Attached files
| file | filename |
|---|---|
| EX-31.1 - CEO 302 CERTIFICATE - NPS PHARMACEUTICALS INC | exh31-1.htm |
| EX-31.2 - CFO 302 CERTIFICATE - NPS PHARMACEUTICALS INC | exh31-2.htm |
| EX-32 - 906 CERTIFICATE - NPS PHARMACEUTICALS INC | exh32.htm |
| 10-Q - 10-Q - NPS PHARMACEUTICALS INC | form10-q.pdf |
| EX-31.1 - CEO 302 CERTIFICATE - NPS PHARMACEUTICALS INC | exhibit31-1.pdf |
| EX-31.2 - CFO 302 CERTIFICATE - NPS PHARMACEUTICALS INC | exhibit31-2.pdf |
| EX-32 - 906 CERTIFICATE - NPS PHARMACEUTICALS INC | exhibit32.pdf |
| EXCEL - IDEA: XBRL DOCUMENT - NPS PHARMACEUTICALS INC | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-23272
NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its Charter)
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Delaware |
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87-0439579 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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550 Hills Drive, Bedminster, New Jersey |
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07921 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
(908) 450-5300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. YES
x NO oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES
x NO oIndicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," and large "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
x |
Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
o NO xThe number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date is as follows:
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Class |
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Outstanding at October 31, 2013 |
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Common Stock $.001 par value |
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102,101,240 |
Note: PDF provided as a courtesy
TABLE OF CONTENTS
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Page No. |
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PART I FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements (unaudited) |
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Condensed Consolidated Balance Sheets |
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3 |
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Condensed Consolidated Statements of Operations |
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4 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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5 |
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Condensed Consolidated Statements of Cash Flows |
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6 |
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Notes to Condensed Consolidated Financial Statements |
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7 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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31 |
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Item 4. |
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Controls and Procedures |
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31 |
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PART II OTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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32 |
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Item 1A. |
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Risk Factors |
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32 |
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Item 6. |
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Exhibits |
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33 |
| SIGNATURES |
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2
PART I. Item 1. Financial Statements.
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets See accompanying notes to condensed consolidated financial statements. 3
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations See accompanying notes to condensed consolidated financial statements. 4
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Loss) See accompanying notes to condensed consolidated financial statements. 5
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows See accompanying notes to condensed consolidated financial statements. 6
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES (1) Description of Business and Significant Accounting Policies The accompanying unaudited condensed consolidated financial statements included herein have been prepared by NPS Pharmaceuticals,
Inc. (NPS or the Company) in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC). The
condensed consolidated financial statements are comprised of the financial statements of NPS and its subsidiaries collectively referred to as the
Company. In management's opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items)
necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally
accepted accounting principles has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three
and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for any future period or for the year
ending December 31, 2013. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements
and the notes thereto for the year ended December 31, 2012, included in NPS' 2012 Annual Report on Form 10-K filed with the SEC. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions relating to
reporting of the assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period in conformity with U.S. generally accepted accounting
principles. Actual results could differ from these estimates. Subsequent Events The Company has evaluated all events and transactions since September 30, 2013. The Company did not have any material
recognized or non-recognized subsequent events. Significant Accounting Policies There were no material changes in the Company's significant accounting policies from those at December 31, 2012; however, the following
information, which relates to the U.S. launch of Gattex in February 2013, is in addition to, and should be read in conjunction with, the accounting
policies included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Product Sales. Product sales represent U.S. sales of Gattex, which was approved by the U.S. Food and Drug Administration
(FDA) in December 2012. The Company recognizes revenue from Gattex product sales when persuasive evidence of an arrangement exists, title to
product and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer is reasonably assured,
the Company has no further performance obligations, and returns can be reasonably estimated. All prescriptions for Gattex, received directly by NPS from the patient's physician, are handled through NPS Advantage, the Company's data
management and patient support program, which investigates and determines the patient's insurance coverage for Gattex. Once coverage is
confirmed, NPS forwards the prescription to the specialty pharmacy (SP) who then re-confirms the coverage and dispenses Gattex to the patient. The
Company sells Gattex directly to a limited number of SPs and a specialty distributor (SD) who dispense product to patients, hospitals or U.S.
government entities. The Company invoices and records revenue when the SPs or SD receives Gattex from the Company's third-party logistics
warehouse. The Company's SPs order product to fill prescriptions that have been approved for reimbursement by payers. 7
Specific considerations for Gattex sold in the U.S. are as follows: Product sales are recorded net of accruals for estimated rebates, chargebacks, discounts, and other deductions (collectively, sales deductions)
and returns. With the exception of allowances for prompt payment, allowances for sales deductions and returns are included in accounts payable and
accrued expenses in the accompanying consolidated balance sheets. Inventory. Inventories are stated at the lower of cost or estimated realizable value. The Company determines the cost of
inventory using the first-in, first-out, or FIFO, method. The Company capitalizes inventory costs associated with the Company's products after
regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is
expected to be realized; otherwise, such costs are expensed as research and development. The Company periodically analyzes its inventory levels to
identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes-down such
inventories as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company performs
throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to
expiration, the Company records a charge to cost of goods sold to write down such unmarketable inventory to its estimated realizable value. 8
(2) Income (Loss) Per Common Share Basic net income (loss) per common share is the amount of income (loss) for the period divided by the weighted average shares of common
stock outstanding during the reporting period. Diluted income (loss) per common share is the amount of income (loss) for the period plus interest
expense on convertible debt divided by the sum of weighted average shares of common stock outstanding during the reporting period and weighted
average shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares. Potential common shares of approximately 7.4 million and 6.7 million during the three and nine months ended September 30, 2013, respectively
and 6.7 million and 8.9 million during the three and nine months ended September 30, 2012, respectively that could potentially dilute basic income per
share in the future were not included in the computation of diluted income (loss) per share because to do so would have been anti-dilutive for the
periods presented. Potential dilutive common shares related to convertible debt were approximately 3.0 million common shares for the three and nine
months ended September 30, 2013 and 2012, respectively. Additionally, potential dilutive common shares related to stock options, restricted stock
and restricted stock units were 4.4 million and 3.6 million common shares for the three and nine months ended September 30, 2013, respectively, and
4.9 million and 4.8 million common shares, for the three and nine months ended September 30, 2012, respectively. (3) Fair Value Measurement The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels
are as follows: Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the
measurement date. Level 2- Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level
2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are
derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3- Inputs are unobservable and reflect the Company's assumptions that market participants would use in pricing the asset or liability. The
Company develops these inputs based on the best information available. Summary of Assets Recorded at Fair Value In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets (only
marketable investment securities) that are required to be measured at fair value as of September 30, 2013 and December 31, 2012 (in thousands): 9
As of September 30, 2013 and December 31, 2012, the fair values of the Company's Level 2 securities were $10.7 million and $15.5 million,
respectively. These securities are certificates of deposit or commercial paper issued by domestic companies with an original maturity of greater than
ninety days but less than 18 months. These securities are currently rated A-1 or higher. The Company's cash equivalents are classified within Level
1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar assets. These
investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data.
Data used in the analysis include reportable trades, broker/dealer quotes, bids and offers, benchmark yields and credit spreads. The Company
validates the prices provided by its third party pricing providers by reviewing their pricing methods, analyzing pricing inputs and confirming that the
securities have traded in normally functioning markets. The Company did not adjust or override any fair value measurements provided by its pricing
providers as of September 30, 2013 or December 31, 2012. As of September 30, 2013 and December 31, 2012, the Company did not have any investments in Level 3 securities. There were no transfers of assets or liabilities between level 1 and level 2 during the three or nine months ended September 30, 2013 and
2012. The carrying amounts reflected in the condensed consolidated balance sheets for certain short-term financial instruments including accounts
receivable, accounts payable, accrued expenses, and other liabilities approximate fair value due to their short-term nature except that the
estimated fair value and carrying value of a royalty liability to the Brigham and Women's Hospital related to sales of
cinacalcet HCl using a discounted cash flow model is approximately $4.2 million and $5.6 million, respectively, at September 30, 2013 and $4.8
million and $6.6 million, respectively, at December 31, 2012. Summary of Liabilities Recorded at Carrying Value The fair and carrying value of our debt instruments are detailed as follows (in thousands): The fair values of the Company's convertible notes were estimated using the (i) terms of the convertible notes; (ii) rights, preferences, privileges,
and restrictions of the underlying security; (iii) time until any restriction(s) are released; (iv) fundamental financial and other characteristics of the
Company; (v) trading characteristics of the underlying security (exchange, volume, price, and volatility); and (vi) precedent sale transactions. The fair
values of the Company's non-recourse Sensipar notes, PTH 1-84 (Europe, Commonwealth of Independent States (CIS) and Turkey)-secured debt
and Regpara-secured debt were estimated using a discounted cash flow model. Within the hierarchy of fair value measurements, these are
Level 3 fair values. 10
(4) Financial Instruments Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable
investment securities. The majority of the Company's accounts receivable are payable by pharmaceutical companies and specialty pharmacies and
collateral is generally not required from these companies. Substantially all of the Company's royalty revenues for the three and nine months ended
September 30, 2013 and 2012 were from three and four licensees, respectively, and substantially all of the Company's accounts receivable balances
at September 30, 2013 and December 31, 2012 were from three licensees. Substantially all of the Company's product sales revenues for the three
and nine months ended September 30, 2013 and substantially all of the Company's trade accounts receivable balances at September 30, 2013 were
from six specialty pharmacies. The Company's portfolio of marketable investment securities is subject to concentration limits set within the
Company's investment policy that help to mitigate its credit exposure. The following is a summary of the Company's marketable investment securities (in thousands): Marketable investment securities available for sale in an unrealized loss position as of September 30, 2013 and December 31, 2012 are
summarized as follows (in thousands): 11
Summary of Contractual Maturities Maturities of marketable investment securities are as follows at September 30, 2013 and December 31, 2012(in thousands): Impairments No impairment losses were recognized through earnings related to available for sale securities during the three and
nine months ended September 30, 2013 and 2012. Proceeds from Available for Sale Securities The proceeds from maturities and sales of available for sale securities and resulting realized gains and losses, were as follows (in thousands): (5) Inventory Inventories, stated at the lower of cost or market, consisted of raw materials of $27.5 million and finished goods of $97,000 as of September
30, 2013. The Company began to capitalize inventory after the FDA approval of Gattex in December 2012. The Company acquired approximately
$16.6 million of Revestive raw materials and $17.1 million of PTH raw materials related to the March 18, 2013 Transition and Termination Agreement
with Takeda (See note 10). During June 2013, certain lots of this PTH inventory were designated for research and development activities and were
accordingly expensed during the period. (6) Long-term Debt The following table reflects the carrying value of the Company's long-term debt under various financing arrangements as of September 30, 2013
and December 31, 2012 (in thousands): 12
(a) Convertible Notes The Company has $16.5 million of its 5.75% Convertible Notes (5.75% Convertible Notes) outstanding as of September 30, 2013. The 5.75%
Convertible Notes originated from an August 2007 private placement of $50.0 million in 5.75% Convertible Notes due August 7, 2014. The
5.75% Convertible Notes accrue interest at an annual rate of 5.75% payable quarterly in arrears on the first day of the succeeding calendar quarter
commencing January 1, 2008. As of September 30, 2013, the Company classified the 5.75% Convertible Notes as current debt. Accrued
interest on the 5.75% Convertible Notes was $0 as of September 30, 2013 and December 31, 2012. The holders may convert all or a portion of
the 5.75% Convertible Notes into common stock at any time, subject to certain limitations, on or before August 7, 2014. The 5.75% Convertible
Notes are convertible into common stock at a conversion price of $5.44 per share (see below), subject to adjustments in certain events. The 5.75%
Convertible Notes are unsecured debt obligations and rank equally in right of payment with all existing and future unsecured senior indebtedness.
The 5.75% Convertible Notes provide for certain events of default, including payment defaults, breaches of covenants and certain events of
bankruptcy, insolvency and reorganization. The 5.75% Convertible Notes also provide that if there shall occur a fundamental change, as defined, at
any time prior to the maturity of the Note, then the holder shall have the right, at the Holder's option, to require the Company to redeem the notes, or
any portion thereof plus accrued interest and liquidated damages, if any. If a change of control, as defined, occurs and if the holder converts notes in
connection with any such transaction, the Company will pay a make whole premium by increasing the conversion rate applicable to the notes. If any
event of default occurs and is continuing, the principal amount of the 5.75% Convertible Notes, plus accrued and unpaid interest, if any, may be
declared immediately due and payable. The Company incurred debt issuance costs of approximately $600,000, which have been deferred and which
are being amortized over a seven-year period, unless earlier converted, in which case the unamortized costs are recorded in additional paid-in capital.
The effective interest rate on the 5.75% Convertible Notes, including debt issuance costs, is 5.9%. Pursuant to the Registration Rights Agreement, the Company has filed a shelf registration
statement with the SEC, covering a resale of the common stock issuable upon conversion of the 5.75% Convertible Notes.
The registration statement has been declared effective. The Company agreed to use its reasonable best efforts to keep the registration statement
effective until the earlier of (i) the date as of which holders may sell all of the securities covered by the registration statement without restriction
pursuant to Rule 144(k) promulgated under the Securities Act of 1933 or (ii) the date on which holders shall have sold all of the securities covered by
the registration statement. If the Company fails to comply with these covenants or suspends use of the registration statement for periods of time that
exceed what is permitted under the Registration Rights Agreement, the Company is required to pay liquidated damages
in an amount equivalent to 1% per annum of (a) the principal amount of the notes outstanding, or (b) the conversion
price of each underlying share of common stock that has been issued upon conversion of a
note, in each case, until the Company is in compliance with these covenants. The Company believes the likelihood of
such an event occurring is remote and, as such, the Company has not recorded a liability as of September 30, 2013. (b) Non-recourse Debt Sensipar and Mimpara-Secured Non-recourse Debt As of September 30, 2013 and December 31, 2012, the outstanding principal balances on Sensipar and Mimpara-secured non-recourse debt
were $61.1 million and $80.2 million, respectively. The Sensipar and Mimpara-secured debt is non-recourse to the Company and solely secured and
serviced by Sensipar and Mimpara (cinacalcet HCl) royalties. The Company amended its agreement with Amgen effective September 30, 2011
whereby Amgen advanced $145.0 million of Sensipar and Mimpara royalties to the Company (Sensipar Notes). The Sensipar Notes accrue interest
at an annual rate of 9%, compounded quarterly and payable forty-five days after the close of each quarter. The payment of the royalty advance and
discount shall be satisfied solely by Amgen's withholding of royalties and except in the event of a breach of certain customary representations and
warranties under the agreement, the Company will have no obligation to repay any unsettled amount. The Company further amended the agreement
with Amgen effective June 29, 2012, limiting the royalty offset of the royalty advance up to $8.0 million per quarter with royalties in excess of $8.0
million paid to the Company for the respective quarter, thereby extending the royalty advance repayment period. After the payment of the royalty
advance and a 9 percent per annum discount on the balance of the advance, Amgen will resume paying NPS all royalties earned through December
31, 2018. As of September 30, 2013 and December 31, 2012, the Company classified $6.7 million and $6.3 million, respectively, of the Sensipar
Notes as current based on royalty payments accrued as of September 30, 2013 and December 31, 2012. Accrued interest on the Sensipar Notes
was approximately $665,000 and $874,000 as of September 30, 2013
13
and December 31, 2012, respectively. The Company incurred debt issuance
costs of $96,000, which are being amortized using the effective interest method. The effective interest rate on the Sensipar Notes, including debt
issuance costs, is approximately 9%. PTH 1-84-Secured (Europe, CIS and Turkey) Non-recourse Debt As of September 30, 2013 and December 31, 2012, the outstanding principal balances on PTH 1-84-secured (Europe, CIS and Turkey) debt were
$42.8 million, respectively. In July 2007, the Company entered into an agreement with DRI Capital, or DRI, formerly Drug Royalty L.P.3, in which the
Company sold to DRI its right to receive future royalty payments due under its license agreement with Takeda. Under the agreement, DRI paid the
Company an up-front purchase price of $50.0 million. If and when DRI receives two and a half times the amount paid to the Company, the agreement
will terminate and the remainder of the royalties, if any, will revert back to the Company. In connection with the Company's July 2007 agreement with
DRI, the Company granted DRI a security interest in its license agreement with Takeda for PTH 1-84 (Europe, CIS and Turkey) and certain of its
patents and other intellectual property underlying that agreement. In the event of a default by NPS under the agreement with DRI, DRI would be
entitled to enforce its security interest against the property described above. The Company determined the initial up-front purchase price is debt and
is being amortized using the effective interest method over the estimated life of approximately 14 years. Accrued interest under the DRI agreement
was $0 as of September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013, $45.5 million has been paid to DRI. On March
18, 2013, Takeda terminated the license agreement and returned the rights to NPS (See note 10). NPS is obligated to use its commercially
reasonable efforts to negotiate, execute and deliver a new license agreement for the licensed technology in the territory on terms similar to the
Takeda agreement or any other arrangement for the exploitation of the licensed technology, in each case providing for the payment of royalties or
other consideration to the same extent and for the same period of time that royalties are currently payable to DRI. The Company is currently in
discussions with DRI regarding the optimal product development strategy for PTH 1-84, which requires DRI's consent. This obligation is required for a
period of twelve months following the termination of the Takeda agreement. If the Company does not complete such negotiation, execution and
delivery and obtain DRI's consent, during such twelve month period, then DRI has the right to negotiate, execute and deliver a new license agreement
for the licensed technology on terms no more extensive (when taken as a whole), without NPS' permission, than the terms contained in the Takeda
agreement. The repayment of the remaining $42.8 million is secured solely by future royalty payments arising from sales of the licensed product. The
PTH 1-84-secured (Europe, CIS and Turkey) debt is non-recourse to the Company. REGPARA-Secured Non-recourse Debt As of September 30, 2013 and December 31, 2012, the outstanding principal balances on REGPARA-secured debt were $35.2 and $36.3 million,
respectively. In February 2010, the Company entered into an agreement with an affiliate of DRI, in which the Company sold to DRI its right to receive
future royalty payments arising from sales of REGPARA® (cinacalcet HC1) under its license agreement with Kyowa Hakko Kirin.
Under the agreement, DRI paid the Company an upfront purchase price of $38.4 million. If and when DRI receives two and a half times the amount
paid to the Company, the agreement will terminate and the remainder of the royalties, if any, will revert back to the Company. In connection with the
Company's February 2010 agreement with DRI, the Company granted DRI a security interest in its license agreement with Kyowa Hakko Kirin for
REGPARA and certain of its patents and other intellectual property underlying that agreement. In the event of a default by NPS under the agreement
with DRI, DRI would be entitled to enforce its security interest against NPS and the property described above. The Company classified the initial
upfront purchase price as debt which is being amortized using the effective interest method over the estimated life of approximately 10 years. As of
September 30, 2013 and December 31, 2012, the Company classified $0 and $0, respectively, of the REGPARA-secured debt as current based on
royalty payments accrued as of September 30, 2013 and December 31, 2012. Accrued interest under the DRI agreement was $0 and $3.1 million as
of September 30, 2013 and December 31, 2012, respectively. Through September 30, 2013, $27.9 million has been paid to DRI. The repayment of
the remaining $35.2 million principal as of September 30, 2013, is secured solely by future royalty payments arising from sales of REGPARA by
Kyowa Hakko Kirin. The effective interest rate under the agreement, including issuance costs, is approximately 16.4%. The REGPARA-secured debt
is non-recourse to the Company. 14
(7) Income Taxes The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes. Due to the
Company's net operating loss carryforwards, any adjustment related to a liability would not be expected to result in a cash tax liability. Accordingly,
the Company has not accrued for penalties or interest for the U.S. (both federal and state) as of September 30, 2013 and December 31, 2012.
Assuming the continued existence of a full valuation allowance on the Company's net deferred tax assets, future recognition of any of the Company's
unrecognized tax benefits would not impact the effective tax rate. The Company files income tax returns in various jurisdictions with varying statutes of limitations. The statute of limitations for income tax audits in
the U.S. will commence upon utilization of net operating losses and will expire three years from the filing of the tax return. In August 2012, the IRS
completed its examination of the Company's U.S. federal income tax returns for the year ended December 31, 2009. In May 2013, the State of
New Jersey completed its examination of the Company's New Jersey income tax returns through the year ended December 31, 2010. There were no
adjustments as a result of these examinations. (8) Commitments and Contingencies The Company has agreed to indemnify, under certain circumstances, certain manufacturers and service providers from and against any and all
losses, claims, damages or liabilities arising from services provided by such manufacturers and service providers or from any use, including clinical
trials, or sale by the Company or any Company agent of any product supplied by the manufacturers. The Company has entered into long-term
agreements with various third-party contract manufacturers for the production and packaging of the active pharmaceutical ingredient and drug
product. Under the terms of these various contracts, the Company may be required to purchase certain minimum quantities of product each year.
(9) Stock Options The Company recognized $2.2 million and $7.3 million of compensation expense during the three and nine months ended September 30, 2013,
respectively and $1.4 million and $4.9 million during the three and nine months ended September 30, 2012, respectively, related to all stock based
compensation. As of September 30, 2013, there was $18.4 million of total unrecognized compensation cost related to all unvested share-based
compensation arrangements that is expected to be recognized over a weighted-average period of 2.64 years. During the year ended December 31, 2010, the Company's Board of Directors awarded a total of 1,130,700 performance condition options to
certain of the Company's employees. Vesting of these options is subject to the Company achieving certain performance criteria established at the
grant date and the individuals fulfilling a service condition (continued employment). As of September 30, 2013, the performance criteria of 825,340 of
these options had been satisfied and will become exercisable based on the following vesting schedule: 25% on each of the first four anniversaries of
the date of grant, which was February 20, 2010 (the date of grant). The Company recognized $122,000 and $366,000 of compensation expense
during the three and nine months ended September 30, 2013, respectively and $33,000 and $349,000 of compensation expense during the three and
nine months ended September 30, 2012, respectively, related to these options. The next performance criteria is the acceptance of the BLA filing for
Natpara by the FDA. This acceptance would trigger approximately $111,000 of compensation expense related to these options. The BLA filing for
Natpara was submitted to the FDA in October 2013. The Company utilized the Black-Scholes option pricing model to determine the grant date fair value of these awards. As of September 30, 2013,
except for the 825,340 options discussed above, the Company does not believe that the achievement of the remaining performance criteria is
probable and therefore, has not recognized any compensation expense related to these options during the three and nine months ended September
30, 2013 and 2012, respectively. Compensation expense will be recognized only once the performance condition is probable of being achieved and
then only the cumulative amount related to the service condition that has been fulfilled. On May 7, 2013, the Company held its Annual Meeting of Stockholders. At the Annual Meeting, the
Company's stockholders approved an amendment to the Company's 2005 Omnibus Incentive Plan to, among other things, increase by 3,500,000
the shares reserved for issuance under the Plan. 15
A summary of activity related to aggregate stock options under all plans is indicated in the following table (in thousands, except per share amounts): (10) Takeda Termination and Transition Agreement On March 18, 2013, the Company entered into a Termination and Transition Agreement (the Agreement), with Takeda GmbH (Takeda
GmbH), and Takeda Pharma A/S (Takeda Pharma and, together with Takeda GmbH, Takeda). The Agreement provides for the termination of the license agreement, dated July 2, 2007, as amended, which granted Takeda Pharma the
exclusive license to sell, market and commercialize recombinant human parathyroid hormone 1-84 [rDNA origin] (rhPTH 1-84) worldwide, except for
the U.S., Israel, and Japan, and a non-exclusive license to manufacture and develop rhPTH 1-84 (the rhPTH 1-84 License Agreement).
Pursuant to the rhPTH 1-84 License Agreement the rights were returned to the Company without consideration. Preotact is the brand name that
Takeda Pharma has used to market rhPTH 1-84 for the treatment of osteoporosis in certain of its licensed territories. The Company is developing
rhPTH 1-84 in the U.S. under the trade name Natpara for the treatment of hypoparathyroidism. The Agreement also provides for the termination of the license agreement, dated September 24, 2007, as amended, which granted Takeda
GmbH the exclusive license to develop and commercialize teduglutide worldwide, except for North America and Israel (the Revestive License
Agreement). Takeda GmbH developed and obtained approval in the EU in August 2012 for teduglutide under the trade name Revestive for the
treatment of Short Bowel Syndrome (SBS) in adults. The Company obtained U.S. Food and Drug Administration approval in the U.S. in
December 2012 for teduglutide under the trade name Gattex for adult patients with SBS who are dependent on parenteral support. As a result
of the termination of the License Agreements, the Company now has the exclusive rights worldwide to develop and commercialize teduglutide and
PTH, except as noted in Note 6, whereby DRI would be owed a royalty for sales of PTH in the territory. Takeda assigned to NPS its assets related to the two products, including all of its active pharmaceutical ingredient inventory and information
related to the products' continued development, manufacture, and commercialization, including life cycle management assets. Takeda received 6.1
million shares of NPS common stock that were valued at $54.9 million as of the date of the transaction. Takeda will also earn a $30.0 million
milestone payment in the first calendar year that combined worldwide net sales of both products exceed $750 million. This milestone includes an early
payment trigger upon a qualified change of control. NPS has the option of making this milestone payment in cash or NPS common stock. 16
The Company engaged an independent valuation firm to assist it in determining the fair value of the assets acquired. Using these fair values,
the Company assigned $16.6 million to the Revestive active pharmaceutical ingredient (API), $17.1 million to the PTH API and $20.7 million to the
Revestive product rights. The Company capitalized the Revestive and PTH API as inventory and capitalized the product rights to intangibles, net on
the Company's balance sheet due to the fact that Revestive and Preotact are approved in the EU for SBS and Osteoporosis, respectively. (11) Capital Stock In May 2013, the Company completed a public sale of 6,900,000 shares of its common stock at a per share price of $14.53. Net proceeds to the
Company from the sale totaled approximately $93.5 million, after deducting expenses and the commission in connection with the offering paid by the
Company. (12) Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company
as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet
effective will not have a material impact on its financial position, results of operations or disclosures upon adoption. In February 2013, the FASB issued ASU 2013-02 Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income
(ASU 2013-02), an Accounting Standards Update to the Comprehensive Income Topic in the Accounting Standards Codifications (ASC). This
update requires separate presentation of the components that are reclassified out of accumulated other comprehensive income either on the face of
the financial statements or in the notes to the financial statements. This update also requires companies to disclose the income statement line items
impacted by any significant reclassifications, such as the realized gain on marketable investment securities. These items are required for both interim
and annual reporting for public companies and became effective for the Company beginning with its quarterly report on Form 10-Q for the period
ending March 31, 2013. The Company adopted this ASU on January 1, 2013. The adoption of this ASU did not have a material impact on the
Company's financial position or results of operations. 17
Management's Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Statement Regarding Forward-Looking Statements The following discussion and analysis is provided to further the reader's understanding of the condensed consolidated financial statements,
financial condition and results of operations of NPS in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with
the Consolidated Financial Statements and the accompanying notes included in our filings with the SEC, including our 2012 Annual Report on
Form 10-K. This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements represent our management's judgment regarding future events. In many cases, you can
identify forward-looking statements by terminology such as "may," "will," "should," "plan,"
"expect," "anticipate," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other words of similar import, although some forward-looking statements are expressed
differently. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q and the documents incorporated by
reference into this report regarding our financial position, business strategy and plans or objectives for future operations are forward-looking
statements. Without limiting the broader description of forward-looking statements above, we specifically note that statements regarding potential
drug candidates, their potential therapeutic effect, the possibility of obtaining regulatory approval, any anticipated timelines for making FDA or other
regulatory filings or submissions, or with respect to completion of milestones or targets with respect to regulatory filings, clinical studies, preclinical
work and related matters, our ability or the ability of our collaborators to manufacture and sell any products, market acceptance, or our ability to earn a
profit from sales or licenses of any drug candidate or to discover new drugs in the future are all forward-looking in nature. We cannot guarantee the
accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those
described in the forward-looking statements due to a number of factors, including: • our ability to effectively outsource activities critical to the advancement of our product candidates; • our and our collaborators' ability to successfully complete clinical trials, timely make regulatory submissions, and receive
required regulatory approvals and the length, time and cost of obtaining such regulatory approvals and commercializing products; • the successful completion of our strategic collaborations or changes in our relationships with our collaborators; • competitive factors; • our ability to maintain the level of our expenses consistent with our internal budgets and forecasts; • our ability to successfully commercialize Gattex; • the ability of our contract manufacturers to successfully produce adequate supplies of our product candidates and drug delivery
devices to meet clinical trial and commercial launch requirements; • variability of our royalty, license and other revenues; • our ability to enter into and maintain agreements with current and future collaborators on commercially reasonable terms; • our ability to successfully execute our strategic plans, including international expansion; • our ability to secure additional funds; • the demand for securities of pharmaceutical and biotechnology companies in general and our common stock in particular;
• uncertainty regarding our patents and patent rights; • compliance with current or prospective governmental regulation; • ability to obtain sufficient coverage or reimbursement by third-party payers and our ability to maintain coverage or reimbursement
at anticipated levels; • technological change; and 18
• general economic and market conditions. You should also consider carefully the statements set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012
entitled "Risk Factors," which address these and additional factors that could cause results or events to differ from those set forth in the
forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are
expressly qualified in their entirety by the applicable cautionary statements. In addition, new risks emerge from time to time and it is not possible for
management to predict all such risk factors or to assess the impact of such risk factors on our business. Given these risks and uncertainties, you
should not place undue reliance on these forward-looking statements. We undertake no obligation to update or revise these forward-looking
statements. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to all such reports are
available, free of charge, on our Internet website under "Investors-SEC Filings," as soon as reasonably practicable after we file
electronically such reports with, or furnish such reports to, the SEC. Our Internet website address is http://www.npsp.com. Information contained in
or linked to through our website does not constitute a part of this Quarterly Report on Form 10-Q. Overview We are a biopharmaceutical company pioneering and delivering therapies that transform the lives of patients with rare diseases worldwide. Our
lead product, Gattex® (U.S.)/Revestive® (EU) (teduglutide [rDNA origin]) for injection is approved for adult Short Bowel Syndrome (SBS)
patients who are dependent on parenteral support. In February 2013, we launched and initiated commercial sales of Gattex in the U.S. We recently
reacquired the rights to Revestive outside of the U.S. and have defined our international strategy for Gattex/Revestive and we are identifying key
talent with country-specific expertise to support its introduction in Europe and other key markets. We expect the first ex-U.S. commercial sales of
Gattex/Revestive to commence on an early access/ named-patient basis in certain countries in late 2013 or early 2014. We are also preparing to
engage in the pricing and reimbursement processes in selected European countries during the first quarter of 2014. We have also developed
Natpara® (rhPTH[1-84]) for the treatment of hypoparathyroidism and submitted our Biologic License Application (BLA) to the FDA in October
2013. Our earlier stage pipeline includes teduglutide for pediatric SBS and NPSP795, a calcilytic compound with potential application in rare
disorders involving increased calcium receptor activity, such as autosomal dominant hypocalcemia (ADH). We complement our proprietary programs
with a royalty-based portfolio of products and product candidates that includes agreements with Amgen, GlaxoSmithKline, Janssen Pharmaceuticals
(Janssen), and Kyowa Hakko Kirin. Gattex is our novel recombinant analog of human glucagon-like peptide 2 (GLP-2), a protein involved in the rehabilitation of the intestinal lining.
Gattex is used for the treatment of adults with SBS, who are dependent on parenteral support (parenteral nutrition and/or intravenous fluids). SBS is a
highly disabling and potentially life-threatening chronic disorder. SBS results from surgical resection, congenital defect or disease-associated loss of
absorption in the bowel in which patients are subsequently unable to maintain fluid, electrolyte, and nutrient balances on a conventional diet. Despite
an adaptation that occurs generally in the two years after resection, many SBS patients require parenteral support to supplement and stabilize their
nutritional and hydration needs. A National Institute of Health (NIH) publication reported that the annual mean costs of lifelong, complex home
healthcare associated with PN/IV support ranged from $185,000 to $568,000, not including the indirect costs associated with disability and/or the
dollar value that could be ascribed to the challenging daily living for these patients (Piamjariyakul 2010). In addition, parenteral support is associated
with shortened life span, life-threatening complications including sepsis, blood clots or liver damage, and reduced quality-of-life due to the time
required for and consequences of frequent access to an intravenous pump. Gattex is the first and only analog of GLP-2 proven to increase intestinal
absorption and decrease or eliminate the need for parenteral support. Natpara is our recombinant full-length human parathyroid hormone 1-84 (rhPTH 1-84) that we are developing as the first hormone replacement
therapy for hypoparathyroidism, a rare hormone deficiency disorder in which patients are physiologically unable to regulate the levels of calcium and
phosphates in their blood due to insufficient levels of endogenous parathyroid hormone (PTH). Endogenous PTH is the body's principal
regulator of serum calcium and phosphate levels. Hypoparathyroidism is associated with hypocalcemia, hyperphosphatemia, hypercalciuria
(excessive urinary calcium excretion), and increased bone mineral density. It typically results from permanent injury to the parathyroid gland(s) during
thyroid or parathyroid surgery or other surgical procedures in the neck, radiation to the neck region, autoimmune destruction of the parathyroid glands,
or their congenital absence. Although rare, hypoparathyroidism can also result from genetic mutations. Current therapy is limited to
19
calcium supplementation and parenteral or metabolic forms of vitamin D. These palliative therapies are sometimes suboptimal and can also contribute to
long-term health risks including kidney failure. Hypoparathyroidism is one of the few hormonal deficiency syndromes with no approved
replacement therapy using the native hormone. If approved, Natpara could be the first treatment targeting the underlying cause of
hypoparathyroidism by replacing the native hormone. In November 2011, we reported positive top-line results from our Phase 3 registration
study of Natpara, known as REPLACE, which met the primary efficacy endpoint with a statistically higher responder rate versus placebo. A responder
was defined as a 50 percent or greater reduction in oral calcium supplementation and active vitamin D therapy and a total serum calcium
concentration that was maintained compared to baseline. The company has addressed certain previously reported fill-finish issues related to the
manufacture of Natpara and submitted its Biologic License Application to the U.S. Food and Drug Administration (FDA) in October 2013. While SBS and hypoparathyoridism are relatively rare disorders, we believe these indications represent a substantial commercial opportunity to
us due to the significant unmet need and lack of effective therapies, as well as the serious complications involved with and the chronic nature of these
diseases. In March 2013, we entered into a Termination and Transition Agreement, with Takeda GmbH and Takeda Pharma A/S (together, Takeda), which,
among other things, terminated our existing license agreements with Takeda with respect to teduglutide and rhPTH 1-84. As a result of the
transaction, we now have the exclusive rights worldwide to develop and commercialize teduglutide and rhPTH 1-84, subject to certain royalty
payments for sales of rhPTH 1-84. NPS has begun initiating its international strategy for Revestive and is currently in the process of evaluating the
commercial strategy outside of the U.S. for rhPTH 1-84. Takeda assigned to NPS its assets related to the two products, including all of its active
pharmaceutical ingredient inventory and information related to the products' continued development, manufacture, and commercialization, including
life cycle management assets. Preotact is the brand name that Takeda has used to market rhPTH 1-84 for the treatment of osteoporosis in certain of
its licensed territories. We are currently in discussions with DRI regarding the optimal product development strategy for PTH 1-84, which requires
DRI's consent. In addition to teduglutide and rhPTH 1-84, we also retain exclusive rights worldwide to our earlier stage pipeline, which includes a calcilytic
compound, NPSP795, which we believe may have clinical application in treating rare endocrine disorders. In May 2013, we completed a public sale of 6,900,000 shares of our common stock at a per share price of $14.53. We received net proceeds
from the sale of approximately $93.5 million, after deducting expenses and the commission in connection with the offering. We have incurred cumulative losses from inception through September 30, 2013 of approximately $1.0 billion. We may continue to record
losses as we incur sales and marketing costs related to the commercialization of Gattex and Revestive, pre-launch costs for Natpara and our
expansion into the international market. As a result of the marketing approval for Gattex, we will no longer expense manufacturing costs relating to this product as research and
development expenses. Instead, we will capitalize these costs as inventory as they are incurred. There will be no cost of goods sold associated with
the sale of Gattex inventory that was on hand at the time of the FDA's approval of the NDA for Gattex. We expect that this will result in higher gross
margins during the period that we sell off this supply than we will achieve once we begin selling Gattex that is manufactured after the date of the
FDA's approval of our NDA for Gattex. Based on our current plans and assumptions, we believe that by the end of 2015, we will have sold off this
supply of product on hand at the time of the FDA's approval of the NDA for Gattex. We expect that the higher gross margins for Gattex will be partially
off-set by the full cost of goods sold for Revestive, which did not have any inventory expensed prior to approval. We also expect to record increased
sales and incur additional marketing costs related to the commercialization of Gattex and Revestive, pre-launch costs for Natpara and our expansion
into the international market. 20
Results of Operations Three Months Ended September 30, 2013 and 2012 The following table summarizes selected operating statement data for the three months ended September 30, 2013 and 2012 (amounts in
thousands): Revenues. Total revenues are comprised of product sales of Gattex, which was launched in the U.S. in February 2013, and
royalties from our licensees and collaborators. Royalty revenues fluctuate from quarter to quarter. Our revenues were $39.2 million for the quarter
ended September 30, 2013 compared to $27.0 million for the quarter ended September 30, 2012. We recognized royalty revenue under our research
and license agreements and product sales during the three months ended September 30, 2013 and 2012, respectively, as follows (amounts in thousands): Product Sales, net. During the three months ended September 30, 2013, we recognized net product sales revenue of $11.0
million for the sales of Gattex. As of November 1, 2013, 452 Gattex prescriptions have been received and 235 patients are currently on therapy in the
U.S. We received approval from the FDA in December 2012 and subsequently launched Gattex in February 2013. Product sales for the three
months ended September 30, 2013 are not necessarily indicative of the results that may be expected for any future period or for the year ending
December 31, 2013. We expect that product sales of Gattex will vary from period to period given the size of the patient population. 21
We record product sales net of allowances and accruals for prompt pay discounts, rebates and chargebacks under governmental programs
(including Medicaid), product returns, and distribution-related fees. These allowances and accruals will continue to grow in relation to an increase in
the sales of Gattex. The following table summarizes the provisions, and credits/payments, for government rebates and chargebacks, distribution-related fees,
and returns and other sales-related deductions (in thousands): Royalties. The increase in royalty revenue earned from Amgen's sales of Sensipar and Mimpara (cinacalcet HCl) for the three
months ended September 30, 2013 was primarily due to increased unit demand. We amended our agreement with Amgen, effective September 30,
2011, and Amgen began withholding the royalties on sales of Sensipar and Mimpara and credited them, net of the discount, to the Sensipar Notes
issued pursuant to the amended agreement. In June 2012, we amended our agreement with Amgen and received a one-time non-refundable $25.0
million payment in July 2012 in exchange for our rights to receive royalties under the license agreement that are earned after December 31, 2018. The
amendment also limits the royalty offset of the royalty advance that we received from Amgen up to $8.0 million per quarter with royalties in excess of
$8.0 million paid to us for the respective quarter, thereby extending the royalty advance repayment period. After the repayment of the royalty advance
and a 9% per annum discount factor on the outstanding balance, Amgen will resume paying us all royalties earned through December 31, 2018. During the three months ended September 30, 2013 and 2012, we recognized royalty revenue of $2.0 million and $2.3 million, respectively, from
Kyowa Hakko Kirin for sales of REGPARA. The decrease was primarily due to unfavorable fluctuations in foreign exchange rates. In February 2010,
we sold our rights to receive certain future royalty payments from Kyowa Hakko Kirin's sale of REGPARA to an affiliate of DRI. The agreement
provides DRI with the right to receive payments related to sales of REGPARA occurring on or after July 1, 2009 and we therefore do not receive any
such royalty payments until the REGPARA-secured debt is repaid. For the three months ended September 30, 2013 and 2012, our revenues related to our agreement with Takeda for Preotact (parathyroid
hormone (PTH 1-84)) were $0 and $1.1 million in royalty revenue, respectively. The decrease in royalty revenue was due to the Termination and
Transition agreement with Takeda. On March 18, 2013, Takeda terminated this license agreement and returned the rights to NPS. In July 2007, we
sold our rights to receive certain future royalty payments from Takeda's sale of PTH 1-84 in Europe, CIS and Turkey to DRI Capital (DRI) and we
therefore do not receive any such royalty payments until the PTH 1-84-secured debt is repaid. Because we previously monetized our PTH 1-84
royalty rights as non-recourse debt, declines in PTH 1-84 sales will impact our royalty revenues but will have no material impact on our short-term
liquidity. During the three months ended September 30, 2013 and 2012, we recognized royalty revenue of $706,000 and $720,000, respectively, from
Janssen Pharmaceuticals, Inc. for sales of Nucynta. The decrease in royalty revenue earned from Nucynta for the three months ended September
30, 2013 was primarily due to higher deductions from gross sales and decreased demand. Cost of Goods Sold. Upon marketing approval from the FDA in December
2012, we began capitalizing inventory costs associated with commercial supplies of Gattex subsequent to receipt of marketing approval from the FDA.
Costs for manufacturing supplies of Gattex prior to receipt of FDA approval were recognized as research and development expenses in the period
that the costs were incurred. Therefore, these costs are not being included in cost of goods sold when revenue is recognized from the sale of those
supplies of Gattex. Cost of goods sold for the third quarter of 2013 was $1.1 million and consisted primarily of royalty costs related to Gattex
commercial supplies. Accordingly, we expect our current product gross margins to decrease from approximately 90% to the 80% to 85% range as we
begin sales of product that has been capitalized to inventory. Based on our current plans and assumptions, we believe that by the end of 2015, we will
have sold off this supply of product on hand at the time of the FDA's approval of the NDA for Gattex. 22
Research and Development. Our research and development expenses are categorized into two major areas: clinical development costs
and product development costs. Clinical development costs were $4.7 million and $5.9 million for the three months ended September 30, 2013 and 2012, respectively. Clinical
development costs are primarily comprised of costs paid to outside parties to conduct and manage clinical trials related to Gattex and Natpara as well
as costs associated with regulatory functions. Product development costs were $6.2 million and $6.4 million for the three months ended September
30, 2013 and 2012, respectively. Product development costs are costs related to the drug needed for our clinical studies and pre-approval inventory.
Unallocated research and development costs were $7.9 million and $5.7 million for the three months ended September 30, 2013 and 2012,
respectively. Unallocated research and development costs consist primarily of personnel, personnel related costs and overhead costs that relate to
medical affairs and product development activities which have not been allocated directly to each program. For the three months ended September 30, 2013, our research and development expenses increased to $18.8 million from $18.0 million for the
three months ended September 30, 2012. The increase in research and development for the three months ended September 30, 2013 is primarily
due to a $1.2 million increase for the cost of pre-approval PTH 1-84 and a $2.2 million increase in unallocated research and development which
mainly consists of regulatory costs as well as personnel and personnel-related costs. These increases were partially offset by a $1.2 million
reduction in costs associated with clinical development activities for both Gattex and Natpara. Additionally, we no longer expense, as research and
development, inventory production for Gattex given its approval in the fourth quarter of 2012 the impact of which was $1.4 million. .
Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of compensation for
employees in executive, finance, legal and sales and marketing functions as well as facility costs and professional fees for accounting and legal
services. Our selling, general and administrative expenses increased to $17.6 million for the three months ended September 30, 2013 from $8.3
million for the three months ended September 30, 2012. The increase in selling, general and administrative expenses primarily relate to an increase
in personnel and external costs related to launch activities for Gattex. As we continue
our international expansion and begin our pre-launch Natpara plan, we expect that these costs would continue to increase. Interest Income. Interest income increased to $108,000 for the three months ended September 30, 2013 from $64,000 from the
comparative period in 2012. Interest Expense. Our interest expense for the three months ended September 30, 2013 decreased to $3.0 million compared to
$4.4 million for the three months ended September 30, 2012. Our long-term royalty forecasts for Preotact and REGPARA are used to calculate the
implicit interest rate and the related interest expense for our non-recourse debt. Interest expense decreased due primarily to (i) the lower principal
balance on our Sensipar Notes ($547,000), (ii) a lower effective interest rate due to a decrease in the forecast of REGPARA royalties related to the
non-recourse debt associated with the sale of certain of our REGPARA royalty rights ($731,000) and (iii) a lower effective interest rate due to a
decrease in the forecast of PTH 1-84 (Europe, CIS and Turkey) royalties related to the non-recourse debt associated with the sale of certain of our
PTH 1-84 (Europe, CIS and Turkey) royalty rights ($207,000). 23
Nine Months Ended September 30, 2013 and 2012 The following table summarizes selected operating statement data for the nine months ended September 30, 2013 and 2012 (amounts in thousands): Revenues. Our revenues were $101.1 million for the nine months ended September 30, 2013 compared to $103.5 million for the
nine months ended September 30, 2012. We recognized royalty revenue under our research and license agreements and product sales during the
nine months ended September 30, 2013 and 2012, respectively, as follows (amounts in thousands): Product Sales, net. During the nine months ended September 30, 2013, we recognized net product sales revenue of $16.5
million for the sales of Gattex. As of November 1, 2013, 452 Gattex prescriptions have been received and 235 patients are currently on therapy in the
U.S. We received approval from the FDA in December 2012 and subsequently launched Gattex in February 2013. Product sales for the nine months
ended September 30, 2013 are not necessarily indicative of the results that may be expected for any future period or for the year ending
December 31, 2013. We expect that product sales of Gattex will vary from period to period given the size of the patient population. 24
We record product sales net of allowances and accruals for prompt pay discounts, rebates and chargebacks under governmental programs
(including Medicaid), product returns, and distribution-related fees. The following table summarizes the provisions, and credits/payments, for
government rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions (in thousands): Royalties. The increase in royalty revenue earned from Amgen's sales of Sensipar and Mimpara (cinacalcet HCl) for the nine
months ended September 30, 2013 was primarily due to increased unit demand and a non-recurring favorable adjustment. We amended our
agreement with Amgen, effective September 30, 2011, and Amgen began withholding the royalties on sales of Sensipar and Mimpara and credited
them, net of the discount, to the Sensipar Notes issued pursuant to the amended agreement. In June 2012, we amended our agreement with Amgen
and received a one-time non-refundable $25.0 million payment in July 2012 in exchange for our rights to receive royalties under the license
agreement that are earned after December 31, 2018. The amendment also limits the royalty offset of the royalty advance that we received from
Amgen up to $8.0 million per quarter with royalties in excess of $8.0 million paid to us for the respective quarter, thereby extending the royalty
advance repayment period. After the repayment of the royalty advance and a 9% per annum discount factor on the outstanding balance, Amgen will
resume paying us all royalties earned through December 31, 2018. During the nine months ended September 30, 2013 and 2012, we recognized royalty revenue of $5.9 million and $6.4 million, respectively, from
Kyowa Hakko Kirin for sales of REGPARA. The decrease was primarily due to unfavorable fluctuations in foreign exchange rates. In February 2010,
we sold our rights to receive certain future royalty payments from Kyowa Hakko Kirin's sale of REGPARA to an affiliate of DRI. The agreement
provides DRI with the right to receive payments related to sales of REGPARA occurring on or after July 1, 2009 and we therefore do not receive any
such royalty payments until the REGPARA-secured debt is repaid. For the nine months ended September 30, 2013 and 2012, our revenues related to our agreement with Takeda for Preotact (parathyroid hormone
(PTH 1-84)) were $0 and $4.8 million in royalty revenue, respectively. The decrease in royalty revenue was primarily due to the Termination and
Transition agreement with Takeda. On March 18, 2013, Takeda terminated this license agreement and returned the rights to NPS. In July 2007, we
sold our rights to receive certain future royalty payments from Takeda's sale of PTH 1-84 in Europe, CIS and Turkey to DRI Capital (DRI) and we
therefore do not receive any such royalty payments until the PTH 1-84-secured debt is repaid. Because we previously monetized our PTH 1-84
royalty rights as non-recourse debt, declines in PTH 1-84 sales will impact our royalty revenues but will have no material impact on our short-term
liquidity. During the nine months ended September 30, 2013 and 2012, we recognized royalty revenue of $2.2 million and $2.1 million respectively, from
Janssen Pharmaceuticals, Inc. for sales of Nucynta. The increase in royalty revenue earned from Nucynta for the nine months ended September 30,
2013 was primarily due to increased demand, which was partially offset by higher deductions from gross sales. 25
Cost of Goods Sold. For the nine months ended September 30, 2013, we began recognizing revenue and cost of goods sold from
product sales of Gattex. Upon marketing approval from the FDA in December 2012, we began capitalizing inventory costs associated with
commercial supplies of Gattex subsequent to receipt of marketing approval from the FDA. Costs for manufacturing supplies of Gattex prior to receipt
of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, these costs are not
being included in cost of goods sold when revenue is recognized from the sale of those supplies of Gattex. Cost of goods sold for the nine months
ended September 30, 2013 was $1.6 million and consisted primarily of royalty costs related to Gattex commercial supplies. Accordingly, we expect
our current product gross margins to decrease from approximately 90% to the 80% to 85% range as we begin sales of product that has been
capitalized to inventory. Based on our current plans and assumptions, we believe that by the end of 2015, we will have sold off this supply of product
on hand at the time of the FDA's approval of the NDA for Gattex. Research and Development. Our research and development expenses are categorized into two major areas: clinical development costs
and product development costs. Clinical development costs were $10.5 million and $22.3 million for the nine months ended September 30, 2013 and 2012, respectively. Clinical
development costs are primarily comprised of costs paid to outside parties to conduct and manage clinical trials related to Gattex and Natpara as well
as costs associated with regulatory functions. Product development costs were $33.1 million and $31.3 million for the nine months ended September
30, 2013 and 2012, respectively. Product development costs are costs related to the drug needed for our clinical studies and pre-approval inventory.
Unallocated research and development costs were $21.8 million and $17.2 million for the nine months ended September 30, 2013 and 2012,
respectively. Unallocated research and development costs consist primarily of personnel, personnel related costs and overhead costs that relate to
medical affairs and product development activities which have not been allocated directly to each program. For the nine months ended September 30, 2013, our research and development expenses decreased to $65.4 million from $70.8 million for the
nine months ended September 30, 2012. The decrease in research and development expenses is primarily related to an $11.8 million reduction in
costs associated with clinical development activities and adjustments related to the completion of certain clinical trials for both Gattex and Natpara.
Additionally, we no longer expense, as research and development, inventory production for Gattex given its approval in the fourth quarter of 2012, the
impact of which was $18.2 million. These decreases were partially offset by a $19.9 million increase for the cost of preapproval PTH 1-84,
which includes certain lots of inventory that were purchased from Takeda and designated for use in research and development during the quarter and
a $4.6 million increase in unallocated research and development which mainly consists of regulatory costs as well as personnel and personnel-related
costs. Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of compensation for
employees in executive, finance, legal and sales and marketing functions as well as facility costs and professional fees for accounting and legal
services. Our selling, general and administrative expenses increased to $46.2 million for the nine months ended September 30, 2013 from $25.8
million for the nine months ended September 30, 2012, primarily due to an increase in personnel and external costs related to launch activities for
Gattex. As we continue our international expansion and begin our pre-launch Natpara plan, we expect that these costs would continue to
increase. Interest Income. Interest income decreased to $221,000 for the nine months ended September 30, 2013 from $224,000 from the
comparative period in 2012. 26
Interest Expense. Our interest expense for the nine months ended September 30, 2013 decreased to $9.4 million compared to
$14.4 million for the nine months ended September 30, 2012. Our long-term royalty forecasts for Preotact and REGPARA are used to calculate the
implicit interest rate and the related interest expense for our non-recourse debt. Interest expense decreased due primarily to (i) the lower principal
balance on our Sensipar Notes ($2.1 million), (ii) a lower effective interest rate due to a decrease in the forecast of REGPARA royalties related to the
non-recourse debt associated with the sale of certain of our REGPARA royalty rights ($1.8 million) and (iii) a lower effective interest rate due to a
decrease in the forecast of PTH 1-84 (Europe, CIS and Turkey) royalties related to the non-recourse debt associated with the sale of certain of our
PTH 1-84 (Europe, CIS and Turkey) royalty rights ($1.1 million). Liquidity and Capital Resources The following table summarizes selected financial data (amounts in thousands): Currently, we are not a self-sustaining business and certain economic, operational and strategic factors may require us to secure additional funds.
If we are unable to generate sufficient cash flows from operations or obtain sufficient funding at any time in the future, we may not be able to develop
or commercialize our products, take advantage of business opportunities or respond to competitive pressures. Our current and anticipated operations
require substantial capital. We expect that our existing capital resources including interest earned thereon will be sufficient to fund our current and
planned operations through at least the next twelve months. However, our actual needs will depend on numerous factors, including the progress and
scope of our internally funded development and commercialization activities related to the launch of Gattex and Revestive and the pre-launch of
Natpara; our ability to comply with the terms of our research funding agreements; our ability to maintain existing collaborations; our decision to seek
additional collaborators; the success of our collaborators in developing and marketing products under their respective collaborations with us; our
success in producing clinical and commercial supplies of our product candidates on a timely basis sufficient to meet the needs of our clinical trials and
commercial launch; our ability to successfully execute our strategic plans, including international expansion; the costs we incur in obtaining and
enforcing patent and other proprietary rights or gaining the freedom to operate under the patents of others; and our success in acquiring and
integrating complementary products, technologies or businesses. Our clinical trials may be modified or terminated for several reasons including the
risk that our product candidates will demonstrate safety concerns; the risk that regulatory authorities may not approve our product candidates for
further development or may require additional or expanded clinical trials to be performed; and the risk that our manufacturers may not be able to
supply sufficient quantities of our drug candidates to support our clinical trials, our regulatory filing or commercial launch, which could lead to a
disruption or cessation of the clinical trials, delay of clinical filing or commercial activities. We may also be required to conduct unanticipated
preclinical or clinical trials to obtain regulatory approval of our product candidates, Natpara and NPSP795. If any of the events that pose these risks
comes to fruition, our actual capital needs may substantially exceed our anticipated capital needs and we may have to substantially modify or
terminate current and planned clinical trials or postpone conducting future clinical trials. As a result, our business may be materially harmed, our stock
price may be adversely affected, and our ability to raise additional capital may be impaired. 27
We may need to raise additional funds to support our long-term research, product development, and commercialization programs. We regularly
consider various fund raising alternatives, including, for example, debt or equity financing, partnering of existing programs, monetizing of potential
revenue streams, and merger and acquisition alternatives. We may also seek additional funding through strategic alliances, collaborations, or license
agreements and other financing mechanisms. There can be no assurance that additional financing will be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to delay, reduce the scope of our efforts to commercialize Gattex and or Revestive, delay,
reduce the scope of, or eliminate one or more of our research and development programs, or to obtain funds through arrangements with licensees or
others that may require us to relinquish rights to certain of our technologies or product candidates that we may otherwise seek to develop or
commercialize on our own. We require cash to fund our operating expenses, to make capital expenditures, acquisitions and investments and to service our debt. We have
financed operations since inception primarily through payments received under collaborative research and license agreements, the private and public
issuance and sale of equity securities, and the issuance and sale of non-recourse debt, convertible debt and lease financing. Through
September 30, 2013, we have recognized $856.5 million of cumulative revenues from payments for research support, license fees, product
sales, milestone and royalty payments, $881.7 million from the sale of equity securities for cash and $738.6 million from the sale of non-recourse debt
and convertible debt for cash. Our principal sources of liquidity are cash, cash equivalents, and marketable investment securities, which totaled $177.6 million at September 30,
2013. The primary objectives for our marketable investment security portfolio are liquidity and safety of principal. Investments are intended to
achieve the highest rate of return to us, consistent with these two objectives. Our investment policy limits investments to certain types of instruments
issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. The following table summarizes our cash flow activity for the nine months ended September 30, 2013 and 2012 (amounts in thousands): Net cash used in operating activities was $25.1 million and $42.1 million for the nine months ended September 30,
2013 and 2012, respectively. The decrease in net cash used in 2013 was primarily due to the decrease in interest expense and non-cash royalty
receivable related to the issuance of non-recourse Sensipar Notes to Amgen in the second quarter of 2012. The REGPARA royalty revenue is
pledged to service the principal and interest on our non-recourse notes and is not available to fund operations. The decrease in net cash used was
also related to the increased cash received from revenues earned from the sales of Gattex during the nine months ended September 30, 2013 and
also due to the reduction in research and development costs associated with clinical development activities. The above decreases in net cash used in
2013 were partially offset by increased spending related to the launch of Gattex in the nine months ended September 30, 2013. Net cash used in investing activities was $50.6 million during the nine months ended September 30, 2013 compared to net cash provided by
investing activities of $10.9 million during the nine months ended September 30, 2012. The net cash used in investing activities during the nine
months ended September 30, 2013 was primarily the result of investing excess cash that was not currently required to fund operations. The net cash
provided by investing activities during the nine months ended September 30, 2012 was primarily the result of using proceeds from the sale and
maturity of marketable investment securities to fund operations. Capital expenditures for the nine months ended September 30, 2013 and 2012 were
$608,000 and $858,000, respectively. 28
Net cash provided by financing activities was $104.5 million and $903,000 for the nine months ended September 30, 2013 and 2012, respectively.
Cash provided by financing activities during the nine months ended September 30, 2013 primarily consisted of the $93.5 million received from the
public sale of 6.9 million common shares in May 2013 and approximately $11.1 million received from the exercise of employee stock options and the
sale of shares for the employee stock purchase plan. The net cash provided by financing activities for the nine months ended September 30, 2012
was from the exercise of employee stock options and the sale of shares for the employee stock purchase plan. We could receive future milestone payments from all our agreements of up to $16.8 million in the aggregate if each of our current licensees
accomplishes the specified research, development and/or sales milestones provided in the respective agreements. In addition, all of the agreements
require the licensees to make royalty payments to us if they sell products covered by the terms of our license agreements; however, we do not control
the subject matter, timing or resources applied by our licensees to their development programs. Thus, potential receipt of milestone and royalty
payments from these licensees is largely beyond our control. Each of these agreements may be terminated before its scheduled expiration date by
the respective licensee either for any reason or under certain conditions. We have entered into certain license agreements that may require us to pay milestone payments or royalties. For example, we are required to
make royalty payments to certain licensors on Gattex and Revestive net sales and cinacalcet HCl royalty revenues. We expect to enter into additional
sponsored research and license agreements in the future. We have entered into long-term agreements with certain manufacturers and suppliers that require us to make contractual payment to these
organizations. We expect to enter into collaborative research, contract research, manufacturing, and supplier agreements in the future, which may
require up-front payments and long-term commitments of cash. Critical Accounting Policies and Estimates A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operations and a policy that
requires management's most difficult, subjective or complex judgments. Such judgments are often the result of a need to make estimates about the
effect of matters that are inherently uncertain. The preparation of our financial statements in conformity with U.S. generally accepted accounting
principles 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 financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ materially from those estimates. There were no significant changes in our critical accounting policies from those at
December 31, 2012; however, the following information, which relates to the U.S. launch of Gattex in February 2013, is in addition to, and
should be read in conjunction with, the accounting policies included in Part II, Item 7 of our Annual Report on Form 10-K for the
year ended December 31, 2012. Product Sales. Product sales represent U.S. sales of Gattex, which was approved by the FDA in December 2012. We recognize
revenue from Gattex product sales when persuasive evidence of an arrangement exists, title to product and associated risk of loss has passed to the
customer, the price is fixed or determinable, collection from the customer is reasonably assured, we have no further performance obligations, and
returns can be reasonably estimated. All prescriptions for Gattex, received directly by us from the patient's physician, are handled through NPS Advantage, our data management and
patient support program, which investigates and determines the patient's insurance coverage for Gattex. Once coverage is confirmed, we forward the
prescription to the specialty pharmacy (SP) who then re-confirms the coverage and dispenses Gattex to the patient. We sell Gattex directly to a
limited number of SPs and a specialty distributor (SD) who dispense product to patients, hospitals or U.S. government entities. We invoice and record
revenue upon the SPs' or SD's receipt of Gattex from our third-party logistics warehouse. Our SPs order product to fill prescriptions that have been
approved for reimbursement by payers. 29
Specific considerations for Gattex sold in the U.S. are as follows: Product sales are recorded net of accruals for estimated rebates, chargebacks, discounts, and other deductions (collectively, sales deductions)
and returns. With the exception of allowances for prompt payment, allowances for sales deductions and returns are included in accounts payable and
accrued expenses in the accompanying consolidated balance sheets. We analyze our arrangements entered into to determine whether the elements can be separated and accounted for individually or as a single unit
of accounting. Allocation of revenue to individual elements that qualify for separate accounting is based on the estimated fair value of the
respective elements. New Accounting Standards Refer to Note 12 in "Notes to Condensed Consolidated Financial Statements" for a discussion of new accounting standards. 30
Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk. Our 5.75% Convertible Notes due 2014 and our 9% non-recourse Sensipar Notes, each have a fixed interest rate. As of September 30, 2013, our
Convertible Notes and Sensipar Notes had $16.5 million and $61.1 million, respectively, in aggregate principal amount outstanding. The fair value of
the Convertible Notes is affected by changes in the interest rates and by changes in the price of our common stock. The fair value of the Sensipar
Notes is affected by changes in interest rates and by historical and projected rates of royalty revenues from cinacalcet HCl sales. Foreign Currency Risk. We have significant clinical and commercial-scale manufacturing agreements which are
denominated in euros and Canadian dollars. As a result, our financial results could be affected by factors such as a change in the foreign currency
exchange rate between the U.S. dollar and the Canadian dollar or euro, or by weak economic conditions in Canada or Europe. When the U.S. dollar
strengthens against the Canadian dollar or euros, the cost of expenses in Canada or Europe decreases. When the U.S. dollar weakens against the
Canadian dollar or euro, the cost of expenses in Canada or Europe increases. The monetary assets and liabilities in our foreign subsidiary which are
impacted by the foreign currency fluctuations are cash, accounts payable, and certain accrued liabilities. A hypothetical ten percent increase or
decrease in the exchange rate between the U.S. dollar and the Canadian dollar or euro from the September 30, 2013 rate would cause the fair value
of such monetary assets and liabilities in our foreign subsidiary to change by an insignificant amount. We are not currently engaged in any foreign
currency hedging activities. Item 4. Controls and Procedures. We maintain "disclosure controls and procedures" within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Our disclosure controls and procedures, or Disclosure Controls, are designed to ensure that information required to
be disclosed by us in the reports we file under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized
and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Our Disclosure Controls are also
designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our Disclosure Controls,
management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible
controls and procedures. 31
Evaluation of Disclosure Controls and Procedures. As of September 30, 2013, we evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures, which was done under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer. Immediately following the Signatures section of the Quarterly
report on Form 10-Q are certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with Rule 13a-14 of
the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications
and it should be read in conjunction with the certifications for a more complete understanding of the topics presented. Based on the controls
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the date of their evaluation, our disclosure controls and
procedures were effective to accomplish their intended purpose. Change in Internal Control over Financial Reporting. In the first quarter of 2013, we began generating revenues from sales
of Gattex and began capitalizing inventory costs related to manufacturing Gattex and the acquisition of teduglutide and rhPTH 1-84 raw material
related to the March 18, 2013 Transition and Termination Agreement with Takeda. (See note 10). The accounting for our net product sales and the
capitalization of inventory is material to our financial position as of September 30, 2013 and results of operations for the three and nine months ended
September 30, 2013, and we believe the internal controls and procedures relating to the accounting for net product sales and the capitalization
of inventory have a material effect on our internal control over financial reporting. See Note 1, "Accounting Policies" to our unaudited
condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q for further details. We have expanded our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and applicable rules and
regulations to include controls with respect to our net product sales and our valuation of inventory and intangibles. Except for these expanded
controls, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended) occurred during 2013. PART II Legal Proceedings. There are no material litigation matters as of September 30, 2013. In addition to the other information set forth in this Report, consider the factors discussed in Part 1, "Item 1A. Risk Factors" in
the Company's Annual Report filed on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or
future results. The risks described in the aforementioned report are not the only risks facing the Company. Additional risks and uncertainties not
currently known to the Company or that it currently deems to be not material also may materially adversely affect the Company's business, financial
condition and or operating results. 32
Exhibits. Exhibit Description of Document 31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32* Section 1350 Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial
Officer 101.INS(1)
XBRL Instance Document
101.SCH(1)
XBRL Taxonomy Extension Schema Document
101.CAL(1)
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF(1)
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB(1)
XBRL Taxonomy Extension Label Linkbase Document
101.PRE(1)
XBRL Taxonomy Extension Presentation Linkbase Document
* Furnished herewith. (1)
This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange
Commission, and is not incorporated by reference into any filing of NPS Pharmaceuticals, Inc. under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such filing. 33
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. NPS PHARMACEUTICALS, INC. Date: November 6, 2013 By: /s/ Francois Nader
Francois Nader, Date: November 6, 2013 By: /s/ Luke M. Beshar
Luke M. Beshar,
EXHIBIT INDEX Exhibit Description of Document 31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
PDF 31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
PDF 32* Section 1350 Certification of Periodic Financial Report by the Chief Executive Officer and Chief
Financial Officer
PDF 101.INS(1)
XBRL Instance Document
101.SCH(1)
XBRL Taxonomy Extension Schema Document
101.CAL(1)
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF(1)
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB(1)
XBRL Taxonomy Extension Label Linkbase Document
101.PRE(1)
XBRL Taxonomy Extension Presentation Linkbase Document
* Furnished herewith. (1)
This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange
Commission, and is not incorporated by reference into any filing of NPS Pharmaceuticals, Inc. under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such filing.
FINANCIAL INFORMATION
(In thousands)
(Unaudited)
September 30,
December 31,
2013
2012
Assets
Current assets:
Cash and cash equivalents
$
46,267
$
17,471
Marketable investment securities
131,334
83,244
Accounts receivable
31,986
30,276
Inventory
27,580
-
Prepaid expenses
4,211
4,317
Other current assets
2,235
1,743
Total current assets
243,613
137,051
Property and equipment, net
3,860
4,193
Goodwill
9,429
9,429
Intangibles, net
19,750
-
Debt issuance costs, net
361
436
Total assets
$
277,013
$
151,109
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses
$
24,207
$
23,289
Convertible notes payable
16,545
-
Current portion of non-recourse debt
6,670
6,278
Total current liabilities
47,422
29,567
Convertible notes payable
-
16,545
Non-recourse debt, less current portion
132,387
153,024
Other liabilities
5,372
6,614
Total liabilities
185,181
205,750
Commitments and contingencies (notes 6, and 8)
Stockholders' equity (deficit):
Preferred stock, $0.001 par value. Authorized 5,000,000 shares;
issued and outstanding no shares
-
-
Common stock, $0.001 par value. Authorized 175,000,000 shares;
issued and outstanding 102,087,311 shares and
86,779,049 shares, respectively
102
87
Additional paid-in capital
1,122,168
954,452
Accumulated other comprehensive income
19
5
Accumulated deficit
(1,030,457)
(1,009,185)
Total stockholders' equity (deficit)
91,832
(54,641)
Total liabilities and stockholders' equity (deficit)
$
277,013
$
151,109
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2013
2012
2013
2012
Revenues:
Product sales, net
$
11,037
$
-
$
16,492
$
-
Royalties
28,129
27,012
84,613
78,453
Sale of royalty rights
-
-
-
25,000
Other
36
7
36
7
Total revenues
39,202
27,019
101,141
103,460
Operating expenses:
Cost of goods sold
1,077
-
1,615
-
Research and development
18,798
17,957
65,381
70,797
Selling, general and administrative
17,558
8,329
46,228
25,769
Total operating expenses
37,433
26,286
113,224
96,566
Operating income (loss)
1,769
733
(12,083)
6,894
Other income (expense):
Interest income, net
108
64
221
224
Interest expense
(2,959)
(4,444)
(9,388)
(14,445)
Other
(5)
323
(18)
795
Total other expense, net
(2,856)
(4,057)
(9,185)
(13,426)
Loss before income tax expense
(1,087)
(3,324)
(21,268)
(6,532)
Income tax expense
-
-
4
-
Net loss
$
(1,087)
$
(3,324)
$
(21,272)
$
(6,532)
Net loss per common and potential common share
Basic
$
(0.01)
$
(0.04)
$
(0.22)
$
(0.08)
Diluted
$
(0.01)
$
(0.04)
$
(0.22)
$
(0.08)
Weighted average common and potential common
shares outstanding:
Basic
102,227
86,947
96,034
86,910
Diluted
102,227
86,947
96,034
86,910
(In thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2013
2012
2013
2012
Net loss
$
(1,087)
$
(3,324)
$
(21,272)
$
(6,532)
Other comprehensive income (loss):
Unrealized gains (loss) on securities:
Unrealized holding gains arising during period
89
35
16
141
Reclassification for recognized gain on marketable
investment securities during the period
-
-
(2)
(3)
Net unrealized gain on marketable investment securities
89
35
14
138
Foreign currency translation (loss) gain
(9)
(8)
-
(13)
Other comprehensive income
80
27
14
125
Comprehensive loss
$
(1,007)
$
(3,297)
$
(21,258)
$
(6,407)
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2013
2012
Cash flows from operating activities:
Net loss
$
(21,272)
$
(6,532)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
1,871
799
Accretion of premium (discount) on marketable investment securities
1,962
1,550
Shares issued for payment of services
549
-
Non-cash interest expense
8,674
13,727
Non-cash royalties
(29,831)
(45,878)
Compensation expense on share based awards
7,343
4,879
Realized gain on sale of marketable investment securities
(2)
(3)
(Increase) decrease in operating assets:
Accounts receivable
(4,041)
(14,865)
Inventory
6,118
-
Prepaid expenses, other current assets and other assets
528
3,182
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses
4,263
2,176
Other liabilities
(1,242)
(1,168)
Net cash used in operating activities
(25,080)
(42,133)
Cash flows from investing activities:
Sales of marketable investment securities
6,451
2,526
Maturities of marketable investment securities
58,251
76,914
Purchases of marketable investment securities
(114,738)
(67,668)
Acquisitions of property and equipment
(608)
(858)
Net cash (used in) provided by investing activities
(50,644)
10,914
Cash flows from financing activities:
Net proceeds from the sale of common stock
93,454
-
Net proceeds from the exercise of stock options
11,684
903
Shares withheld for the payment of taxes
(618)
-
Net cash provided by financing activities
104,520
903
Effect of exchange rate changes on cash
-
(13)
Net increase (decrease) in cash and cash equivalents
28,796
(30,329)
Cash and cash equivalents at beginning of period
17,471
82,401
Cash and cash equivalents at end of period
$
46,267
$
52,072
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
$
712
$
714
Cash paid for income taxes
4
-
Supplemental Disclosure of Non-cash Investing and Financing Activities:
6.1 million shares of NPS common stock issued in connection with
the Takeda Termination and Transition agreement, see note 10
55,403
-
Unrealized gain on marketable investment securities
14
138
Accrued acquisition of property and equipment
69
45
Noncash reductions of debt
20,245
44,971
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of September 30, 2013:
Level 1
Level 2
Level 3
Total
Marketable investment securities
$
120,618
$
10,716
$
-
$
131,334
As of December 31, 2012:
Level 1
Level 2
Level 3
Total
Marketable investment securities
$
67,723
$
15,521
$
-
$
83,244
As of September 30, 2013
As of December 31, 2012
Fair
Carrying
Fair
Carrying
Value
Value
Value
Value
5.75% Convertible Notes
$
96,748
$
16,545
$
28,131
$
16,545
Sensipar Notes
60,588
61,065
79,129
80,234
PTH 1-84 (Europe, CIS and Turkey)
-Secured Debt
27,597
42,790
28,605
42,816
Regpara-Secured Debt
38,661
35,202
48,887
36,252
Total
$
223,594
$
155,602
$
184,752
$
175,847
Gross
Gross
unrealized
unrealized
Amortized
holding
holding
Fair
cost
gains
losses
value
As of September 30, 2013:
Debt securities:
Corporate
$
94,058
$
19
$
(45)
$
94,032
Government agency
37,284
22
(4)
37,302
Total marketable investment securites
$
131,342
$
41
$
(49)
$
131,334
Gross
Gross
unrealized
unrealized
Amortized
holding
holding
Fair
cost
gains
losses
value
As of December 31, 2012:
Debt securities:
Corporate
$
50,822
$
3
$
(31)
$
50,794
Government agency
32,444
10
(4)
32,450
Total marketable investment securites
$
83,266
$
13
$
(35)
$
83,244
Held for less than 12 months
Held for more than 12 months
Total
Unrealized
Unrealized
Unrealized
Fair value
losses
Fair value
losses
Fair value
losses
As of September 30, 2013:
Available for Sale:
Debt securities:
Corporate
$
76,958
$
45
$
-
$
-
$
76,958
$
45
Government agency
7,828
4
-
-
7,828
4
$
84,786
$
49
$
-
$
-
$
84,786
$
49
As of December 31, 2012:
Available for Sale:
Debt securities:
Corporate
$
37,974
$
31
$
-
$
-
$
37,974
$
31
Government agency
7,110
4
-
-
7,110
4
$
45,084
$
35
$
-
$
-
$
45,084
$
35
As of September 30, 2013
As of December 31, 2012
Amortized
Amortized
cost
Fair value
cost
Fair value
Due within one year
$
106,268
$
106,249
$
65,637
$
65,632
Due after one year through five years
25,074
25,085
17,629
17,612
Due after five years
-
-
-
-
Total debt securities
$
131,342
$
131,334
$
83,266
$
83,244
For the Three Months
For the Nine Months
Ended September 30,
Ended September 30,
2013
2012
2013
2012
Proceeds from sales and maturities
$
18,045
$
22,858
$
64,702
$
79,440
Realized gains
-
-
2
3
Realized losses
-
-
-
-
September 30,
December 31,
2013
2012
Convertible notes
$
16,545
$
16,545
Non-recourse debt
139,057
159,302
Total debt
155,602
175,847
Less current portion
23,215
6,278
Total long-term debt
$
132,387
$
169,569
As of September 30, 2013
Weighted
Weighted
Number
average
average remaining
Aggregate
of
exercise
contractual
intrinsic
options
price
term
value
(in thousands)
(in years)
(in thousands)
Options outstanding at beginning
of year
7,390
$
6.75
Options granted
2,107
10.18
Options exercised
1,995
5.79
Options forfeited/expired
361
13.75
Options outstanding at September 30, 2013
7,141
7.67
7.57
$
172,323
Vested and expected to vest
6,676
7.53
7.47
$
162,085
Options exercisable at September 30, 2013
3,138
$
6.40
6.01
$
79,723
Three Months Ended
September 30,
2013
2012
Revenues:
Product sales, net
$
11,037
$
-
Royalties
28,129
27,012
Other
36
7
Total revenues
$
39,202
$
27,019
Operating expenses:
Cost of goods sold
$
1,077
$
-
% of product sales, net
10
%
-
%
Research and development
$
18,798
$
17,957
% of total revenues
48
%
66
%
Selling, general and administrative
$
17,558
$
8,329
% of total revenues
45
%
31
%
Three Months Ended
September 30,
2013
2012
Product sales, net
$
11,037
$
-
Royalties:
Sensipar and Mimpara (cinacalcet HC1)
25,375
22,976
Regpara (cinacalcet HCl)
2,048
2,259
Preotact (parathyroid hormone (PTH 1-84))
-
1,057
Nucynta (tapentadol)
706
720
Total royalties
28,129
27,012
Other
36
7
Total revenues
$
39,202
$
27,019
Returns and
Rebates and
Distribution-
Other Sales-
Chargebacks
Related Fees
Related Deductions
Total
Balance as of June 30, 2013
$
247
$
141
$
188
$
576
Provision related to current period sales
387
87
333
807
Credits/payments
(64)
(72)
(318)
(454)
Balance as of September 30, 2013
$
570
$
156
$
203
$
929
Nine Months Ended
September 30,
2013
2012
Revenues:
Product sales, net
$
16,492
$
-
Royalties
84,613
78,453
Sale of royalty rights
-
25,000
Other
36
7
Total revenues
$
101,141
$
103,460
Operating expenses:
Cost of goods sold
$
1,615
$
-
% of product sales, net
10
%
-
%
Research and development
$
65,381
$
70,797
% of total revenues
65
%
68
%
Selling, general and administrative
$
46,228
$
25,769
% of total revenues
46
%
25
%
Nine Months Ended
September 30,
2013
2012
Product sales, net
$
16,492
$
-
Royalties:
Sensipar and Mimpara (cinacalcet HC1)
76,475
65,231
Regpara (cinacalcet HCl)
5,921
6,381
Preotact (parathyroid hormone (PTH 1-84))
-
4,760
Nucynta (tapentadol)
2,217
2,081
Total royalties
84,613
78,453
Sale of royalty rights - Sensipar
-
25,000
Other
36
7
Total revenues
$
101,141
$
103,460
Returns and
Rebates and
Distribution-
Other Sales-
Chargebacks
Related Fees
Related Deductions
Total
Balance as of December 31, 2012
$
-
$
-
$
-
$
-
Provision related to current period sales
645
241
598
1,484
Credits/payments
(75)
(85)
(395)
(555)
Balance as of September 30, 2013
$
570
$
156
$
203
$
929
September 30,
December 31,
2013
2012
Cash, cash equivalents, and marketable investment securities
$
177,601
$
100,715
Total assets
277,013
151,109
Current debt
23,215
6,278
Non-current debt
132,387
169,569
Stockholders' equity (deficit)
$
91,832
$
(54,641)
Nine Months Ended
September 30,
2013
2012
Net cash used in operating activities
$
(25,080)
$
(42,133)
Net cash (used in) provided by investing activities
$
(50,644)
$
10,914
Net cash provided by financing activities
$
104,520
$
903
OTHER INFORMATION
Number
President and Chief Executive Officer (Principal Executive Officer)
Chief Financial Officer (Principal Financial and Accounting Officer)
Number