amendment to its license agreement to the entire arrangement and determined the amendment to be a material modification to the original license agreement. In analyzing this material modification, the Company determined that there were no undelivered elements remaining from the original agreement as of the effective date of the amendment. The Company received an upfront payment totaling
$5.0
million which was recorded as milestone revenue as this component of the agreement represents the delivery of an executed sublicense agreement and not an upfront fee related to an ongoing servicing arrangement.
In October 2014, the Company entered into a series of amendments with AbbVie whereby the
parties
agreed to eliminate all potential future unearned and unpaid milestones and also agreed to a revised royalty structure for the sale of
ribavirin products
under the domestic license agreement. The Company received upfront payments of
$6.0
million in consideration of future royalties payable resulting from the resale of
certain ribavirin products
by AbbVie during 2015 and 2016. At the time of receipt the balance was recorded to deferred revenue,
$3.0
million of which was recorded as short
‑term as it related to prepaid royalties for 2015 and
$3.0
million of which was recorded as long
‑term as it related to prepaid royalties for 2016. The Company will recognize portions of the deferred revenue to income as
ribavirin
is sold by AbbVie. The Company is entitled to receive additional compensation from AbbVie for any royalties earned in excess of the annual prepayment. If royalties earned do not exceed the annual prepayment
,
the Company is required to refund the excess to AbbVie.
Since the royalties earned from the resale of
ribavirin products
by AbbVie under the domestic license agreement did not exceed the
$3.0
million annual prepayment in 2015, the Company refunded approximately
$2.0
million of the prepaid royalty to AbbVie as a credit against future purchases during the
year ended December 31, 2016
. The Company had recorded this amount as an accrued expense at December 31, 2015. Furthermore, the Company expects to refund approximately
$2.2
million of the prepaid royalty to AbbVie resulting from the resale of
ribavirin products
by AbbVie during 2016. Therefore, the Company has recorded this amount as an accrued expense at
December 31, 2016
and other long term liability at
December 31, 2015
, as the refund is payable in March 2017.
The Company has a continuing obligation to supply
ribavirin products
, maintain the marketing authorization
s
for
certain ribavirin products
and maintain the intellectual property for Ribasphere
and RibaPak
through the term of the agreements ending December 31, 2020.
7
. Debt
Concurrent with the closing of the IPO on August 1, 2016, the Company’s Senior Convertible Term Loan and Second Lien Convert converted into
19,034,467
shares of common stock.
The Company is a party to three credit agreements in the following amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Senior convertible term loan due June 17, 2018 (A)
|
|
$
|
—
|
|
$
|
58,500
|
Secured term debt due June 17, 2018 (B)
|
|
|
34,620
|
|
|
35,000
|
Second-lien convertible debt due August 28, 2019 (C)
|
|
|
—
|
|
|
114,760
|
Total debt before fees, interest and debt discount
|
|
|
34,620
|
|
|
208,260
|
Paid-in-kind interest
|
|
|
—
|
|
|
18,726
|
Less: Deferred financing costs
|
|
|
(737)
|
|
|
(5,861)
|
Debt discount
|
|
|
(3,306)
|
|
|
(9,504)
|
Total debt payable
|
|
$
|
30,577
|
|
$
|
211,621
|
|
|
|
|
|
|
|
Debt payable, current portion
|
|
$
|
1,900
|
|
$
|
1,900
|
Debt payable, long-term
|
|
$
|
28,677
|
|
$
|
209,721
|
A.
Senior Convertible Term Loan
In August 2015, the Company entered into the Third Amended and Restated Convertible Credit Agreement (“Senior Convertible Term Loan”), pursuant to which the Company was permitted to enter into the 2015 Credit Agreement (defined below) and a Second
‑Lien Convert (defined below). Most of the reporting and financial covenants pertaining to the Company that were previously required were removed so that the Company only needed to maintain a minimum liquidity amount. Beginning after June 30, 2016, the Company also had to meet a minimum revenue requirement. In August 2015, the Company further amended the terms of the Third Amended and Restated Convertible Credit Agreement to provide for, among other things, a
$69.1
million term loan which was scheduled to mature on
June 17, 2018
. As consideration for the amendment, if a qualified IPO, defined as a public offering of the Company’s equity interests with gross proceeds to the Company of at least
$75.0
million, had not been completed on or prior to March 31, 2016, the Company agreed to pay an amendment fee equal to
$1.3
million to be allocated among the lenders. This fee was paid in April 2016
through the issuance of
108,696
Class E redeemable convertible units
, as the Company did not complete a qualified IPO by this date. As a result of this amendment,
$1.3
million was recorded as a debt discount at September 30, 2015 and was amortized to interest expense over the remaining term of the agreement as the amendment was deemed a modification in accordance with ASC 470.
June 2016 Exchange Agreements
In June 2016, the Company entered into an exchange agreement with all holders of the approximately
$75.0
million in aggregate principal amount of the Senior Convertible Term Loan. Under the exchange agreement, (i)
$30.0
million in aggregate principal amount of the Senior Convertible Term Loan was exchanged for
30,000
shares of a newly created class of capital stock that is designated as convertible preferred stock and subject to a lock
‑up agreement; (ii) as to
$25.0
million in aggregate principal amount of the Senior Convertible Term Loan, the Company converted
100%
of that principal amount into shares of the Company’s common stock at a conversion price equal to
80%
of the price per share of common stock in the IPO; and (iii) as to
$20.0
million in aggregate principal amount of the Senior Convertible Term Loan, the Company converted
125%
of that principal amount into shares of the Company’s common stock at a conversion price equal to the price per share of common stock in the IPO. In addition, the Company paid a make
‑whole fee amounting
to
$8.0
million
. The make
‑whole fee was paid through the issuance of shares of the Company’s common stock at an issue price equal to 80% of the price per share of common stock in the IPO. During the third quarter of 2016, the Company incurred a
$20.7
million charge as a result of a beneficial conversion feature included in the exchange agreement, since the conversion price was equal to a
20%
discount to the price per share of common stock in the IPO.
B.
Secured Term Debt
August 2015 Secured Term Debt
In August 2015, the Company entered into a secured term loan in the amount of
$35.0
million with
two
lenders (“2015 Credit Agreement”). The interest rate on the loan is LIBOR plus
9.375%
with a
1%
floor. The Company incurred and paid a
$788,000
commitment fee in connection with the loan that will be amortized to interest expense over the term of the agreement. The basic terms of the loan required monthly payments of interest only through the first anniversary date of the loan and require the Company to maintain certain financial covenants requiring the Company to maintain a minimum liquidity amount and minimum revenue levels beginning after June 30, 2016 through August 1, 2016, the date the Company consummated its IPO. Beginning on the first anniversary date of the loan, the Company is required to make monthly principal payments in the amount of
$380,000
. Any outstanding balance of the loan and accrued interest is to be repaid on
June 17, 2018
. The secured term loan is
collateralized by a first priority perfected security interest in all
the tangible and intangible property of the Company.
In conjunction with the 2015 Credit Agreement, warrants to purchase
$6.3
million of Class A units were issued to two lenders, of which
$5.4
million was recorded as a debt discount and
$900,000
was recorded as loss on extinguishment of debt (Note
8
). The debt discount is being amortized over the life of the outstanding term loan using the effective interest method.
Deferred financing costs of
$1.3
million were recognized in recording the 2015 Credit Agreement and will be amortized to interest expense over the
three
year term of the agreement. Additionally, a fee paid to one existing lender of
$113,000
was charged to loss on extinguishment of debt in accordance with ASC 470. There was also
$1.5
million of debt discount and
$390,000
of deferred financing cost write
‑offs charged to loss on extinguishment of debt in accordance with ASC 470 in connection with this transaction. Unamortized deferred financing costs were
$0.7
million and
$1.1
million at
December 31, 2016 and 2015
, respectively. Approximately
$0.4
million and
$0.4
million
were
charged to interest expense during the
years ended December 31, 2016 and 2015
, respectively.
The Company entered into a third waiver agreement to the 2015 Credit Agreement in September 2016 to negotiate the amendment and restatement of certain covenants of the Company contained
in the 2015 Credit Agreement.
In connection with such negotiation, the lenders under the 2015 Credit Agreement had agreed to refrain from exercising certain rights under the 2015 Credit Agreement, including the declaration of a default and to forbear from acceleration of any repayment rights with respect to existing covenants until the parties have consummated the amendment and restatement of such provisions.
In addition, certain payments required to be made under the 2015 Credit Agreement had been deferred while the par
ties negotiated the amendment.
The parties executed a second amendment to the 2015 Credit Agreement in November 2016 whereby the Company deferred further principal payments owed under the 2015 Credit Agreement in the amount of
$380,000
per month until August 31, 2017. Additionally, the parties amended various clinical development milestones and added a covenant pursuant to which the Company is required to raise
$40.0
million of additional equity capital by the end of the second quarter of 2017. All other material terms of the 2015 Credit Agreement, including the maturity date, remain the same. As of the date hereof, the Company is not in default under the terms of the 2015 Credit Agreement.
The Company entered into a fourth waiver agreement to the 2015 Credit Agreement in March 2017 under which the lenders under the 2015 Credit Agreement agreed to refrain from exercising certain rights under the 2015 Credit Agreement, including the declaration of a default and to forbear from acceleration of any repayment rights with respect to existing covenants. The report and opinion of the Company’s independent registered public accounting firm, BDO USA, LLP, contains an explanatory paragraph regarding the Company’s ability to continue as a going concern, which is an event of default under the 2015 Credit Agreement.
C.
Second
‑Lien Convertible Debt
In August 2015, in conjunction with the 2015 Credit Agreement, the Company incurred indebtedness pursuant to its offering of second
‑lien convertible PIK notes (“Second
‑Lien Convert”), to a syndicate of lenders, including the same
two
parties as the 2015 Credit Agreement. The Second
‑Lien Convert has a
four
year term under which the initial borrowings were
$94.3
million, including
$2.3
million in third-party fees that was settled through the issuance of Second
‑Lien Convert. In October 2015 and November 2015, the Company borrowed an additional
$5.5
million and
$15.0
million, respectively, and incurred
$0.4
million in transaction costs under the Second
‑Lien Convert to
three
additional lenders, bringing the total borrowings under the Second
‑Lien Convert to
$114.8
million, including
$2.3
million in third-party fees. Interest is calculated at a rate of
13.0%
and payable
‑in
‑kind semi
‑annually as an increase of principal. If the Company had not consummated an IPO of not less than
$50.0
million and listed on a national stock exchange (“Qualified IPO”) on or before March 31, 2016, the interest rate was to automatically increase on April 1, 2016 by an additional
3.0%
and by an additional 3.0% on each October 1 and April 1 until the interest rate equaled
21.0%
per annum, which would have remained the applicable interest rate so long as the Second
‑Lien Convert remained outstanding. The Company did not consummate a Qualified IPO until August 1, 2016
;
therefore the additional 3% interest was applied from April 1, 2016 through August 1, 2016, the date on which the Second-Lien Convert converted into the Company’s common stock. The debt was
collateralized
by the tangible and intangible property of the Company.
Holders of the Second
‑Lien Convert could elect to convert any portion of principal to Class A units at any time following the Company’s consummation of a Qualified IPO. The conversion price would have been equal to the product of (x)
90%
and (y) the price per Class A unit of the Company offered in a Qualified IPO provided, however, that the conversion price would have been capped at
$12.00
. The Company could have redeemed the Second
‑Lien Convert at its option, in whole or in part, at any time on or after the later of (x) the first anniversary of the issue date and (y) the date of the consummation of a Qualified IPO, at a redemption price of
150.0%
of the principal amount, plus accrued and unpaid interest payable (at the Company’s option) in cash or Class A units. In addition, on or after the later of (x) the third anniversary of the issue date and (y) the date of the consummation of a Qualified IPO, the Company could have redeemed the Second
‑Lien Convert at its option, in whole or in part, at a redemption price in cash of
110.0%
of the principal amount, plus accrued and unpaid interest.
Deferred financing costs of
$4.2
million were recognized in recording the Second
‑Lien Convert and
were
being amortized to interest expense over the four year term of the agreement. There were
no
unamortized deferred financing costs at
December 31, 2016
and
$3.9
million of unamortized deferred financing costs at
December 31, 2015
. Approximately
$0.7
million and
$0.3
million
were
charged to interest expense during the
years ended December 31, 2016 and 2015
, respectively. The Company incurred
$0.1
million in debt issuance costs to new creditors in August 2015, which was recorded as a debt discount and was being amortized to interest expense over the four year term.
The Company considered ASC 480, “Distinguishing Liabilities from Equity,” and determined that the Second
‑Lien Convert does not contain any of the criteria under this guidance. In accordance with ASC 815, the Company determined that the interest rate increase and put/redemption feature do not require bifurcation since the embedded interest rate increase, if freestanding, would not qualify as a derivative. The Second
‑Lien Convert represented the host contract and the option to convert the debt into the Company’s Class A units represented the embedded conversion option. Since the conversion option meets the criteria under ASC 815, the conversion option does not require bifurcation and is not accounted for as a derivative under ASC 815.
Pursuant to an amendment and restatement of the terms of the Second
‑Lien Convert in June 2016,
100%
of the outstanding balance under the outstanding Second
‑Lien Convert was mandatorily converted into shares of the Company’s common stock at a conversion price equal to
80%
of the price per share of common stock in the IPO. During the third quarter of 2016, the Company incurred a
$32.4
million charge as a result of the beneficial conversion feature included in this agreement since the conversion price is equal to a 20% discount to the price per share of common stock in the IPO.
The minimum payments required on the outstanding balances of the 2015 Credit Agreement
at
December 31, 2016
are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2015 Credit Agreement
|
|
2017
|
|
$
|
1,900
|
|
2018
|
|
|
32,720
|
|
|
|
$
|
34,620
|
|
The following table provides components of interest expense and other related financing costs
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Interest expense and other financing costs
|
|
$
|
3,782
|
|
$
|
7,817
|
|
$
|
12,204
|
Interest expense - beneficial conversion feature
|
|
|
45,915
|
|
|
—
|
|
|
—
|
Interest paid-in kind
|
|
|
14,695
|
|
|
11,434
|
|
|
13,374
|
Write-off of deferred financing costs and debt discount
|
|
|
3,820
|
|
|
2,752
|
|
|
—
|
Amortization of deferred financing costs and debt discount
|
|
|
4,422
|
|
|
5,157
|
|
|
3,333
|
Interest expense
|
|
$
|
72,634
|
|
$
|
27,160
|
|
$
|
28,911
|
8
. Financial Instruments
Success Fee
In October 2011, an executive officer and member of Kadmon Holdings, LLC issued an equity instrument for which the underlying value is based on
536,065
Class A units. The intrinsic value of the instrument is redeemable for cash upon certain defined liquidity or distribution events (“Success Fee”).
A liability was recorded based on the instrument’s fair value of
$0
and
$69,000
at
December 31, 2016
and
December 31, 2015
, respectively. As a result of marking to market this instrument, the Company recorded
($
0.1
)
million
,
($0.2)
million and
($0.9)
million to change in fair value of financial instruments for the
years ended December 31, 2016, 2015 and 2014
,
respectively. Upon consummation of the Company’s IPO on August 1, 2016 with a price per share of
$12.00
per share, the fair value of this equity instrument had a fair value of
$0,
which resulted in no Success Fee owed by the Company.
As there were no quoted prices for identical or similar instruments prior to the IPO, the Company had utilized a Black
‑Scholes calculation to value this instrument
at
December 31, 2015
and 2014
, based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
Input
|
|
2015
|
|
2014
|
Unit price
|
|
|
$32.50
|
|
|
$39.00
|
Strike price
|
|
|
$74.17
|
|
|
$74.17
|
Volatility
|
|
|
79.18%
|
|
|
79.09%
|
Risk-free interest rate
|
|
|
0.49%
|
|
|
0.19%
|
Expected life
|
|
|
.50 Years
|
|
|
.75 Years
|
Expected dividend yield
|
|
|
0%
|
|
|
0%
|
Equity issued pursuant to Credit Agreements
In connection with the incurrence of the Senior Convertible Term Loan, the Company issued three tranches of warrants as fees to the lenders that were redeemable for Class A units. The aggregate fair value of the warrants was
$1.7
million and
$1.9
million at
December 31, 2016
and
December 31, 2015
, respectively. The change in fair value of the warrants was
($0.2)
million
,
($1.3)
million
and
$4.1
million
for the
years ended December 31, 2016, 2015 and 2014
, respectively. Upon consummation of the Company’s IPO on August 1, 2016 with a price per share of common stock in the IPO of
$12.00
, the warrants to purchase Class A units issued to lenders in the Senior Convertible Term Loan were exchanged for
351,992
warrants
with a strike price of
$10.20
per share
to purchase the same number of shares of the Company’s common stock. Since the strike price was determined at IPO, the aggregate fair value of these warrants totaling
$1.7
million was reclassified from liability to equity
at
December 31, 2016
.
A
t
December 31, 2015
t
he Company
utilized a binomial model to measure all
three
warrant tranches. Due to the uncertainty of the strike price of the warrants, the Company performed each calculation multiple times using a weighted number of units exercisable based on the Company’s best estimate of how many units would be issuable. The inputs used in the calculations to measure all three warrant tranches a
t
December 31, 2015
and
December 31, 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
Input
|
|
2015
|
|
2014
|
Unit price
|
|
|
$32.50
|
|
|
$39.00
|
Strike price
|
|
|
$61.75
|
|
|
$61.75
|
Volatility
|
|
|
79.18%
|
|
|
79.09%
|
Risk-free interest rate
|
|
|
0.49%
|
|
|
0.19%
|
Expected life
|
|
|
.50 Years
|
|
|
.75 Years
|
Expected dividend yield
|
|
|
0%
|
|
|
0%
|
In connection with the 2015 Credit Agreement, the Company issued warrants as fees to the lenders to purchase an aggregate of
$6.3
million of the Company’s Class A units. The strike price of the warrants was
85%
of the price per unit in an IPO or, if before an IPO, 85% of the deemed per unit equity value as defined in the 2015 Credit Agreement. The warrants were exercisable as of the earlier of an IPO or July 1, 2016. Since these warrants are also redeemable at the option of the holder after the 51
st
month from the issue date, they are recorded as a
non-current
liability of
$3.3
million and
$
6.3
million
at
December 31, 2016
and
December 31, 2015
, respectively.
Upon entry into the agreement in August 2015, the warrants issued to an existing lender was recorded to loss on extinguishment of debt of
$900,000
and the warrants issued to the new lender was recorded as a debt discount of
$5.4
million and will be amortized over the three year term (Note
7
) in accordance with ASC 470.
Upon consummation of the Company’s IPO on August 1, 2016 with a price per share of common stock in the IPO of $12.00, the warrants to purchase Class A units issued to lenders under the 2015 Credit Agreement were exchanged for
617,651
warrants
with a strike price of
$10.20
per share
to purchase the same number of shares of the Company’s common stock.
T
he
decline
in fair value of the warrants was
(
$
4.3
) million for the
year ended December 31, 2016
,
while
there was no change in fair value of financial instruments for the years ended December 31,
2015
and 2014
.
None of these instruments have been exercised a
t
December 31, 2016
or
December 31, 2015
.
Other Warrants
On April 16, 2013, the Company issued warrants with an estimated fair value of
$1.4
million for the purchase of
30,000
Class A units at a strike price of
$21.24
as consideration for fundraising efforts performed. Upon consummation of the Company’s IPO on August 1, 2016 and Corporate Conversion, these warrants to purchase Class A units were exchanged for
46,163
warrants to purchase the same number of shares of the Company’s common stock at a strike price of
$138.06
. None of these warrants have been exercised a
t
December 31, 2016
.
Fair Value of Long
‑term Debt
At
December 31, 2016
the Company maintained a long-term secured term debt balance of
$28.7
million.
At
December 31, 2015
the Company maintained long
‑term secured term debt and long
‑term convertible debt balances of
$26.3
million and
$183.5
million, respectively. The underlying agreements for these balances were negotiated with parties that included fully independent third parties, at an interest rate which is considered to be in line with over-arching market conditions. Based on these factors management considers the carrying value of the debt to approximate fair value a
t
December 31, 2016
.
Fair Value Classification
The Company held certain liabilities that are required to be measured at fair value on a recurring basis. Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These
tiers include:
|
·
|
|
Level 1—Quoted prices in active markets for identical assets or liabilities.
|
|
·
|
|
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
·
|
|
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The table below represents the values of the Company’s financial instruments
at
December 31, 2016
and
December 31, 2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
December 31,
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
Description
|
|
2015
|
|
(Level 2)
|
|
(Level 3)
|
Warrants
|
|
$
|
8,220
|
|
$
|
—
|
|
$
|
8,220
|
Success Fee
|
|
|
69
|
|
|
—
|
|
|
69
|
Total
|
|
$
|
8,289
|
|
$
|
—
|
|
$
|
8,289
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
Description
|
|
2016
|
|
(Level 2)
|
|
(Level 3)
|
Warrants
|
|
$
|
3,305
|
|
$
|
3,305
|
|
$
|
—
|
Total
|
|
$
|
3,305
|
|
$
|
3,305
|
|
$
|
—
|
The table below represents a rollforward of the Level 2 and Level 3
financial instruments
from January 1, 2015 to
December 31, 2016
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other Observable Inputs
|
|
Significant
Unobservable Inputs
|
|
|
|
|
|
(Level 2)
|
|
(Level 3)
|
Balance as of January 1, 2015
|
|
|
|
|
$
|
—
|
|
$
|
3,483
|
Change in fair value of financial instruments
|
|
|
|
|
|
—
|
|
|
(1,494)
|
Fair value of warrants issued in connection with 2015 credit agreement
|
|
|
|
|
|
—
|
|
|
6,300
|
Balance as of December 31, 2015
|
|
|
|
|
$
|
—
|
|
$
|
8,289
|
Transfer of warrants from Level 3 to Level 2
|
|
|
|
|
|
6,300
|
|
|
(6,300)
|
Change in fair value of financial instruments
|
|
|
|
|
|
(4,107)
|
|
|
(273)
|
Beneficial conversion feature recognized on warrants issued in connection with 2015 credit agreement
|
|
|
|
|
|
1,112
|
|
|
—
|
Reclassification of warrants to APIC in connection with IPO
|
|
|
|
|
|
—
|
|
|
(1,716)
|
Balance as of December 31, 2016
|
|
|
|
|
$
|
3,305
|
|
$
|
—
|
The Level 2 inputs used to value our financial instruments were determined using prices that can be directly observed or corroborated in active markets. In August 2016, the warrants issued in connection with the 2015 Credit Agreement were transferred from Level 3 to Level 2 as the Company’s securities began trading on the New York Stock Exchange. Although the fair value of this obligation is calculated using the observable market price of Kadmon Holdings Inc. common stock, an active market for this financial instrument does not exist and therefore the Company has classified the fair value of this liability as a Level 2 liability in the table above
.
9
.
Inventories
Inventories are stated at the lower of cost or market (on a first
‑in, first
‑out basis) using standard costs. Standard costs include an allocation of overhead rates, which include those costs attributable to managing the supply chain and are evaluated regularly. Variances are expensed as incurred.
The Company regularly reviews the expiration date of its inventories and maintains a reserve for inventories that are probable to expire before shipment. Inventories recorded on the Company’s consolidated balance sheets are net of a reserve for expirable inventory of
$4.9
million and
$5.4
million at
December 31, 2016 and 2015
, respectively. The Company expensed Ribasphere inventory that it believes will not be sold prior to reaching its product expiration date totaling
$0.4
million
,
$2.3
million
and
$4.9
million
during the
years ended December 31, 2016, 2015 and 2014
, respectively.
If the amount and timing of future sales differ from management’s assumptions, adjustments to the estimated inventory reserves may be required.
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Raw materials
|
|
$
|
1,153
|
|
$
|
1,905
|
Finished goods, net
|
|
|
797
|
|
|
1,563
|
Total inventories
|
|
$
|
1,950
|
|
$
|
3,468
|
10. Fixed Assets
Fixed assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
December 31,
|
|
December 31,
|
|
(Years)
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
4-8
|
|
$
|
10,274
|
|
$
|
10,019
|
Office equipment and furniture
|
3-15
|
|
|
2,193
|
|
|
2,060
|
Machinery and laboratory equipment
|
3-15
|
|
|
3,255
|
|
|
3,082
|
Software
|
1-5
|
|
|
3,581
|
|
|
3,409
|
Construction-in-progress
|
̶̶̶̶
|
|
|
44
|
|
|
9
|
|
|
|
|
19,347
|
|
|
18,579
|
Less accumulated depreciation and amortization
|
|
|
|
(13,920)
|
|
|
(11,641)
|
Fixed assets, net
|
|
|
$
|
5,427
|
|
$
|
6,938
|
Depreciation and amortization of fixed assets totaled
$2.3
million
,
$2.3
million
and
$2.6
million
in each of the
years ended December 31, 2016, 2015 and 2014
, respectively. The construction
‑in
‑progress balance was related to costs of unimplemented software still under development. Unamortized computer software costs were
$0.8
million and
$1.3
million at December 31, 2016 and 2015, respectively. The amortization of computer software costs amounted to
$0.7
million
,
$
0.7
million and
$0.3
million
during the
years ended December 31, 2016, 2015 and 2014
, respectively
.
11. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill and other amort
izable intangible assets at
December 31, 2016 and 2015
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
December 31,
2014
|
|
Amortization
|
|
Impairment
|
|
Balance as of
December 31,
2015
|
|
Remaining Useful
Life as of
December 31,
2015
|
Ribasphere product rights
|
|
$
|
73,934
|
|
$
|
(27,442)
|
|
$
|
(31,269)
|
|
$
|
15,223
|
|
1.0
|
Goodwill
|
|
$
|
3,580
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,580
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
December 31,
2015
|
|
Amortization
|
|
Impairment
|
|
Balance as of
December 31,
2016
|
|
Remaining Useful
Life as of
December 31,
2016
|
Ribasphere product rights
|
|
$
|
15,223
|
|
$
|
(15,223)
|
|
$
|
—
|
|
$
|
—
|
|
—
|
Goodwill
|
|
$
|
3,580
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,580
|
|
—
|
In September 2015, the Company reviewed the estimated useful life of the Ribasphere product rights and determined that the actual lives of the Ribasphere product rights intangible asset was shorter than the estimated useful lives used for amortization purposes in the Company
’
s financial statements due to the continued growth of competitor products that do not necessitate the use of Ribasphere
as a comple
ment in treating the hepatitis C infection. As a result, effective September 30, 2015, the Company changed its estimate of the useful life of its Ribasphere product rights intangible asset to
1.25
years to better reflect the estimated period during which the remaining asset will generate cash flows. The Company also determined that the carrying value of the Ribasphere product rights exceeded its fair value and recorded an impairment loss of
$31.3
million in September 2015.
In October 2015, the Company determined that the proportional performance method of amortization was more appropriate than straight-line amortization. The amortization of the Ribasphere product rights intangible asset based on the consumption of the economic benefit (Ribasphere gross profit), became a reliably determinable method of amortization due to the remaining asset useful life being only 1.25 years and the ability to more accurately forecast the Ribasphere market. Accordingly, Kadmon amortized the remaining book value of the intangible asset utilizing the proportional performance method starting October 1, 2015 and ending December 31, 2016.
Amortization expense is included within selling, general and administrative expenses on the Company’s consolidated statements of operations. The Company recorded amortization expense related to the intangible asset of
$15.2
million,
$27.4
million and
$21.8
million for the
years ended December 31, 2016, 2015 and 2014
, respectively. The accumulated amortization of the intangible asset was
$140.7
million and
$125.5
million at
December 31, 2016 and 2015
, respectively.
12. License Agreements
Yale University
On February 4, 2011, the Company entered into a license agreement with Yale University, whereby the Company obtained the worldwide exclusive license and right to make, use, sell, import and export PHY906, a development stage botanical compound, and the related technology. In April 2016, the Company entered into a mutual termination agreement with Yale University. All rights and licenses granted under the agreement were immediately terminated and reverted to the party granting such rights.
Symphony Evolution, Inc.
In August 2010, the Company entered into a license agreement with Symphony Evolution, Inc. (Symphony), under which Symphony granted to the Company an exclusive, worldwide, royalty
‑bearing, sublicensable license under certain Symphony patents, copyrights and technology to develop, make, use, sell, import and export XL647 and the related technology in the field of oncology and non
‑oncology.
The Company is the licensee of granted patents in Australia, Canada, Europe, Japan and the United States. The patents claim tesevatinib as a composition
‑of
‑matter, as well as use of tesevatinib to treat certain cancers. A pending U.S. application supports additional composition
‑of
‑matter claims and methods of synthesis. The last to expire U.S. patent in this family has a term that ends in May 2026 based on a calculated Patent Term Adjustment (PTA) and without regard to any potential Patent Term Extension (PTE), which could further extend the term by an additional five years.
The Company is the licensee of a second family of granted patents in China and Europe, as well as applications in Canada, Eurasia, Japan, Taiwan and the United States. These patents and applications disclose the use of tesevatinib to treat PKD. The last to expire U.S. patent in this family would have a term that ends in 2031, though this term could be extended by obtaining a PTA and/or PTE.
The license agreement includes a series of acquisition and worldwide development milestone payments totaling up to
$218.4
million, and
$14.1
million of these payments and other fees have been paid as of December 31, 2016. Additionally, the license agreement includes commercial milestone payments totaling up to
$175.0
million,
none
of which have been paid as of December 31, 2016, contingent upon the achievement of various sales milestones, as well as single
‑digit sales royalties. The royalty term expires with the last to expire patent.
The
agreement with Symphony will expire upon the expiration of the last to expire patent within the licensed patents.
The Company
may terminate the agreement at any time upon six months written notice to Symphony. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period. Symphony may terminate the agreement if
the Company
challenge
s
the licensed patents. Either party may terminate the agreement upon the bankruptcy or insolvency of the other party.
On June 11, 2014 the Company and Symphony executed an additional amendment to the amended and restated agreement, whereby the
$1.1
million payment due on June 1, 2014 was extended to September 30, 2014. This amendment increased the payment to
$1.2
million to include fees for deferral of the payment. The Company expensed
$200,000
to research and development expense for these additional fees during 2014.
On September 30, 2014 the Company and Symphony executed an additional amendment to the amended and restated agreement, whereby the $1.2 million payment due on September 30, 2014 was extended to November 30, 2014. This amendment increased the payment to
$1.4
million to include fees for deferral of the payment. The Company expensed $200,000 to research and development expense for these additional fees during 2014. In November 2014, the Company made payment to Symphony for
$1.4
million in settlement of this obligation.
All other contingent payments will be expensed as research and development as incurred.
Valeant Pharmaceuticals North America LLC
On February 25, 2014, the Company entered into an agreement with Valeant for the co
‑promotion of Syprine
®
,
a chelation therapy indicated in the treatment of patients with Wilson’s disease who are intolerant of penicillamine. In February 2016, the Company entered into a mutual termination agreement with Valeant. Upon termination, neither party shall have any rights or obligation including any and all past, present and future payments. Additionally, all rights and licenses granted under the agreement were immediately terminated and reverted to the party granting such rights. As a result of the termination, in February 2016 the Company recorded a gain on settlement of the
$3.9
million other milestone payable to Valeant in connection with the acquisition of the drug Infergen.
Vivus, Inc.
In June 2015, the Company entered into an agreement with Vivus Inc. (“Vivus”) for the co
‑promotion of Qsymia
®
,
a combination of phentermine and topiramate extended
‑release indicated as an adjunct to a reduced
‑calorie diet and increased physical activity for chronic weight management in adults. In November 2016, the Company notified Vivus that it will not renew this agreement and therefore the agreement terminated on December 31, 2016.
No
meaningful revenue
was
generated from this agreement as of
December 31, 2016 and 2015
.
Princeton University
On December 8, 2010, the Company entered into a license agreement with Princeton University (“Princeton”) whereby the Company obtained from Princeton a worldwide exclusive license and right to make, use and sell products identified by Princeton’s Flux technology (“Princeton License”). The Company was obligated to pay Princeton an annual license fee of
$60,000
, which was recorded as
a
research and development expense. In addition, the Princeton License required the Company to make payments contingent on the achievement of certain development milestones totaling
$31.0
million, such as receiving certain government approvals. Upon commercial sale, the Company was obligated to pay a low single digit royalty based on net sales levels.
No
development
milestones
or sales were achieved as of
December 31, 2016 and 2015
.
In February 2017, the Company entered into a mutual termination agreement with Princeton. All rights and licenses granted under the agreement were immediately terminated and shall revert to the party granting such rights.
MeiraGTx Limited
In April 2015,
the Company
executed several agreements which transferred
its
ownership of Kadmon Gene Therapy, LLC to MeiraGTx
Limited (“MeiraGTx”), a then wholly
‑owned subsidiary of
the
C
ompany. As part of these agreements,
the Company
also transferred various property rights, employees and management tied to the intellectual property and contracts identified in the agreements to MeiraGTx. At a later date, MeiraGTx ratified its shareholder agreement and accepted the pending equity subscription agreements, which provided equity ownership to various parties. The execution of these agreements resulted in a
48%
ownership in MeiraGTx by the Company. After MeiraGTx was deconsolidated or derecognized, the retained ownership interest was initially recognized at fair value and a gain of
$24.0
million was recorded based on the fair value of this equity investment. The Company
’
s investment is being accounted for under the equity method at
zero
cost with an estimated fair value at the time of the transaction of
$24.0
million. This value was determined based upon the implied value established by the cash raised by MeiraGTx in exchange for equity interests by third parties.
The Company assessed the applicability of ASC 810 to the aforementioned agreements and based on the corporate structure, voting rights and contributions of the various parties in connection with these agreements, determined that MeiraGTx is a variable interest entity, however consolidation is not required as the Company is not the primary beneficiary based upon the voting and managerial structure of the entity.
MeiraGTx, a limited company organized under the laws of England and Wales, was established to focus on the development of novel gene therapy treatments for a range of inherited and acquired disorders. MeiraGTx
is
develop
ing
therapies for ocular diseases, including rare inherited blindness, as well as xerostomia following radiation treatment for head and neck cancer. MeiraGTx is also developing an innovative gene regulation platform that has the potential to expand the way that gene therapy can be applied, creating a new paradigm for biologic therapeutics in the biopharmaceutical industry.
The summarized financial information for MeiraGTx as of and for the
years ended December 31, 2016 and 2015
is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance Sheet Data:
|
|
|
|
|
|
|
Cash
|
|
$
|
17,486
|
|
$
|
14,543
|
Other current assets
|
|
|
1,756
|
|
|
453
|
Noncurrent assets
|
|
|
2,921
|
|
|
245
|
Current liabilities
|
|
|
4,967
|
|
|
4,728
|
Noncurrent liabilities
|
|
|
261
|
|
|
12
|
Total stockholders’ equity
|
|
|
16,935
|
|
|
10,501
|
Statement of Operations Data:
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
5,162
|
|
$
|
3,318
|
Research and development expense
|
|
|
13,823
|
|
|
16,124
|
Net loss attributable to non
‑
controlling interest in subsidiary and other comprehensive loss
|
|
|
(456)
|
|
|
4,477
|
Net loss and comprehensive loss
|
|
|
(19,149)
|
|
|
(14,942)
|
As part of a transition services agreement with MeiraGT
x
, the Company recognized
$1.0
million of service revenue to license and other revenue during
each of
the
years ended December 31, 2016 and 2015
. During April 2016, the Company received
230,000
shares of MeiraGT
x
’s convertible preferred Class C shares as a settlement for
$1.2
million in receivables from MeiraGT
x
. Under ASC 323, the Class C shares of MeiraGT
x
do not qualify as common stock or in-substance common stock and the $1.2 million was recorded as a cost method investment. The Company also received cash payments of
$0.2
million for service revenue earned during 2016.
The Company assessed the recoverability of both the cost method and equity method investment in MeiraGTx
at
December 31, 2016 and 2015
and identified no events or changes in circumstances that may have a significant adverse impact on the fair value of this investment. For the
years ended December 31, 2016 and 2015
, the Company recorded its share of MeiraGTx’s net loss of
$13.6
million and
$2.8
million, respectively, inclusive of adjustments related to MeiraGTx’s 2015 financial statements that resulted in the Company recording a loss on equity method investment of
$
3.9
million for the
year ended December 31, 2016
. The Company maintains a
38.7%
ownership in MeiraGTx
at
December 31, 2016
. The Company’s maximum exposure associated with MeiraGTx is limited to its initial investment of
$24.0
million.
Nano Terra, Inc.
On April 8, 2011, the Company entered into a series of transactions with Nano Terra, Inc. (“Nano Terra”), pursuant to which the Company (i) paid $2.3 million for Nano Terra’s Series B Preferred Stock, (ii) entered into a joint venture with Surface Logix, Inc. (“Surface Logix”) (Nano Terra’s wholly
‑owned subsidiary) through the formation of NT Life Sciences, LLC (“NT Life”), whereby the Company contributed
$900,000
at the date of formation in exchange for a
50%
interest in NT Life and (iii) entered into a sub
‑licensing arrangement with NT Life. Pursuant to the sub
‑licensing arrangement, the Company was granted a perpetual, worldwide, exclusive license to three clinical
‑stage product candidates owned by Surface Logix, as well as rights to Surface Logix’s drug discovery platform, Pharmacomer™ Technology, each of which were licensed by Surface Logix to NT Life. In December 2014, the Company received one share of Nano Terra’s Common Stock for every
100
shares of Series B Preferred Stock held by the Company, resulting in approximately a
1%
holding in Nano Terra as of December 31, 2016 and 2015. In accordance with ASC 325, “Investments—Other”, the Company continues to account for the investment under the cost method.
The primary product candidates are currently in early to mid
‑stage clinical development for a variety of diseases and target several novel pathways of disease by inhibiting the activity of specific enzymes.
Nano Terra and NT Life are research and development companies, each of which independently maintains intellectual property for the purpose of pursuing medical discoveries. The Company is a minority shareholder of Nano Terra and thereby is unable to exercise significant influence with regard to the entity’s daily operations. The Company is represented on the Board of Managers of NT Life and is a party to decisions which influence the direction of the organization.
Since inception, the Company has continuously assessed the applicability of ASC 810, based on the corporate structure, voting rights and contributions of the various parties in connection with these agreements, and determined that Nano Terra and NT Life are not variable interest entities and not subject to consolidation. On April 8, 2011 the Company recorded its
$2.3
million investment in Nano Terra in accordance with ASC 325, and its investment of $900,000 in NT Life in accordance with ASC 323, of which was
$450,000
was recorded as a loss on equity investment and
$450,000
was recorded as an
impairment loss in 2011. In accordance with ASC 325
‑20
‑35, the Company assessed the recoverability of the investment in Nano Terra as of
December 31, 2016 and 2015
and identified no events or changes in circumstances that may have a significant adverse impact on the fair value of this investment. There was no activity of the joint venture during the years ended December 31, 2016, 2015 and 2014 which resulted in income or loss to the Company. The Company’s maximum exposure associated with Nano Terra and NT Life is limited to cash contributions made.
Additionally, future licensing and royalty fees to NT Life and Surface Logix are based on the achievement of certain milestones relative to achieving ANDA approvals, net sales and sublicense revenues. No milestones or sales were achieved as of December 31, 2016 and 2015.
Dyax Corp.
On July 22, 2011 the Company entered into a license agreement with Dyax Corp. (“Dyax”) for the rights to use the Dyax Antibody Libraries, Dyax Materials and Dyax Know
‑How (collectively “Dyax Property”). Unless otherwise terminated, the agreement is for a term of four years. The agreement includes the world
‑wide, non
‑exclusive, royalty
‑free, non
‑transferable
license to use the Dyax Property
to be used in the research field, without the right to sublicense. Additionally, the Company has the option to obtain a sublicense for use in the commercial field if any research target is obtained. The Company was required to pay Dyax
$600,000
upon entering into the agreement and
$300,000
annually to maintain the agreement. The initial payment was deferred and recorded as prepaid expense;
$300,000
of which will be amortized over the term of the agreement, and
$300,000
of which was amortized in a manner consistent with that of the annual payments. All subsequent annual payments will be and have been recorded as prepaid expense and amortized over the applicable term of one year.
On September 13, 2012 the Company entered into a separate license agreement with Dyax whereby the Company obtained from Dyax the exclusive, worldwide license to use research, develop, manufacture and commercialize DX
‑2400 in exchange for
a
payment of
$500,000
. All payments associated with this agreement were recorded as research and development expense at the time the agreement was executed.
The DX
‑2400 license requires the Company to make additional payments contingent on the achievement of certain development milestones (such as receiving certain regulatory approvals and commencing certain clinical trials) and sales targets. None of these targets have been achieved and, as such, no assets or liabilities associated with the milestones have been recorded in the accompanying consolidated financial statements for the year ended December 31, 2016. The DX
‑2400 license also includes royalty payments commencing on the first commercial sale of any licensed product, which had not occurred as of December 31, 2016 and 2015.
Chiromics
On November 18, 2011 the Company entered into a non
‑exclusive, royalty free license agreement with Chiromics LLC (“Chiromics”) for access to
two
chemical compound libraries for the research, discovery and development of biological and/or pharmaceutical products. The Company was required to pay
$200,000
upon execution of the agreement and
$150,000
following the delivery of each of the chemical compounds included within the related library. The Company was additionally required to make quarterly payments of
$200,000
for the
eight
quarters following delivery of all compounds; such payments were expensed to research and development expense in those quarters. The payable balance associated with these agreements was
$500,000
at December 31, 2015, which was settled in October 2016.
Concordia
On December 16, 2011, the Company purchased certain intellectual property rights and associated contractual rights and obligations from Concordia Pharmaceuticals, LLC. (“Concordia”) for
$500,000
. In May 2016, the Company entered into a mutual termination agreement with Concordia. All rights and licenses granted under the agreement were immediately terminated and reverted to the party granting such rights.
EffRx
On March 12, 2014 the Company entered into a development and license agreement with EffRx Pharmaceuticals S.A. (“EffRx”) for the development of effervescent formulations of certain pharmaceutical products. This agreement was mutually terminated on April 6, 2016.
Zydus
In June 2008, the Company entered into an asset purchase agreement with Zydus Pharmaceuticals USA, Inc. (“Zydus”) and Cadila Healthcare Limited where the Company purchased all of Zydus’ rights, title and interest to high dosages of ribavirin. Under the terms of the agreement, the Company paid a one
‑time purchase price of
$1.1
million. The Company was
required to pay a royalty based on net sales of products in the low
twenty
percents, subject to specified reductions and offsets. In April 2013, the Company entered into an amendment to the asset purchase agreement with Zydus which reduced the royalty payable on net sales of products from the low twenty percents to the mid-teens percents.
In June 2008, the Company also entered into a non
‑exclusive patent license agreement with Zydus, under which Zydus granted to the Company a non
‑exclusive, royalty free, fully paid up, non
‑transferable license under certain Zydus patent rights related to ribavirin. This agreement will expire upon the expiration or termination of a specific licensed patent. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period or upon the bankruptcy or insolvency of the other party.
The Company recorded royalty expense of
$1.2
million,
$2.7
million and
$6.5
million for the
years ended December 31, 2016, 2015 and 2014
, respectively.
Jinghua
In November 2015, the Company entered into a license agreement with Jinghua Pharmaceutical Group Co., Ltd. (“Jinghua”). Under this agreement, the Company granted to Jinghua an exclusive, royalty
‑bearing, sublicensable license under certain of its intellectual property and know
‑how to use, develop, manufacture, and commercialize certain monoclonal antibodies in China, Hong Kong, Macau and Taiwan.
In partial consideration for the rights granted to Jinghua under the agreement, the Company received an upfront payment of
$10.0
million in the form of an equity investment in Class E redeemable convertible units of the Company. The Company is eligible to receive from Jinghua a royalty equal to a percentage of net sales of product in the territory in the low
ten
percents. In addition to such payments, the Company is eligible to receive milestone payments for the achievement of certain development milestones, totaling up to
$40.0
million. The Company earned a
$2.0
million milestone payment in March 2016, which was recorded as license and other revenue during the
year ended December 31, 2016
. The Company is also eligible to receive a portion of sublicensing revenue from Jinghua ranging from the low
ten
percents to the low
thirty
percents based on the development stage of a product.
No
such revenue was earned during the
years ended December 31, 2016, 2015 and 2014
.
The Company earned a
$2.0
million milestone payment in January 2017, which was received in February 2017, and will be recorded as license and other revenue.
The Company’s agreement with Jinghua will continue on a product
‑by
‑product and country
‑by
‑country basis until the later of
ten
years after the first commercial sale of the product in such country or the date on which there is no longer a valid claim covering the licensed antibody contained in the product in such country. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period or upon the bankruptcy or insolvency of the other party.
No
patents were licensed to the Company under this agreement.
Camber Pharmaceuticals, Inc.
Tetrabenazine
In February 2016, the Company entered into a supply and distribution agreement with Camber Pharmaceuticals, Inc. (“Camber”) for the purposes of marketing, selling and distributing tetrabenazine, a medicine that is used to treat the involuntary movements (chorea) of Huntington’s disease. The initial term of the agreement is
twelve
months. Under the agreement, the Company will obtain commercial supplies of tetrabenazine and will distribute tetrabenazine through its existing sales force and commercial network. The Company will pay Camber a contracted price for supply of tetrabenazine and will retain
100%
of the revenue generated from the sale of tetrabenazine. The Company recognized revenue of
$0.6
million during the
year ended December 31, 2016
.
No
revenue was generated from sales of tetrabenazine in 2015 and 2014.
Valganciclovir
In May 2016, the Company amended its agreement with Camber to include the marketing, selling and distributing of valganciclovir, a medicine that is used for the treatment of cytomegalovirus (CMV) retinitis, a viral inflammation of the retina of the eye, in patients with acquired immunodeficiency syndrome (AIDS) and for the prevention of CMV disease, a common viral infection complicating solid organ transplants, in kidney, heart and kidney pancreas transplant patients. The Company will pay Camber a contracted price for supply of valganciclovir and will retain
100%
of the revenue generated from the sale of valganciclovir. The Company recognized revenue of
$0.9
million during the
year ended December 31, 2016
.
No
revenue was generated from sales of valganciclovir in 2015 and 2014.
Abacavir, Entecavir, Lamivudine, Lamivudine (HBV) and Lamivudine and Zidovudine.
In August 2016, the Company amended its agreement with Camber to include the marketing, selling and distributing of Abacavir tablets, USP, a medicine that is used in combination with other antiretroviral agents for the treatment of human
immunodeficiency virus type-1 (HIV-1) infection; Entecavir, a medicine that is used for the treatment of chronic hepatitis B virus (HBV) infection in adults with evidence of active viral replication and either evidence of persistent elevations in serum aminotransferases (ALT or AST) or histologically active disease; Lamivudine tablets, a nucleoside analogue medicine used in combination with other antiretroviral agents for the treatment of human immunodeficiency virus (HIV-1) infection; Lamivudine tablets (HBV), a medicine that is used for the treatment of chronic hepatitis B virus (HBV) infection associated with evidence of hepatitis B viral replication and active liver inflammation; and Lamivudine and Zidovudine tablets, USP, a combination of two nucleoside analogue medicines, used in combination with other antiretrovirals for the treatment of human immunodeficiency virus type 1 (HIV-1) infection. The Company will pay Camber a contracted price for supply of these products and will retain 100% of the revenue generated from the sale of these products.
No
meaningful revenue was generated from sales of these products for the
years ended December 31, 2016, 2015 and 2014
.
13. Share
‑based Compensation
2011 Equity Incentive Plan—Options
The 2011 Equity Incentive Plan was adopted in July 2011. Under this plan, the Company’s board of directors was able to grant unit
‑based awards to certain employees, officers, directors, managers, consultants and advisors. The plan was amended on November 7, 2013 to authorize the grant of a number of options to purchase Class A units equal to
7.5%
of the outstanding Class A units calculated on a fully diluted basis. The Company’s board of directors had the authority, in its discretion, to determine the terms and conditions of any option grant, including the vesting schedule. Effective July 26, 2016, no award may be granted under the 2011 Equity Plan. The 2011 Equity Plan was merged with and into the 2016 Equity Incentive Plan, outstanding awards were converted into awards with respect to our common stock and any new awards will be issued under the terms of the 2016 Equity Incentive Plan.
2016 Equity Incentive Plan
The Company’s 2016 Equity Incentive Plan (the “2016 Equity Plan”), was approved by the Company’s board of directors and holders of the Company’s membership units in July 2016. It is intended to make available incentives that will assist the Company to attract, retain and motivate employees, including officers, consultants and directors. The Company may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards.
A total of
6,720,000
shares of the Company’s common stock was initially authorized and reserved for issuance under the 2016 Equity Plan. At
December 31, 2016
the number of additional
shares
available for grant was
282,485
. This reserve will automatically increase on January 1, 2017 and each subsequent anniversary through January 1, 2025, by an amount equal to the smaller of (a)
4%
of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board of directors. This reserve was increased to include any shares issuable upon exercise of options granted under the Company’s 2011 Equity Incentive Plan that expire or terminate without having been exercised in full.
Appropriate adjustments will be made in the number of authorized shares and other numerical limits in the 2016 Equity Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in the Company’s capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2016 Equity Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations. Only the net number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the 2016 Equity Plan.
The 2016 Equity Plan will be generally administered by the compensation committee of the Company’s board of directors. Subject to the provisions of the 2016 Equity Plan, the compensation committee will determine, in its discretion, the persons to whom and the times at which awards are granted, the sizes of such awards and all of their terms and conditions. However, the compensation committee may delegate to one or more of our officers the authority to grant awards to persons who are not officers or directors, subject to certain limitations contained in the 2016 Equity Plan and award guidelines established by the compensation committee. The compensation committee will have the authority to construe and interpret the terms of the 2016 Equity Plan and awards granted under it. The 2016 Equity Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person's action or failure to act in administering the 2016 Equity Plan.
Awards may be granted under the 2016 Equity Plan to the Company’s employees, including officers, directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between the Company and the holder of the award and may include any of the following:
|
·
|
|
Stock options.
The Company may grant nonstatutory stock options or incentive stock options as described in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), each of which gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to purchase a number of shares of our common stock at an exercise price per share determined by the administrator, which may not be less than the fair market value of a share of the Company’s common stock on the date of grant.
|
|
·
|
|
Stock appreciation rights.
A stock appreciation right gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to receive the appreciation in the fair market value of the Company’s common stock between the date of grant of the award and the date of its exercise. The Company may pay the appreciation in shares of the Company’s common stock or in cash.
|
|
·
|
|
Restricted stock.
The administrator may grant restricted stock awards either as a bonus or as a purchase right at such price as the administrator determines. Shares of restricted stock remain subject to forfeiture until vested, based on such terms and conditions as the administrator specifies. Holders of restricted stock will have the right to vote the shares and to receive any dividends paid, except that the dividends may be subject to the same vesting conditions as the related shares.
|
|
·
|
|
Restricted stock units.
Restricted stock units represent rights to receive shares of the Company’s common stock (or their value in cash) at a future date without payment of a purchase price, subject to vesting or other conditions specified by the administrator. Holders of restricted stock units have no voting rights or rights to receive cash dividends unless and until shares of common stock are issued in settlement of such awards. However, the administrator may grant restricted stock units that entitle their holders to dividend equivalent rights.
|
|
·
|
|
Performance shares and performance units.
Performance shares and performance units are awards that will result in a payment to their holder only if specified performance goals are achieved during a specified performance period. Performance share awards are rights whose value is based on the fair market value of shares of the Company’s common stock, while performance unit awards are rights denominated in dollars. The administrator establishes the applicable performance goals based on one or more measures of business performance enumerated in the 2016 Equity Plan, such as revenue, gross margin, net income or total stockholder return. To the extent earned, performance share and unit awards may be settled in cash or in shares of our common stock. Holders of performance shares or performance units have no voting rights or rights to receive cash dividends unless and until shares of common stock are issued in settlement of such awards. However, the administrator may grant performance shares that entitle their holders to dividend equivalent rights.
|
|
·
|
|
Cash-based awards and other stock-based awards.
The administrator may grant cash-based awards that specify a monetary payment or range of payments or other stock-based awards that specify a number or range of shares or units that, in either case, are subject to vesting or other conditions specified by the administrator. Settlement of these awards may be in cash or shares of our common stock, as determined by the administrator. Their holder will have no voting rights or right to receive cash dividends unless and until shares of our common stock are issued pursuant to the award. The administrator may grant dividend equivalent rights with respect to other stock-based awards.
|
In the event of a change in control as described in the 2016 Equity Plan, the acquiring or successor entity may assume or continue all or any awards outstanding under the 2016 Equity Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised or settled prior to the change in control will terminate effective as of the time of the change in control. The compensation committee may provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of all awards held by members of the board of directors who are not employees will automatically be accelerated in full. The 2016 Equity Plan also authorizes the compensation committee, in its discretion and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share, if any, under the award.
The 2016 Equity Plan will continue in effect until it is terminated by the administrator, provided, however, that all awards will be granted, if at all, within
10
years of its effective date. The administrator may amend, suspend or terminate the 2016 Equity Plan at any time, provided that without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options, or effect any other change that would require stockholder approval under any applicable law or listing rule.
Total unrecognized compensation expense related to unvested options granted under the Company’s share
‑based compensation plan was
$21.7
million and
$18.6
million at
December 31, 2016 and 2015
, respectively. That expense is expected to be recognized over a weighted average period of
1.7
years and
2.1
years as of
December 31, 2016 and 2015
, respectively. The Company recorded share
‑based option compensation expense under the 2011 Equity Incentive Plan and 2016 Equity Plan of
$24.6
million,
$10.3
million and
$4.5
million for the
years ended December 31, 2016, 2015 and 2014
, respectively.
In January 2015, the compensation committee of
the Company’s
board of directors approved the amendments of all outstanding option awards under the 2011 Equity Incentive Plan that have an exercise price above $6.00 per unit to adjust the exercise price per unit to
$6.00
per unit (Note 4), the estimated fair value of the Company’s Class A units as of October 31, 2014. The awarded options have the same vesting schedule as the original award. The amendment to the option awards resulted in a modification charge of
$1.1
million, of which
$668,000
was expensed immediately during the first quarter of 2015 and the remaining amount will be recognized over the vesting periods of each award. These vesting periods range from
one
to
two
years.
On July 13, 2016, the compensation committee of the Company’s board of
directors
approved the amendment of all outstanding option awards issued under the Company’s 2011 Equity Incentive Plan whereby, effective upon pricing of the Company’s IPO, the exercise price (on a post-Corporate Conversion, post-split basis) was adjusted to equal the price per share of the Company’s common stock in the IPO. The amendment was made to the awards as the original exercise price was substantially higher than the price of the Company’s common stock in the IPO as a result of changes in the Company’s capital structure that occurred upon IPO. Options to purchase an aggregate of approximately
1.6
million shares of the Company’s Class A units were modified. Following this modification, the previously granted options will have the same vesting schedule as the original award and are modified on a one-for-one basis. The modification resulted in a
$4.0
million
charge, of which the incremental value of the previously vested portion of the awards
totaling
$1.8
million
was expensed immediately during the third quarter of 2016 and the remaining
$2.2
million
will be recognized over the remaining vesting periods of each award. These vesting periods range from
one
to
three
years.
The following table summarizes information about unit options outstanding at
December 31, 2016 and 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value (in
thousands)
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
Balance, December 31, 2014
|
|
706,460
|
|
$
|
52.15
|
|
8.63
|
|
$
|
—
|
|
266,518
|
|
$
|
50.50
|
Granted
|
|
1,154,394
|
|
|
37.44
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(772)
|
|
|
38.70
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(174,834)
|
|
|
57.68
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
1,685,248
|
|
$
|
37.38
|
|
8.72
|
|
$
|
—
|
|
381,072
|
|
$
|
36.29
|
Granted
|
|
4,858,460
|
|
|
7.12
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(1,109)
|
|
|
36.63
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(105,084)
|
|
|
32.09
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
6,437,515
|
|
$
|
8.32
|
|
9.28
|
|
$
|
2,227,268
|
|
2,181,810
|
|
$
|
12.00
|
The aggregate intrinsic value in the table above represents the total pre
‑tax intrinsic value calculated as the difference between the fair value of the Company’s common stock at
December 31, 2016
(
$5.35
per share) and the exercise price, multiplied by the related in
‑the
‑money options that would have been received by the option holders had they exercised their options at the end of the fiscal year. This amount changes based on the fair value of the Company’s common stock. There were
1,109
options exercised during the
year ended December 31, 2016
that were not in
‑the
‑money. There were
772
options exercised during 2015 that were in
‑the
‑money, with an aggregate intrinsic value at time of exercise of
$4,800
.
During the
year ended December 31, 2016
,
1,630,536
options were granted to the Company’s Chief Executive Officer
and
3,227,924
options were granted to the Company’s employees and directors
. The weighted
‑average fair value of the stock option awards granted to employees, officers, directors and advisors was
$7.12
,
$20.67
and
$28.15
during the
years ended December 31, 2016, 2015 and 2014
, respectively, and was estimated at the date of grant using the Black
‑Scholes option
‑pricing model and the assumptions noted in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
December 31, 2014
|
Weighted average fair value of grants
|
|
$7.12
|
|
$20.67
|
|
$28.15
|
Expected volatility
|
|
74.98%
-
79.35%
|
|
77.23%
-
93.85%
|
|
58.70%
-
93.94%
|
Risk-free interest rate
|
|
1.15%
-
2.20%
|
|
1.54%
-
1.93%
|
|
1.73%
-
1.81%
|
Expected life
|
|
5.0
-
6.0
years
|
|
5.2
-
6.0
years
|
|
5.5
-
6.0
years
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
In December 2014, the Company’s board of directors approved an option grant to the Chief Executive Officer with an exercise price of
$39.00
to purchase a number of units equal to
5%
of the total issued and outstanding units of the Company (after, in the event of an IPO, giving effect to the exercise and conversion of certain exercisable and convertible securities and after giving effect to consummating the IPO) calculated on the earliest to occur of 1) a sale of the Company, 2) the date on which the Company consummates an IPO and 3) the date the key employee ceases to be a service provider to the Company. This option grant was issued in March 2015 when the terms of the agreement were finalized. Since the grant was contingent on a liquidity event, a grant date had not been established and therefore no compensation expense was initially recorded.
In December 2015, the option agreement entered into with the Company’s Chief Executive Officer was replaced in its entirety by an option agreement dated December 31, 2015 so that the number of units is set to
769,231
unit options valued at
$15.2
million which will be recognized as compensation expense over the vesting term. These units under this option agreement were issued outside of the 2011 Equity Incentive Plan. The Company expensed
$
7.2
million and
$5.1
million during the
year ended December 31, 2016
and fourth quarter of 2015, respectively, and the remaining amount will be recognized ratably through August 2017. The options vest
1/3
at the grant date,
1/3
in August 2016 and
1/3
in August 2017. While the awards vest over this term they are not exercisable until the occurrence of the Calculation Date. The Calculation Date is defined as the earliest to occur of 1) a sale of the Company (as defined in the Company’s second amended and restated limited liability company agreement dated as of June 27, 2014), 2) the date on which the Company consummates an IPO and 3) the date the key employee ceases to be a service provider to the Company.
On July 13, 2016, the compensation committee of the Company’s board of directors approved an option award for Dr. Harlan W. Waksal increasing the number of options (giving effect to the
Corporate Conversion) subject to his original option grant. The number of shares subject to this option award shall equal the difference between the 769,231 options originally granted to Dr. Harlan W. Waksal and
5%
of the Company’s outstanding common equity determined on a fully diluted basis on the IPO date, which amounted to
1,630,536
options. The effective date of the new option award was the IPO date of July 26, 2016. The exercise price per share of common stock subject to the new incremental options awarded was equal to the IPO price per share of common stock at the IPO date of $12.00. The option award was subject to the same vesting schedule applicable to the original option grant such that all options awarded will vest on August 4, 2017. In consideration for the new option award, Dr. Harlan W. Waksal has committed to perform an additional year of service in connection with receipt of the additional option shares. In the event Dr. Harlan W. Waksal voluntarily terminates his employment prior to completion of this additional year of service, Dr. Harlan W. Waksal shall forfeit
25%
of the additional options, or 25% of the aggregate additional option gain associated with the additional option shares in the event the options are exercised, as applicable. This modification resulted in a
$12.4
million charge, of which the incremental value of the previously vested portion of the awards totaling
$8.3
million was expensed during the third quarter of 2016 and the remaining amount of the unvested portion totaling
$4.1
million will be recognized over the additional
two
years of service.
2014 Long
‑term Incentive Plan (“LTIP”)
The LTIP was adopted in May 2014 and amended in December 2014. Under the LTIP, the Company’s board of directors may grant up to
10%
of the equity value of the Company including the following types of awards:
|
·
|
|
Equity Appreciation Rights Units (“EAR units”) whereby the holder would possess the right to a payment equal to the appreciation in value of the designated underlying equity from the grant date to the determination date. Such value is calculated as the product of the excess of the fair market value on the determination date of one EAR unit over the base price specified in the grant agreement and the number of EAR units specified by the award, or, when applicable, the portion thereof which is exercised.
|
|
·
|
|
Performance Awards which become payable on the attainment of one or more performance goals established by the Plan Administrator. No performance period shall end prior to an IPO or Change in Control (the “Determination Date”).
|
The Company’s board of directors has the authority, at its discretion, to determine the terms and conditions of any LTIP grant, including vesting schedule.
Certain key employees were granted a total of
1,250
EAR units and
8,500
EAR units with a base price of
$6.00/unit
, expiring
10
years from the grant date (the “Award”) during 2015 and 2014, respectively. Each unit entitles the holder to a payment amount equal to
0.001%
of the fair market value of all of the outstanding equity in the Company on a fully diluted basis assuming the exercise of all derivative securities as of the Determination Date. The number of EAR units shall be adjusted to equal a certain percentage of the Company’s outstanding common equity securities determined on the first trading date following the Determination Date.
The EAR units vest based on the earlier of (a) the expiration date if an IPO is consummated on or before that date or (b) the date of a change in control that occurs after the submission date of a Form S
‑1 registration statement to the SEC but prior to the expiration date. The EAR units also vest upon achieving certain predetermined stock price targets subject to continuing service through the date of the Form S
‑1 submission. The payment amount with respect to the holder’s EAR units will be determined using the fair market value of the common stock on the trading date immediately preceding the settlement date. Each payment under the Award will be made in a lump sum and is considered a separate payment. The Company reserves the right to make payment in the form of common stock following the consummation of an IPO or in connection with a change in control, subject to the terms of the LTIP. Any settlement in the form of common stock will be limited to a maximum share allocation. The holder has no right to demand a particular form of payment.
A total of
9,750
units were granted under the LTIP at
December 31, 2016 and 2015
. The liability and associated compensation expense for this award was recognized upon consummation of the Company’s IPO on August 1, 2016.
No
compensation expense had been recorded prior to this date. The Company utilized a Monte-Carlo simulation to determine the fair value of the awards granted under the LTIP of
$22.6
million, which was recorded as shared-based compensation during the third quarter of 2016 as these awards are not forfeitable.
2016 Employee Stock Purchase Plan (“2016 ESPP”)
The Company’s board of directors has adopted and the Company’s stockholders have approved the 2016 ESPP. A total of
1,125,000
shares of the Company’s common stock are available for sale under the 2016 ESPP. In addition, the 2016 ESPP provides for annual increases in the number of shares available for issuance under the 2016 ESPP on January 1, 2017 and each subsequent anniversary through 2025, equal to the smallest of:
|
·
|
|
1.5%
of the outstanding shares of the Company’s common stock on the immediately preceding December 31; or
|
|
·
|
|
such other amount as may be determined by the Company’s board of directors.
|
Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in the Company’s capital structure. Shares subject to purchase rights which expire or are cancelled will again become available for issuance under the 2016 ESPP.
The compensation committee of the Company’s board of directors will administer the 2016 ESPP and have full authority to interpret the terms of the 2016 ESPP. The 2016 ESPP provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person’s action or failure to act in administering the 2016 ESPP.
All of the Company’s employees, including the Company’s named executive officers, and employees of any of the Company’s subsidiaries designated by the compensation committee are eligible to participate if they are customarily employed by the Company or any participating subsidiary for at least
20
hours per week and more than
five
months in any calendar year, subject to any local law requirements applicable to participants in jurisdictions outside the United States. However, an employee may not be granted rights to purchase stock under the 2016 ESPP if such employee:
|
·
|
|
immediately after the grant would own stock or options to purchase stock possessing
5.0%
or more of the total combined voting power or value of all classes of the Company’s capital stock; or
|
|
·
|
|
holds rights to purchase stock under all of the Company’s employee stock purchase plans that would accrue at a rate that exceeds
$25,000
worth of the Company’s stock for each calendar year in which the right to be granted would be outstanding at any time.
|
The 2016 ESPP is intended to qualify under Section 423 of the Code but also permits us to include our non-U.S. employees in offerings not intended to qualify under Section 423. The 2016 ESPP will typically be implemented through consecutive six-month offering periods. The offering periods generally start on the first trading day of April and October of each year. The administrator may, in its discretion, modify the terms of future offering periods, including establishing offering periods of up to
27
months and providing for multiple purchase dates. The administrator may vary certain terms and conditions of separate offerings for employees of the Company’s non-U.S. subsidiaries where required by local law or desirable to obtain intended tax or accounting treatment.
The 2016 ESPP permits participants to purchase common stock through payroll deductions of up to
10.0%
of their eligible compensation, which includes a participant’s regular and recurring straight time gross earnings and payments for overtime and shift premiums, but exclusive of payments for incentive compensation, bonuses and other similar compensation.
Amounts deducted and accumulated from participant compensation, or otherwise funded in any participating non-U.S. jurisdiction in which payroll deductions are not permitted, are used to purchase shares of the Company’s common stock at the end of each offering period. The purchase price of the shares will be
85.0%
of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last day of the offering period. Participants may end their participation at any time during an offering period and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment with the Company.
Each participant in any offering will have an option to purchase for each full month contained in the offering period a number of shares determined by dividing
$2,083
by the fair market value of a share of the Company’s common stock on the first day of the offering period or
200
shares, if less, and except as limited in order to comply with Section 423 of the Code. Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants’ compensation in excess of the amounts used to purchase shares will be refunded, without interest.
A participant may not transfer rights granted under the 2016 ESPP other than by will, the laws of descent and distribution or as otherwise provided under the 2016 ESPP.
In the event of a change in control, an acquiring or successor corporation may assume the Company’s rights and obligations under outstanding purchase rights or substitute substantially equivalent purchase rights. If the acquiring or successor corporation does not assume or substitute for outstanding purchase rights, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control.
The 2016 ESPP will remain in effect until terminated by the administrator. The compensation committee has the authority to amend, suspend or terminate the 2016 ESPP at any time.
Warrants
The following table summarizes information about warrants outstanding at
December 31, 2016 and 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
Weighted Average
Exercise Price
|
Balance, December 31, 2014
|
|
710,801
|
|
$
|
46.64
|
Balance, December 31, 2015
|
|
710,801
|
|
$
|
46.64
|
Granted
|
|
617,651
|
|
|
10.20
|
Exercised
|
|
—
|
|
|
—
|
Forfeited
|
|
—
|
|
|
—
|
Balance, December 31, 2016
|
|
1,328,452
|
|
$
|
29.70
|
In conjunction with 2015 Credit Agreement, warrants to purchase
$6.3
million of Class A units were issued to two lenders at 85% of the price per share of common stock in the IPO. Upon consummation of the Company’s IPO on August 1, 2016 with a price per share of common stock in the IPO of $12.00, these warrants to purchase Class A units were exchanged for
617,651
warrants at a strike price of
$10.20
to purchase the same number of shares of the Company’s common stock (Note 8).
1
4
. Accrued Expenses and Other Short Term Liabilities
Short
‑term accrued expenses
at
December 31, 2016 and 2015
include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Commission payable
|
|
$
|
2,395
|
|
$
|
2,820
|
Accrued bonus
|
|
|
245
|
|
|
362
|
Severance
|
|
|
1,744
|
|
|
578
|
Other compensation and benefits
|
|
|
709
|
|
|
956
|
Financing/Offering Costs
|
|
|
56
|
|
|
1,250
|
Threatened litigation
|
|
|
—
|
|
|
10,377
|
Royalty arrangements
|
|
|
2,502
|
|
|
2,777
|
Other
|
|
|
4,499
|
|
|
3,100
|
Total Accrued Expenses
|
|
$
|
12,150
|
|
$
|
22,220
|
Commission Payable
In November 2015, the Company entered into an agreement with a lender whereby the Company borrowed
$15.0
million under the Second
‑Lien Convert and incurred a
$600,000
commission fee to a third party, which was accrued for at
December 31, 2015
, of which
$300,000
is payable in cash and
was
still
in accounts payable
at
December 31, 2016
and
$300,000
was payable in Class A units with a fair value of
$125,000
, which was settled through the issuance of
25,000
Class A units in February 2016.
During 2015, the Company raised
$873,000
in gross proceeds,
$833,000
net of
$40,000
in transaction costs, through the issuance of
75,875
Class E redeemable convertible units.
At
December 31, 2016 and 2015
,
$40,000
remains in accrued liabilities relating to commissions to third parties for Class E redeemable convertible raises during 2015.
During 2014, the Company raised
$39.5
million in gross proceeds,
$36.4
million net of
$3.1
million in transaction costs, through the issuance of
3,438,984
Class E redeemable convertible units. Of the $3.1 million in transaction costs,
$2.4
million remains in accrued liabilities
at
December 31, 2016 and 2015
relating to commissions to third parties for Class E redeemable convertible raises during 2014.
Accrued Bonus
Accrued bonus balances represent anticipated bonus compensation to be paid to employees resulting from past services performed.
Severance
Severance balances represent contractual compensation to be paid to former employees, a significant portion of which relates to the separation agreement with Dr. Samuel D. Waksal. Effective as of February 8, 2016, Dr. Samuel D. Waksal
resigned from all positions with the Company and is no longer employed by the Company in any capacity. A
t
December 31, 2016
, accrued severance payable to Dr. Samuel D. Waksal totaled
$2.2
million, of which
$1.0
million is recorded as accrued expense and
$1.2
million is recorded as other long
‑term liabilities. The separation agreement with Dr. Samuel D. Waksal contains certain supplement conditional payments, none of which have been met at
December 31, 2016
. The Company has not recorded any expense related to these conditional payments at
December 31, 2016
and will continue to evaluate the probability of these conditional payments.
Separation Agreement with Dr. Samuel D. Waksal
Dr. Samuel D. Waksal founded the Company in October 2010 and, until August 2014, was the chairman of the Company’s board of
directors
and the Company’s Chief Executive Officer. In August 2014, he stepped down as the Company’s Chief Executive Officer and became the Company’s Chief of Innovation, Science and Strategy. In July 2015, Dr. Samuel D. Waksal resigned as chairman of the Company’s board of
directors
.
Effective as of February 8, 2016, Dr. Samuel D. Waksal resigned from all positions with the Company and is no longer employed by the Company in any capacity. The Company does not intend for Dr. Samuel D. Waksal to become an employee, provide any ongoing consulting services or rejoin the board of directors.
In connection with his resignation, the Company entered into a separation agreement with Dr. Samuel D. Waksal terminating his employment with the Company and providing that he shall perform no further paid or unpaid services for the Company whether as employee, consultant, contractor or any other service provider. The principal provisions of the separation agreement are summarized below.
Severance and Other Payments
The Company has agreed to make a series of payments (all subject to withholding taxes) to Dr. Samuel D. Waksal, some of which are contingent, structured as follows:
|
·
|
|
a
$3.0
million severance payment, of which the first
$1.0
million will be payable during the first year after February 8, 2016, with the remaining
$2.0
million to be payable during the two years commencing with the first anniversary of the start of payments of the first $1.0 million. Severance expense totaling
$3.1
million, including the cost of Company
‑paid medical benefits, was recorded during the first quarter of 2016 as these payments are probable and estimable;
|
|
·
|
|
supplemental conditional payments of up to
$6.75
million in the aggregate that are payable in 2017 (
$2.25
million), 2018 (
$2.25
million) and 2019 (
$2.25
million) if specified benchmarks related to the valuation of the Company implied by the public offering price in the IPO, the net proceeds to the Company from the IPO and the Company’s equity market capitalization on specified dates are achieved and subject to the Company having cash and cash equivalents less payables of
$50
million or more on the dates when the Company makes those payments. These conditional payments, although estimable, are not probable at
December 31, 2016
as the Company is not able to determine if or when these benchmarks related to the valuation of the Company will be achieved. The Company has not recorded any expense related to these conditional payments at
December 31, 2016
and will continue to evaluate the probability of these conditional payments;
|
|
·
|
|
an amount equal to
five
percent (up to a maximum of
$15
million) of any cash received by the Company or guaranteed cash payments (as defined
below
) payable to the Company pursuant to the first
three
business development programs that the Company enters into on or before February 8, 2019 to research, develop, market or commercialize the Company’s ROCK2 program or the Company’s immuno
‑oncology program. For purposes of the separation agreement, ROCK2 program is defined to mean pathways involving ROCK2 or other pathways effecting autoimmunity, fibrosis, cancer or neurodegenerative diseases; immunooncology program is defined to mean antibodies or small molecules involved in inducing the immune system to make an anti
‑tumor response; and guaranteed cash payments is defined to mean payments to the Company of cash contractually provided for pursuant to an agreement entered into by the Company with respect to a business development program, which payments are not subject to the Company’s meeting any milestones or thresholds. If the aggregate cash and guaranteed cash payments received by the Company pursuant to any business development program exceed
$800
million before the completion of the IPO, the equity market capitalization requirements that must be met for Dr. Samuel D. Waksal to earn the supplemental payments of up to $6.75 million described above shall be deemed fulfilled, regardless of the Company’s equity market capitalization at the applicable time. These conditional payments are not estimable or probable at
December 31, 2016
as the Company is not able to determine if or when the Company will enter into these business development programs. The Company has not recorded any expense related to these conditional payments at
December 31, 2016
and will continue to evaluate the probability of these conditional payments.
|
LTIP Award
With regard to the award of
5,000
EAR units granted to Dr. Samuel D. Waksal in December 2014, the separation agreement provides that:
|
·
|
|
by virtue of his separation from the Company, Dr. Samuel D. Waksal acknowledges that he is no longer entitled to vesting at December 16, 2024 based on the occurrence of an initial public offering on or before that date and continued service through that date;
|
|
·
|
|
the service component included in the vesting condition related to the occurrence of a change of control after an initial public offering but before December 16, 2024 is now satisfied;
|
|
·
|
|
the service component included in the vesting condition related to the occurrence of a
333%
increase in the fair market value of each EAR unit from the
$6.00
grant price per unit before December 16, 2024 is now satisfied; and
|
|
·
|
|
Dr. Samuel D. Waksal’s EAR units shall not be subject to forfeiture, termination or recapture payment for violation of the restrictive covenants contained in the 2014 LTIP.
|
The liability and associated compensation expense for this award was recognized upon consummation of the Company’s IPO on August 1, 2016.
No
compensation expense had been recorded prior to this date. The Company utilized a Monte-Carlo simulation to determine the fair value of the award granted under the LTIP of
$11.6
million, which was recorded during the third quarter of 2016 as this award is not forfeitable.
Lock
‑up Agreement
Dr. Samuel D. Waksal has agreed to enter into a
180
‑day lock
‑up agreement in connection with the IPO. If requested by the managing underwriters in any subsequent offering at the time of which Dr. Samuel D. Waksal owns
five
percent or more the Company’s common stock, he will enter into a lock
‑up agreement for a period not to exceed
90
days and in the form customarily requested by the managing underwriters for that offering (subject to mutually agreed exceptions), so long as other equityholders enter into substantially similar lock
‑up agreements. If any of our equityholders that signs a lock
‑up agreement is released from its provisions by the managing underwriters, Dr. Samuel D. Waksal will also be released from his lock
‑up agreement.
Covenants
The separation agreement contains customary non
‑solicitation, non
‑competition and non
‑disparagement provisions that continue in effect until February 8, 2019. In addition, Dr. Samuel D. Waksal agrees to make himself available, at the Company’s expense, to assist the Company in protecting its ownership of intellectual property and in accessing his knowledge of scientific and/or research and development efforts undertaken during his employment with the Company.
Releases
The separation agreement provides for mutual releases by the parties and related persons of all claims arising out of Dr. Samuel D. Waksal’s relationship with the Company as employee, founder, investor, member, owner, member or Chairman of the Board, Chief Executive Officer, or officer.
Financing Costs
As consideration for the amendment to the Company’s 2013 convertible debt, if a qualified IPO, defined as a public offering of the Company’s equity interests with gross proceeds to the Company of at least
$75.0
million, had not been completed on or prior to March 31, 2016, the Company agreed to pay an amendment fee equal to
$1.3
million to be allocated among the lenders. This fee was accrued at December 31, 2015, and subsequently paid in April 2016 through the issuance of
108,696
Class E redeemable convertible units, as the Company did not complete a qualified IPO by March 31, 2016.
Threatened Litigation
During 2015, the Company received a demand for the issuance of additional equity under a letter agreement with Falcon Flight LLC that was entered into in November 2014. In June 2016, the Company entered into an agreement with Falcon Flight LLC and one of its affiliates in connection with a settlement of certain claims alleging breaches of a letter agreement between the Company and Falcon Flight LLC relating to a prior investment by Falcon Flight LLC and its affiliate in the Company’s securities, which letter agreement was amended and restated as part of this settlement, which the Company refers to as the Falcon Flight Agreement. Subject to certain terms and conditions contained therein, the Falcon Flight Agreement provides Falcon Flight LLC and its affiliate with certain information rights, consent rights, and anti
‑dilution protections
including the issuance of
1,061,741
additional Class E redeemable convertible membership units with a conversion price equal to any down
‑round price and a right to designate a member of the Company’s board of
directors
or observer, among other rights. The aforementioned rights terminated upon the closing of the IPO on August 1, 2016, except for indemnification of Falcon Flight LLC’s board designee or observer, which survives termination. In addition, the Company agreed to provide Falcon Flight LLC with most favored nation rights which terminated upon the closing of the IPO on August 1, 2016 and to pay
$800,000
in cash to Falcon Flight LLC. The Company recorded an estimate for this settlement of approximately
$10.4
million in September 2015 and recorded an additional expense of
$2.6
million in June 2016 based on the excess of the fair value of this settlement over the $10.4 million previously expensed in 2015.
Royalty Arrangements
The Company has contracts with third parties, which require the Company to make royalty payments based on the sales revenue of the products specified in the contract. The Company records royalty expense as the associated sales are recognized, and classifies such amounts as selling, general and administrative expenses in the accompanying consolidated statements of operations. Royalty payable was
$2.5
million and
$2.8
million at
December 31, 2016 and 2015
, respectively. These royalties are generally paid quarterly. Royalty expense was
$1.2
million
,
$2.7
million
and
$6.5
million
for the
years ended December 31, 2016, 2015 and 2014
, respectively. Approximately
$
2.2
million and
$2.0
million at
December 31, 2016 and 2015
, respectively, of the royalty payable is the prepaid royalty that will have to be refunded to the Company’s commercial partner (Note
6
)
.
1
5
. 401(k) Profit
‑Sharing Plan
In October 2011, the Company began sponsoring a qualified Tax Deferred Savings Plan (401(k)) for all eligible employees of the Company and its subsidiaries. Participation in the plan is voluntary. Participating employees may defer up to
75%
of their compensation up to the maximum prescribed by the Internal Revenue Code. The Company has an obligation to match non
‑highly compensated employee contributions of up to
6%
of deferrals and also has the option to make discretionary matching contributions and profit sharing contributions to the plan annually, as determined by the Company’s
board of directors
. The plan’s effective date is October 1, 2011 and incorporates funds converted from the Kadmon Pharmaceuticals Profit Sharing Plan.
The Company expensed employer matching contributions of
$0.3
million
,
$0.3
million
and
$0.4
million f
or the
years ended December 31, 2016, 2015 and 2014
, respectively. The Company made disbursements of
$0.
3
million and
$0.4
million for the years ended December 31, 2016 and 2015, respectively. The Company typically disburses employer matching contributions during the first quarter following the plan year
.
1
6
. Commitments
Lease Commitments
The Company has
three
primary operating locations which are occupied under long
‑term leasing arrangements. In October 2010, Kadmon Corporation, LLC entered into a corporate headquarters and laboratory lease in New York, New York, expiring in February 2021 and opened a secured letter of credit with a third party financial institution in lieu of a security deposit for
$2.0
million. Since inception there have been
four
amendments to this lease agreement, which have altered office and laboratory capacity and extended the lease term through
October 2024
. Rental expense for this lease amounted to
$6.4
million
,
$6.2
million and
$5.5
million
for each of the
years ended December 31, 2016, 2015 and 2014
. During future years, the base rent amount associated with these premises will increase
3.5%
annually. The Company has the ability to extend portions of the lease on the same terms and conditions as the current lease, except that the base rent will be adjusted to the fair market rental rate for the building based on the rental rate for comparable space in the building at the time of extension.
The Company is party to an operating lease in Warrendale, Pennsylvania (the Company’s specialty-focused commercial operation), which expires on
September 30, 2019
, with a
five
‑year renewal option. Rental payments under the renewal period will be at market rates determined from the average rentals of similar tenants in the same industrial park. Rental expense for this lease was
$0.6
million
for
each of
the
years ended December 31, 2016, 2015 and 2014
, respectively.
In August 2015, the Company entered into an office lease agreement in Cambridge, Massachusetts (the Company’s new clinical office) effective January 2016 and expiring in
April 2023
. The Company opened a secured letter of credit with a third party financial institution in lieu of a security deposit for
$91,000
. Rental expense for this lease was
$0.3
million
for
the
year ended December 31, 2016
.
No
rental expense was incurred for this lease during the
year ended December 31, 2015
.
Future minimum rental payments under noncancellable leases are as follows (in thousands) a
t
December 31, 2016
:
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Amount
|
2017
|
|
$
|
5,796
|
2018
|
|
|
5,912
|
2019
|
|
|
5,828
|
2020
|
|
|
5,449
|
2021
|
|
|
5,634
|
Thereafter
|
|
|
16,386
|
Total
|
|
$
|
45,005
|
Licensing Commitments
The Company has entered into several license agreements for products currently under development (Note 1
2
). The Company may be obligated in future periods to make additional payments, which would become due and payable only upon the achievement of certain research and development, regulatory, and approval milestones. The specific timing of such milestones cannot be predicted and depends upon future discretionary clinical developments as well as regulatory agency actions which cannot be predicted with certainty (including action which may never occur). These additional contingent milestone payments aggregate to
$4
00
.4
million
at
December 31, 2016
. Any payments made prior to FDA approval will be expensed as research and development. Payments made after FDA approval will be capitalized.
Further, under the terms of certain licensing agreements, the Company may be obligated to pay commercial milestones contingent upon the realization of sales revenues and sublicense revenues. Due to the long
‑range nature of such commercial milestones, they are neither probable at this time nor predictable, and consequently are not included in the additional contingent milestone payment amount.
Employment Agreements
Two
former employees of the Company received
$1.25
million each upon the consummation of the IPO, which the Company settled through the issuance of an aggregate of
208,334
shares of its common stock on August 1, 2016. The amount of compensation due to another former employee as a result of this event is contingent upon the valuation of the Company at the time of the transaction, which was not achieved upon consummation of the IPO on August 1, 2016. Certain employment agreements also provide for routine severance compensation. The Company has recorded a liability for such agreements of
$2.9
million, which is primarily attributable to the severance expense recognized in connection with the resignation of Dr. Samuel D. Waksal, and
$0.6
million at
December 31, 2016 and 2015
, respectively (Note 1
4
).
1
7
. Contingencies
The Company is subject to various legal proceedings that arise from time to time in the ordinary course of its business. Although the Company believes that the various proceedings brought against it are without merit, and that it has adequate product liability and other insurance to cover any claims, litigation is subject to many factors which are difficult to predict and there can be no assurance that the Company will not incur material costs in the resolution of legal matters. Should the Company determine that any future obligations will exist, the Company will record expense equal to the amount which is deemed probable and estimable.
Legal Proceedings
The Rosenfeld Litigation
On February 3,
2014,
Steven Rosenfeld commenced a lawsuit in the New York State Supreme Court, for the county of New York, against Joel Schreiber, Samuel D. Waksal and certain Kadmon entities alleging that he and co-defendant Schreiber were engaged to raise funds for a new venture involving Kadmon. Rosenfeld alleges that he was responsible for raising funds but that he was not compensated. A Third Amended Complaint was filed in or about August 2016 adding new corporate entities and adding an alleged breach of an exclusivity agreement, again seeking an amount to be determined at trial, but believed by Rosenfeld to be no less than
$150
million dollars. In October 2016, the Company filed a motion to dismiss the action and a motion to stay certain discovery pending resolution of the motion to dismiss. Briefing on both motions was completed in January 2017. The Company believes that the claims have no merit and intends to vigorously defend this action
.
The Belesis Litigation
On June 29,
2015,
Anastasios Thomas Belesis and ATB Holding Company, LLC (together “Belesis”) filed a lawsuit in the U.S. District Court for the Southern District of New York against the Company, our subsidiaries, Samuel D. Waksal and Steven N. Gordon alleging that they are owed equity or a monetary amount for services allegedly performed. The lawsuit asserted
12
claims, ranging from federal securities fraud to breach of contract and a variety of other common law causes of action and sought an order compelling specific performance of the conveyance of
1,000,000
shares of “Kadmon stock” or compensatory damages in the amount of at least
$15,000,000
and punitive damages in an amount to be determined by the Court, with pre- and post-judgment interest thereon, attorney
’
s fees, all taxable costs and disbursements. The Company filed a motion to dismiss in September 2015 and the claims were dismissed without prejudice in September 2016. On November 8, 2016, Belesis filed a motion for leave to file a second amended complaint. Defendants filed opposition papers to plaintiffs
’
motion on November 30, 2016 and plaintiffs filed their reply brief on December 6, 2016. The parties are awaiting the court’s decision. The Company believes that the claims have no merit and intends to vigorously defend this action
.
The Glodek Litigation
On July 25, 2016,
Kevin Glodek filed and served a Summons with Notice against Kadmon Holdings, LLC and Kadmon Holdings, Inc.
in the New York State Supreme Court, for the county of New York
, for an amount of no less than
$2.8
million with interest, plus costs and disbursements. Company counsel demanded a complaint and that complaint was served and filed on September 6, 2016. In the complaint, Glodek alleges fraud, misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, for amounts to be determined at trial, but in no event less than
$4
million with interest, plus costs and disbursements. Glodek’s claims arise out of a 2015 settlement agreement, in which he released all claims he had against Kadmon Holdings, LLC and Kadmon Holdings, Inc. On September 21, 2016, Glodek filed an Amended Summons and an Amended Complaint adding Steven N. Gordon and Mr. Poukalov as named defendants. All defendants moved
(
i) to dismiss the Amended Complaint and
(
ii) for sanctions or, in the alternative, to disqualify Glodek’s counsel. Argument on the motions was conducted on January 24, 2017 before the Honorable Anil Singh and the parties are awaiting the court’s decision. All defendants believe that the settlement agreement and its broad release are binding; they deny all of the allegations and believe that they are entirely without merit; and they intend to vigorously defend themselves against this action
.
1
8
. Concentrations
Major Customers
Sales to
two
major customers aggregate to approximately
41%
and
31%
of the Company’s net sales for the
years ended December 31, 2016 and 2015
, respectively. Net accounts receivable from these customers totaled
$0.1
and
$0.6
million at
December 31, 2016 and 2015
, respectively.
Sales to
one
major customer aggregated to approximately
20%
of the Company’s net sales for the year ended December 31, 2014.
Major Suppliers
Due to requirements of the U.S. Food and Drug Administration and other factors, the Company is generally unable to make immediate changes to its supplier arrangements. Manufacturing services related to each of the Company’s pharmaceutical products are primarily provided by a single source. The Company’s raw materials are also provided by a single source for each product. Management attempts to mitigate this risk through long
‑term contracts and inventory safety stock.
1
9
. Related Party Transactions
At
December 31, 2016
Kadmon I
held
approximately
12.1%
of the total outstanding common stock of Kadmon Holdings and
at
December 31, 2015
Kadmon I held approximately
66%
of the total outstanding Class A units of Kadmon Holdings (Note
4
). The sole manager of Kadmon I
was
an executive officer of the Company. Kadmon I has no special rights or preferences in connection with its investment into Kadmon Holdings, and had the same rights as all other holders of Kadmon Holdings Class A units.
On January 23, 2017, Kadmon I, LLC was dissolved and liquidated. Upon dissolution and liquidation, all assets of Kadmon I, LLC which consists solely of the shares of common stock in Kadmon Holdings, Inc., were distributed to the members of Kadmon I, LLC.
In October 2011, Dr. Samuel D. Waksal, a former employee of the Company, issued an equity instrument for which the underlying value is based on Class A units and is redeemable for cash upon the occurrence of a liquidity event. The liability was recorded based on fair value of the instrument on the issuance date and
was
subsequently marked to market using a Black
‑Scholes calculation. The total liability for this instrument was
$0
and
$69,000
at
December 31, 2016 and 2015
, respectively (Note
8
).
Upon consummation of the Company’s IPO on August 1, 2016 with a price per share of
$12.00
per share, the fair value of this equity instrument had a fair value of
$0
, which resulted in no liab
i
lity owed by the Company
In November 2011, the Company entered into an agreement with SBI Holdings, Inc., an indirect holder of more than
5%
of the Company’s outstanding membership interests through Kadmon I, LLC, in connection with an investment of
$6.5
million for
306,067
of the Company’s Class A membership units (the SBI Agreement). Subject to certain terms and conditions contained therein, the SBI Agreement provided SBI Holdings, Inc. with certain consent rights relating to the Company’s activities, information rights and rights upon liquidity events, among other things. The aforementioned rights terminated upon the closing of the IPO on August 1, 2016.
In October 2013, the Company entered into an agreement with Alpha Spring Limited in connection with an investment of
$35.0
million by Alpha Spring Limited for
2,679,939
of the Company’s Class A membership units (the Alpha Spring Agreement). Subject to certain terms and conditions contained therein, the Alpha Spring Agreement provides Alpha Spring Limited with certain consent rights relating to the Company’s activities, most favored nation rights, the right to appoint a member of the Company’s board of directors and information rights, among other things. The aforementioned rights terminated upon the closing of the IPO on August 1, 2016.
During 2014 the Chief Executive Officer and member, a family member of the Chief Executive Officer and member and an executive officer provided the Company with short
‑term, interest
‑free loans to meet operating obligations. During this time the maximum amount which was outstanding in the aggregate was
$3.5
million and was recorded as a related party loan on the Company’s balance sheet. The
$500,000
related party loan with a family member of the Chief Executive Officer and member was settled in January 2015 through the issuance of
43,478
Class E redeemable convertible units. A
t
December 31, 2015
, the
$3.0
million related party loan with the Chief Executive Officer and director
was
still outstanding and
was
repaid in full
during the fourth quarter of 2016.
In April 2015, the Company executed several agreements which transferred the Company’s ownership of KGT to MeiraGTx, a then wholly
‑owned subsidiary of the Company. The execution of all these agreements resulted in a
48%
ownership in MeiraGTx by the Company, or a
$24.0
million equity investment at the time of the initial transaction (Note 1
2
).
In July and August 2015, a family member of the Chief Executive Officer and member provided the Company with interest
‑free loans totaling
$2.0
million. The loans were repaid in full in August 2015.
In September 2015, the Company entered into an agreement with GoldenTree Asset Management LP and certain of its affiliated entities in connection with (i) a settlement of certain claims alleging breaches of a letter agreement between the Company and such entities relating to a prior investment by such entities in the Company’s securities, which letter agreement was terminated as part of this settlement and (ii) participation by such entities in an aggregate amount of
$15.0
million in the 2015 Credit Agreement, including the warrants issued in connection therewith, and the Senior Convertible Term Loan (the GoldenTree Agreement). Subject to certain terms and conditions contained therein, the GoldenTree Agreement provided GoldenTree Asset Management LP and certain of its affiliated entities with certain most favored nation rights, anti
‑dilution protections including the issuance of additional Class E redeemable convertible membership units with a conversion price equal to any down round price and a right to appoint a member of the Company’s board of directors, among other things. The aforementioned rights terminated upon the closing of the IPO on August 1, 2016.
In June 2016, the Company entered into an agreement with 72 KDMN Investments, LLC whereby the Company agreed to extend certain rights to 72 KDMN Investments, LLC which shall survive closing of the IPO, including board of director designation rights and confidentiality rights, subject to standard exceptions. In addition, the Company agreed to provide 72 KDMN Investments, LLC with most favored nation rights which terminated upon the closing of the IPO
on August 1, 2016
.
Andrew B. Cohen, a former member of our board of directors, is an affiliate of 72 KDMN.
In January 2017, Mr. Cohen resigned from the Company’s board of directors and the Company received notice that 72 KDMN forfeits, relinquishes and waives any and all rights it has to designate a director to the Company’s board of directors.
In June 2016, Dr. Harlan W. Waksal, the Company’s President and Chief Executive Officer, certain entities affiliated with GoldenTree Asset Management LP, Bart M. Schwartz, the chairman of the Company’s board of directors, 72 KDMN and D. Dixon Boardman, a member of the Company’s board of directors, subscribed for
86,957
,
43,479
,
21,740
,
86,957
and
21,740
of the Company’s Class E redeemable convertible units, respectively, at a value of
$11.50
per unit.
In June 2016, the Company entered into certain agreements with Falcon Flight LLC and one of its affiliates in connection with a settlement of certain claims alleging breaches of a letter agreement between the Company and Falcon Flight LLC relating to a prior investment by Falcon Flight LLC and its affiliate in the Company’s securities, which letter agreement was amended and restated as part of this settlement, which, together with a supplemental letter agreement, we refer to as the Falcon Flight Agreement. Subject to certain terms and conditions contained therein, the Falcon Flight Agreement provides Falcon Flight LLC and its affiliate with certain most favored nation rights, information rights, consent rights, anti
‑dilution protections including the issuance of
1,061,741
additional Class E redeemable convertible membership units with a conversion price equal to any down
‑round price, a right to designate a member of the Company’s board of then managers or observer and notice requirements with respect to any waivers by the underwriters in connection with lock
‑up agreements,
among other things. The aforementioned rights terminated upon the closing of the IPO on August 1, 2016, except for indemnification of Falcon Flight LLC’s board designee or observer, which survives termination. In addition, the Company agreed to pay
$500,000
to Falcon Flight LLC within one business day following the consummation of the IPO, and
$300,000
within sixty days following the consummation of the IPO. The Company recorded an estimate for this settlement of approximately
$10.4
million in September 2015 and recorded an additional expense of
$2.6
million in June 2016 based on the excess of the fair value of this settlement over the $10.4 million previously expensed in 2015.
Certain
of
the Company’s
existing institutional investors, including investors affiliated with certain of
the Company’s
directors, purchased an aggregate of
2,708,332
shares of
the Company’s
common stock in
its
IPO at the IPO price of $12.00 per share, for an aggregate purchase price of
$32.5
million, and on the same terms as the shares that were sold to the public generally. Perceptive Advisors, LLC, Third Point Partners, LLC. and Golden
T
ree purchased
1,458,333
shares of
the Company’s
common stock for
$17.5
million,
1,041,666
shares of
the Company’s
common stock for
$12.5
million and
208,333
shares of
the Company’s
common stock for
$2.5
million, respectively.
20
. Income Taxes
The Company files a consolidated tax return for Kadmon Holdings, Inc. and its domestic subsidiaries and the required information returns for its international subsidiaries, all of which are wholly owned. Where permitted, the Company files combined state returns, but in some instances separate company returns for certain subsidiaries on a stand
‑alone basis are required.
For the year ended December 31, 2016, the Company recorded income tax expense of
$0.3
million related to the
$2.0
million milestone payment received from Jinghua.
The Company recorded an immaterial amount of income tax benefit
for the year ended December 31, 2015.
The income tax provision consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
$
|
315
|
|
$
|
—
|
|
$
|
—
|
Federal
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
State
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
Total current tax expense
|
|
|
|
|
|
|
|
|
315
|
|
|
—
|
|
|
—
|
Deferred tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
(15)
|
|
|
1
|
|
|
16
|
State
|
|
|
|
|
|
|
|
|
42
|
|
|
(4)
|
|
|
(45)
|
Total deferred tax benefit
|
|
|
|
|
|
|
|
|
27
|
|
|
(3)
|
|
|
(29)
|
Total income tax expense (benefit)
|
|
|
|
|
|
|
|
$
|
342
|
|
$
|
(3)
|
|
$
|
(29)
|
The income tax expense differs from the expense that would result from applying federal statutory rates to loss before income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Amount
|
|
|
Rate
|
|
Amount
|
|
|
Rate
|
|
Amount
|
|
|
Rate
|
Expected federal statutory income tax
|
|
$
|
(72,945)
|
|
|
-35.0%
|
|
$
|
(51,480)
|
|
|
-35.0%
|
|
$
|
(22,535)
|
|
|
-35.0%
|
State income taxes, net of federal benefits
|
|
|
(9,485)
|
|
|
-4.6%
|
|
|
(4,544)
|
|
|
-3.1%
|
|
|
(1,232)
|
|
|
-1.9%
|
Change in federal tax rate used for deferred purposes
|
|
|
200
|
|
|
0.1%
|
|
|
972
|
|
|
0.7%
|
|
|
—
|
|
|
0.0%
|
Other
|
|
|
—
|
|
|
0.0%
|
|
|
(6,492)
|
|
|
-4.4%
|
|
|
(4,213)
|
|
|
-6.9%
|
Valuation allowance
|
|
|
82,572
|
|
|
39.6%
|
|
|
61,541
|
|
|
41.8%
|
|
|
27,951
|
|
|
43.8%
|
Income tax expense (benefit )
|
|
$
|
342
|
|
|
0.1%
|
|
$
|
(3)
|
|
|
0.0%
|
|
$
|
(29)
|
|
|
0.0%
|
Deferred income tax expense results primarily from the timing of temporary differences between the tax and financial statement carrying amounts of goodwill. The net deferred tax asset and liability in the accompanying consolidated balance sheets consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
|
|
|
|
|
$
|
171,074
|
|
$
|
116,757
|
Foreign tax credit carryforward (LT)
|
|
|
|
|
|
|
|
|
315
|
|
|
—
|
Capitalized research and development
|
|
|
|
|
|
|
|
|
78,147
|
|
|
69,965
|
Share-based compensation
|
|
|
|
|
|
|
|
|
22,233
|
|
|
6,167
|
Loss on equity investment
|
|
|
|
|
|
|
|
|
5,900
|
|
|
1,045
|
Organization costs
|
|
|
|
|
|
|
|
|
46
|
|
|
54
|
Depreciation
|
|
|
|
|
|
|
|
|
1,050
|
|
|
1,018
|
Intangibles
|
|
|
|
|
|
|
|
|
47,595
|
|
|
49,681
|
Inventory reserve and other
|
|
|
|
|
|
|
|
|
3,631
|
|
|
2,731
|
Total deferred tax assets
|
|
|
|
|
|
|
|
|
329,991
|
|
|
247,418
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
(1,376)
|
|
|
(1,349)
|
Total deferred tax liability
|
|
|
|
|
|
|
|
|
(1,376)
|
|
|
(1,349)
|
Total deferred tax assets, net
|
|
|
|
|
|
|
|
|
328,615
|
|
|
246,069
|
Valuation allowance
|
|
|
|
|
|
|
|
|
(329,991)
|
|
|
(247,418)
|
Deferred tax liability
|
|
|
|
|
|
|
|
$
|
(1,376)
|
|
$
|
(1,349)
|
A
t
December 31, 2016
, the Company has unused federal and state net operating loss carry
-
forwards of
$432.8
million and
$362.9
million, respectively, that may be applied against future taxable income. These carry
-
forwards expire at various dates through December 31, 203
6
.
The Company experienced ownership changes under Internal Revenue Code Section 382 in 2010, 2011 and 2016, which limits the Company’s ability to utilize net operating loss carry
-
forwards. The Company did not reduce the gross deferred tax assets related to the net operating loss carry
-
forwards, however, because the limitations do not hinder the Company’s ability to potentially utilize all of the net operating loss carry
-
forwards
.
In accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the gross deferred tax asset, because it is more likely than not that the Company will not realize future benefits associated with these deferred tax assets at
December 31, 2016 and 2015
. The change in deferred tax liability has been recognized as income tax benefit in the consolidated statements of operations for the
years ended December 31, 2016, 2015 and 2014
and as an income tax expense for the year ended December 31, 2015
.
The federal income tax return for the period of September 16, 2010 through December 31, 2010 was audited by the Internal Revenue Service during 2012 and early 2013. As a result of the audit, the Company’s operating loss carry
-
forwards were reduced by
$1.4
million, which is reflected in the table above.
The Company follows guidance on accounting for uncertainty in income taxes which prescribes a minimum threshold a tax position is required to meet before being recognized in the financial statements. The Company does not have any liabilities as of December 31, 2016 and 2015 to account for potential income tax exposure. The Company is obligated to file income tax returns in the U.S. federal jurisdiction and several U.S. States. Since the Company had losses in the past, all prior years that generated net operating loss carry
-
forwards are open and subject to audit examination in relation to the net operating loss generated from those years.
2
1
. Subsequent Events
Jinghua
The Company earned a
$2.0
million milestone payment in January 2017, which was received in February 2017, and will be recorded as license and other revenue.
Camber Pharmaceuticals, Inc.
In February 2016, the Company entered into a supply and distribution agreement, as amended, with Camber for the purposes of marketing, selling and distributing tetrabenazine, valganciclovir, Abacavir, Entecavir, Lamivudine, Lamivudine (HBV) and Lamivudine and Zidovudine.. The initial term of the agreement was twelve months.
In February 2017, the Company entered into a third amendment to the supply and distribution agreement with Camber extending the initial term of the agreement by an additional twelve months.
Princeton University
On December 8, 2010, the Company entered into a license agreement with Princeton whereby the Company obtained from Princeton a worldwide exclusive license and right to make, use and sell products identified by Princeton’s Flux technology. In February 2017, the Company entered into a mutual termination agreement with Princeton. All rights and licenses granted under the agreement were immediately terminat
e
d and shall revert to the party granting such rights.
Private Placement
On March
13
, 2017, the Company
raised
$22.7
million in gross proceeds,
$21.3
million net of
$1.4
million in
placement agent
fees
, from the issuance of
6,767,855
shares of its common stock, at a price of
$3.36
per share, and warrants to purchase
2,707,138
million shares of its common stock at an initial exercise price of
$4.50
per share
for a term of 13 months from the date of issuance
.
In connection with the offering, the Company has agreed to file a registration statement to register the shares of common stock underlying the common stock and warrants for resale. Under the agreement, the registration statement must be filed within 30 days of the closing of the financing and declared effective within the timeline provided in the agreement. If the applicable deadlines are not met, monthly liquidat
ed
damages of
2.0
%
of the subscription amount (with a
n
8.0
%
cap) will be due to the purchaser.
22. Quarterly Financial Data (unaudited)
The following table presents our unaudited quarterly financial data. Our quarterly results of operations for these periods are not necessarily indicative of our future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
(in thousands,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
except per share data)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,010
|
|
$
|
5,723
|
|
$
|
4,345
|
|
$
|
9,802
|
|
$
|
4,967
|
|
$
|
7,304
|
|
$
|
6,192
|
|
$
|
6,470
|
License and other revenue
|
|
|
1,267
|
|
|
2,215
|
|
|
1,350
|
|
|
1,482
|
|
|
1,453
|
|
|
1,475
|
|
|
3,471
|
|
|
1,248
|
Total revenue
|
|
|
4,277
|
|
|
7,938
|
|
|
5,695
|
|
|
11,284
|
|
|
6,420
|
|
|
8,779
|
|
|
9,663
|
|
|
7,718
|
Cost of sales
|
|
|
640
|
|
|
589
|
|
|
880
|
|
|
1,304
|
|
|
880
|
|
|
879
|
|
|
1,085
|
|
|
959
|
Write-down of inventory
|
|
|
119
|
|
|
205
|
|
|
129
|
|
|
1,143
|
|
|
2
|
|
|
821
|
|
|
135
|
|
|
105
|
Gross profit
|
|
|
3,518
|
|
|
7,144
|
|
|
4,686
|
|
|
8,837
|
|
|
5,538
|
|
|
7,079
|
|
|
8,443
|
|
|
6,654
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,706
|
|
|
10,214
|
|
|
9,550
|
|
|
8,439
|
|
|
8,544
|
|
|
7,065
|
|
|
9,040
|
|
|
7,840
|
Selling, general and administrative
|
|
|
15,299
|
|
|
22,321
|
|
|
48,311
|
|
|
39,408
|
|
|
18,869
|
|
|
21,815
|
|
|
23,401
|
|
|
21,196
|
Impairment of intangible asset
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,269
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Gain on settlement of payable
|
|
|
—
|
|
|
—
|
|
|
(256)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,875)
|
|
|
—
|
Total operating expenses
|
|
|
24,005
|
|
|
32,535
|
|
|
57,605
|
|
|
79,116
|
|
|
27,413
|
|
|
28,880
|
|
|
28,566
|
|
|
29,036
|
Loss from operations
|
|
|
(20,487)
|
|
|
(25,391)
|
|
|
(52,919)
|
|
|
(70,279)
|
|
|
(21,875)
|
|
|
(21,801)
|
|
|
(20,123)
|
|
|
(22,382)
|
Total other expense
|
|
|
1,716
|
|
|
9,082
|
|
|
64,049
|
|
|
11,800
|
|
|
14,837
|
|
|
(19,276)
|
|
|
12,407
|
|
|
5,626
|
Income tax expense (benefit)
|
|
|
27
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
315
|
|
|
—
|
Net loss
|
|
|
(22,230)
|
|
|
(34,470)
|
|
|
(116,968)
|
|
|
(82,079)
|
|
|
(36,712)
|
|
|
(2,525)
|
|
|
(32,845)
|
|
|
(28,008)
|
Deemed dividend on convertible preferred stock and Class E redeemable convertible units
|
|
|
469
|
|
|
—
|
|
|
21,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Net loss attributable to common stockholders
|
|
|
(22,699)
|
|
|
(34,470)
|
|
|
(138,232)
|
(1)
|
|
(82,079)
|
|
|
(36,712)
|
|
|
(2,525)
|
|
|
(32,845)
|
|
|
(28,008)
|
Basic and diluted net loss per share of common stock
|
|
$
|
(0.50)
|
|
$
|
(4.15)
|
|
$
|
(4.23)
|
|
$
|
(9.94)
|
|
$
|
(4.42)
|
|
$
|
(0.31)
|
|
$
|
(3.96)
|
|
$
|
(3.58)
|
Weighted average basic and diluted shares of common stock outstanding
|
|
|
45,078,666
|
|
|
8,298,750
|
|
|
32,678,259
|
(2)
|
|
8,255,011
|
|
|
8,304,334
|
|
|
8,122,691
|
|
|
8,302,635
|
|
|
7,828,101
|
|
(1)
|
|
Net loss attributable to common stockholders for t
he three months ended September 30, 2016 includes
the beneficial conversion feature of the Company’s debt upon conversion into shares of the Company’s common stock on August 1, 2016
of $44.2 million,
the beneficial conversion feature of certain outstanding warrants which became exercisable into shares of the Company’s common stock on August 1, 2016
of $1.7 million, the deemed dividends on the Company’s convertible preferred stock and Class E redeemable convertible units of $20.9 million and share-based compensation expense related to the Company’s LTIP of $22.6 million
.
|
|
(2)
|
|
Weighted average basic and diluted shares of common stock outstanding for the three months ended September 30, 2016 includes shares issued as a result of the Corporate Conversion (Note 1).
|
SIG
NATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
Kadmon
Holdings,
Inc.
|
|
|
|
Date:
March
22
,
2017
|
By:
|
/s/ Harlan W. Waksal
Harlan W. Waksal
President and Chief Executive Officer
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
February 24, 2017
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Harlan W. Waksal
|
|
President and Chief Executive Officer
|
|
March 22
, 2017
|
Harlan W. Waksal
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ Konstantin Poukalov
|
|
Executive Vice President and Chief Financial Officer
|
|
March 22
, 2017
|
Konstantin Poukalov
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ Charles Darder
|
|
Contro
l
ler
|
|
March 22
, 2017
|
Charles Darder
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Bart M. Schwartz
|
|
Director
|
|
March 22
, 2017
|
Bart M. Schwartz
|
|
|
|
|
|
|
|
|
|
/s/ Eugene Bauer
|
|
Director
|
|
March 22
, 2017
|
Eugene Bauer
|
|
|
|
|
|
|
|
|
|
/s/ D. Dixon Boardman
|
|
Director
|
|
March 22
, 2017
|
D. Dixon Boardman
|
|
|
|
|
|
|
|
|
|
/s/
Steven Meehan
|
|
Director
|
|
March 22
, 2017
|
Steven Meehan
|
|
|
|
|
|
|
|
|
|
/s/ Alexandria Forbes
|
|
Director
|
|
March 22
, 2017
|
Alexandria Forbes
|
|
|
|
|
|
|
|
|
|
/s/
Tasos Konidaris
|
|
Director
|
|
March 22
, 2017
|
Tasos Konidaris
|
|
|
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/s/ Thomas E. Shenk
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Director
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March 22
, 2017
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Thomas E. Shenk
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/s/ Susan Wiviott
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Director
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March 22
, 2017
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Susan Wiviott
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EXHIBIT INDEX
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Exhibit
Number
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Description of Exhibit
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3.1
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Certificate of Incorporation of Kadmon Holdings, Inc.
(incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37841), filed with the
SEC
on August 1, 2016).
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3.2
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Certificate of Designations of Kadmon Holdings, Inc. creating the 5% Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K (File No. 001-37841), filed with the
SEC
on August 1, 2016).
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3.3
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Bylaws of Kadmon Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37841), filed with the
SEC
on August 1, 2016).
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4.1
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Form of Kadmon Holdings, Inc.’s Common Stock Certificate (incorporated herein by reference to Exhibit 4.1
to the Registrant’s Registration Statement on Form S-1/A (File No. 333-211949), filed with the SEC on July
14, 2016).
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4.2
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Form of Warrant to Purchase Common Stock issued to investors in Kadmon Holdings, Inc.’s March 8, 2017
financing (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
Amendment No. 2 (File No. 001-37841), filed with the SEC on March 9, 2017).
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10.1
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Registration Rights Agreement by and between Kadmon Holdings, Inc. and the lenders under the Third Amended and Restated Convertible Credit Agreement (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37841), filed with the
SEC
on August 1, 2016).
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10.2
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Second Waiver and Consent Agreement to Credit Agreement, dated as of June 8, 2016, by and among Kadmon Pharmaceuticals, the guarantors party thereto, the lenders from time to time party thereto and Perceptive Credit Opportunities Fund, L.P. (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.3
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Third Waiver Agreement to Credit Agreement, dated September 29, 2016, by and among Kadmon Pharmaceuticals, LLC, the guarantors from time to time party thereto, the lenders from time to time party
thereto and Perceptive Credit Holdings, L.P
(incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37841), filed with the SEC on November 9, 2016)
.
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10.4
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Amendment
#
2 to Credit Agreement, dated November 4, 2016, by and among Kadmon Pharmaceuticals, LLC, the guarantors from time to time party thereto, the lenders from time to time party thereto and Perceptive Credit Holdings, L.P
. (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37841), filed with the SEC on November 9, 2016)
.
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10.5
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Amendment No. 2 to Third A&R Credit Agreement dated June 8, 2016, between Kadmon Pharmaceuticals, LLC, the guarantors from time to time party thereto, the lenders from time to time party thereto and Macquarie US Trading LLC (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.6
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Supply and Distribution Agreement, dated February 23, 2016, by and among Kadmon Pharmaceuticals, LLC
and Camber Pharmaceuticals, Inc.
(incorporated herein by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.7
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Amendment to Supply and Distribution Agreement, dated May 20, 2016, by and among Kadmon Pharmaceuticals, LLC and Camber Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.8*
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Second Amendment to Supply and Distribution Agreement, dated August 23, 2016, by and among Kadmon Pharmaceuticals, LLC and Camber Pharmaceuticals, Inc.
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10.9
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Separation Agreement, dated February 3, 2016, by and between Kadmon Holdings, LLC and Samuel D. Waksal, Ph.D. (incorporated herein by reference to Exhibit 10.36 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.10*
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Kadmon Holdings, Inc. 2016 Equity Incentive Plan.
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10.11*
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Kadmon Holdings, Inc. 2016 Employee Stock Purchase Plan.
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10.12
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Exchange Agreement dated June 8, 2016 by and among Kadmon Holdings, LLC, Kadmon Pharmaceuticals, LLC and the lenders under the Third Amended and Restated Convertible Credit Agreement (incorporated herein by reference to Exhibit 10.49 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.13
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Registration Rights Agreement dated July 7, 2016 by and among Kadmon Holdings, LLC and Kadmon I, LLC on behalf of itself and each other member of Kadmon Holdings, LLC (incorporated herein by reference to Exhibit 10.51 to the Registrant’s Registration Statement on S-1/A (File No. 333-211949), filed with the SEC on July 14, 2016).
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10.14
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Registration Rights Agreement dated June 8, 2016 by and among Kadmon Holdings, LLC and the lenders under the Third Amended and Restated Convertible Credit Agreement (incorporated herein by reference to Exhibit 10.52 to the Registrant’s Registration Statement on Form S-1 (File No. 333-211949), filed with the SEC on June 10, 2016).
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10.15
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Letter Agreement dated June 10, 2016 by and between Kadmon Holdings, LLC and 72 KDMN Investment, LLC (incorporated herein by reference to Exhibit 10.31 to the Registrant’s Registration Statement on S-1/A (File No. 333-211949), filed with the SEC on July 7, 2016).
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10.16
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Form of Indemnification to be entered into by Kadmon Holdings, Inc. and each of its directors, executive officers and certain key employees (incorporated herein by reference to Exhibit 10.55 to the Registrant’s Registration Statement on S-1/A (File No. 333-211949), filed with the SEC on July 14, 2016).
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10.17*
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Third Amendment to Supply and Distribution Agreement, dated February 13, 2017, by and among Kadmon Pharmaceuticals, LLC and Camber Pharmaceuticals, Inc.
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10.18
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Securities Purchase Agreement, dated March 8, 2017, by and among Kadmon Holdings, Inc. and the investors referenced therein
(incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
Amendment No. 2
(File No. 001-37841), filed with the
SEC
on
March
9
, 201
7
)
.
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10.19
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Registration Rights Agreement, dated March 8, 2017, by and among Kadmon Holdings, Inc. and the investors referenced therein
(incorporated herein by reference to Exhibit 10.
2
to the Registrant’s Current Report on Form 8-K
Amendment No. 2
(File No. 001-37841), filed with the
SEC
on
March
9
, 201
7
)
.
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10.
20*
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Fourth
Waiver Agreement to Credit Agreement, dated
March
2
2
, 201
7
, by and among Kadmon Pharmaceuticals, LLC, the guarantors from time to time party thereto, the lenders from time to time party
thereto and Perceptive Credit Holdings, L.P.
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2
1.1*
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List of subsidiaries
.
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23
.1*
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Consent of independent registered public accounting firm
.
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31.1*
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Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended
, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
.
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31.2*
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Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended
, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
.
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32.1**
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2**
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101*
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The following materials from the Kadmon Holdings, Inc. Form 10-K for the year ended December 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets a
t
December 31, 2016 and 2015, (ii) Consolidated Statements of Operations for the years ended December 31, 2016
, 2015
and 201
4
, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016
, 2015
and 201
4
, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2016
, 2015
and 201
4
, and (v) Notes to the Financial Statements.
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*
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Filed herewith.
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**
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Furnished herewith.
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