Attached files

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EX-10.1 - EX-10.1 - EPIRUS Biopharmaceuticals, Inc.eprs-20150930ex10144a23e.htm
EX-31.1 - EX-31.1 - EPIRUS Biopharmaceuticals, Inc.eprs-20150930ex311f85343.htm
EX-32.1 - EX-32.1 - EPIRUS Biopharmaceuticals, Inc.eprs-20150930ex3212cc065.htm
EX-10.3 - EX-10.3 - EPIRUS Biopharmaceuticals, Inc.eprs-20150930ex103712dde.htm
EX-31.2 - EX-31.2 - EPIRUS Biopharmaceuticals, Inc.eprs-20150930ex31252e00e.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015.

 

Or

 

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 000-51171

 


 

EPIRUS BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 


 

 

 

 

Delaware

 

04-3514457

(State or other jurisdiction of Incorporation or organization)

 

(IRS Employer Identification Number)

 

 

 

699 Boylston Street

 

 

Eighth Floor

 

 

Boston, MA 02116

 

02116

(Address of Principal Executive Offices)

 

(Zip Code)

 

(617) 600-3497

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer

Accelerated filer

 

 

Non-accelerated filer

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  

 

Number of shares of the registrant’s Common Stock, $0.001 par value per share, outstanding as of November 9, 2015:  24,377,573 shares 

 

 

 


 

EPIRUS BIOPHARMACEUTICALS, INC.

QUARTERLY REPORT

ON FORM 10-Q

 

INDEX

 

 

 

2


 

PART I—FINANCIAL INFORMATION 

 

Item 1. Financial Statements.

EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

    

(Unaudited)

    

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,424

 

$

21,462

 

Accounts receivable

 

 

217

 

 

 —

 

Asset held-for-sale

 

 

3,829

 

 

 —

 

Prepaid expenses and other current assets

 

 

1,838

 

 

1,556

 

Deferred tax asset

 

 

274

 

 

 —

 

Total current assets

 

 

50,582

 

 

23,018

 

Property and equipment, net

 

 

1,189

 

 

704

 

In-process research and development

 

 

 —

 

 

5,500

 

Intangible assets, net

 

 

5,422

 

 

3,605

 

Goodwill

 

 

27,838

 

 

16,363

 

Restricted cash

 

 

1,825

 

 

1,825

 

Other assets

 

 

214

 

 

374

 

Total assets

 

$

87,070

 

$

51,389

 

Liabilities, Convertible Preferred Stock and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

2,985

 

$

2,483

 

Accrued expenses

 

 

6,422

 

 

4,101

 

Short term debt, net of debt discount

 

 

2,263

 

 

 —

 

Accrued acquisition costs

 

 

5,141

 

 

 —

 

Accrued contingent consideration

 

 

1,601

 

 

 —

 

Deferred revenue

 

 

347

 

 

50

 

Current portion of settlement of obligation

 

 

959

 

 

 —

 

Other current liabilities

 

 

395

 

 

557

 

Liabilities held-for-sale

 

 

995

 

 

 —

 

Deferred tax benefit

 

 

185

 

 

185

 

Total current liabilities

 

 

21,293

 

 

7,376

 

Long term debt, net of debt discount

 

 

12,567

 

 

7,282

 

Deferred revenue, net of current portion

 

 

1,182

 

 

946

 

Deferred tax liability

 

 

472

 

 

2,166

 

Deferred tax benefit, net of current portion

 

 

415

 

 

553

 

Other non-current liabilities

 

 

440

 

 

665

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; Authorized - 5,000,000 shares, Issued and Outstanding - 0 shares at September 30, 2015 and December 31, 2014

 

 

 —

 

 

 —

 

Common stock, $0.001 par value; Authorized - 70,000,000 and 300,000,000 shares at September 30, 2015 and December 31, 2014, respectively; Issued - 24,383,264 and 12,934,102 shares at September 30, 2015 and December 31, 2014, respectively; Outstanding - 24,383,264  and 12,920,843 shares at September 30, 2015 and December 31, 2014, respectively

 

 

24

 

 

13

 

Additional paid-in capital

 

 

174,050

 

 

118,959

 

Other comprehensive income

 

 

(8)

 

 

 —

 

Accumulated deficit

 

 

(123,365)

 

 

(86,571)

 

Total stockholders' equity

 

 

50,701

 

 

32,401

 

Total liabilities, convertible preferred stock and stockholders' equity

 

$

87,070

 

$

51,389

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Revenue

 

$

221

 

$

 —

 

$

291

 

$

 —

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

    

 

9,172

    

 

5,397

 

 

20,526

    

 

11,488

 

General and administrative

 

 

5,091

 

 

8,532

 

 

16,037

 

 

17,612

 

Total operating expenses

 

 

14,263

 

 

13,929

 

 

36,563

 

 

29,100

 

Loss from operations

 

 

(14,042)

 

 

(13,929)

 

 

(36,272)

 

 

(29,100)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(368)

 

 

1

 

 

(963)

 

 

(2,390)

 

Change in fair value of warrant liability

 

 

 —

 

 

(23)

 

 

 —

 

 

(222)

 

Other income (expense), net

 

 

(22)

 

 

(5)

 

 

(59)

 

 

285

 

Total other income (expense), net

 

 

(390)

 

 

(27)

 

 

(1,022)

 

 

(2,327)

 

Loss before income taxes

 

 

(14,432)

 

 

(13,956)

 

 

(37,294)

 

 

(31,427)

 

Benefit (loss) from income taxes

 

 

445

 

 

21

 

 

500

 

 

(18)

 

Net loss

 

$

(13,987)

 

$

(13,935)

 

$

(36,794)

 

$

(31,445)

 

Net loss per share--basic and diluted

 

$

(0.59)

 

$

(1.28)

 

$

(1.66)

 

$

(8.15)

 

Weighted-average number of common shares used in net loss per share calculation--basic and diluted

 

 

23,750,820

 

 

10,846,655

 

 

22,199,801

 

 

3,857,027

 

Comprehensive loss

 

$

(13,995)

 

$

(13,935)

 

$

(36,802)

 

$

(31,445)

 

 

See accompanying notes to condensed consolidated financial statements

4


 

EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(36,794)

 

$

(31,445)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

299

 

 

66

 

Non-cash interest expense

 

 

354

 

 

2,354

 

Stock-based compensation and vesting of restricted stock

 

 

2,256

 

 

1,314

 

Foreign exchange adjustments

 

 

(8)

 

 

 —

 

Deferred rent and lease incentive activity

 

 

(28)

 

 

 —

 

Loss on disposal of equipment

 

 

1

 

 

 —

 

Loss on impairment of asset held for sale

 

 

1,671

 

 

 —

 

Deferred taxes

 

 

(543)

 

 

(138)

 

Extinguishment of convertible notes

 

 

 —

 

 

(22)

 

Change in fair value of warrants

 

 

 —

 

 

222

 

Other non-cash activity

 

 

 —

 

 

66

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(131)

 

 

(599)

 

Accounts receivable

 

 

(56)

 

 

 —

 

Restricted cash

 

 

 —

 

 

50

 

Other non-current assets

 

 

156

 

 

(130)

 

Accounts payable

 

 

331

 

 

(897)

 

Accrued expenses and other current liabilities

 

 

1,507

 

 

880

 

Other non-current liabilities

 

 

(197)

 

 

(84)

 

Deferred revenue

 

 

97

 

 

1,000

 

Settlement obligation

 

 

959

 

 

 

Net cash used in operating activities

 

 

(30,126)

 

 

(27,363)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Cash acquired in acquisition

 

 

833

 

 

13,756

 

Payment to stockholders of Bioceros

 

 

(3,400)

 

 

 —

 

Purchases of property and equipment

 

 

(125)

 

 

(115)

 

Net cash provided by (used in) investing activities

 

 

(2,692)

 

 

13,641

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from the issuance of common stock, net of costs

 

 

47,962

 

 

 —

 

Proceeds from the issuance of debt, net of fees paid to lender

 

 

7,500

 

 

 —

 

Proceeds from the issuance of preferred stock, net of costs

 

 

 —

 

 

30,478

 

Proceeds from the issuance of convertible notes

 

 

 —

 

 

5,000

 

Proceeds from the exercise of common stock options

 

 

 —

 

 

90

 

Proceeds from the exercise of preferred stock warrants

 

 

318

 

 

334

 

Repurchases of common stock

 

 

 —

 

 

(297)

 

Net cash provided by financing activities

 

 

55,780

 

 

35,605

 

Net increase (decrease) in cash and cash equivalents

 

 

22,962

 

 

21,883

 

Cash and cash equivalents—Beginning of period

 

 

21,462

 

 

1,798

 

Cash and cash equivalents—End of period

 

$

44,424

 

$

23,681

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

 

$

611

 

$

 —

 

Cash paid for income taxes

 

$

66

 

$

 —

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

Conversion of convertible debt and accrued interest into preferred stock and warrants

 

$

 —

 

$

13,184

 

Extinguishment of convertible debt and accrued interest into preferred stock

 

$

 —

 

$

5,013

 

Exercise of warrants into preferred stock

 

$

 —

 

$

7,095

 

Conversion of preferred stock into common stock

 

$

 —

 

$

79,452

 

Conversion of preferred stock warrants to equity

 

$

 —

 

$

167

 

Issuance of warrants in connection with Hercules debt

 

$

 —

 

$

248

 

Leasehold improvements incurred by landlord

 

$

 —

 

$

477

 

 

 

 

 

 

 

 

 

Fair value of assets and liabilities acquired in the Acquisition (Note 6):

 

 

 

 

 

 

 

Fair value of assets acquired in the Acquisition

 

$

16,200

 

$

 —

 

Fair value of liabilities assumed in the Acquisition

 

$

(1,577)

 

$

 —

 

Fair value of net assets acquired in the Acquisition

 

$

14,623

 

$

 —

 

Fair value of assets and liabilities acquired in the Merger (Note 5):

 

 

 

 

 

 

 

Fair value of assets acquired in the Merger

 

$

 —

 

$

36,223

 

Fair value of liabilities assumed in the Merger

 

$

 —

 

$

(4,899)

 

Fair value of net assets acquired in the Merger

 

$

 —

 

$

31,324

 

 

See accompanying notes to condensed consolidated financial statements

5


 

EPIRUS Biopharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(unaudited)

(In thousands, except share and per share amounts)

1.Organization

 

EPIRUS Biopharmaceuticals, Inc. (the “Company”) is a global biopharmaceutical company focused on building a pure-play, sustainable, profitable and global biosimilar business. Biosimilars are highly similar versions of approved patented biological drug products, referred to as reference or innovator products. In particular, a biosimilar must demonstrate that it is highly similar to the reference product with respect to its product characteristics and that it shows no clinically meaningful differences in terms of safety and effectiveness. The Company’s goal is to improve global patient access to important, cost-effective medicines. The Company is headquartered in Boston, Massachusetts, with laboratories and technical capabilities, including the Company’s proprietary CHOBC® cell line platform, in Utrecht, the Netherlands, and business operations, clinical and regulatory teams based in Zug, Switzerland.

 

Since its inception, the Company has maintained in-house technical capabilities supported by external vendor laboratories. In September 2015, the Company acquired its primary vendor laboratory, Bioceros Holding B.V., a Netherlands company (“Bioceros”), to expand its biosimilar pipeline and to vertically integrate its product development capabilities. The Company entered into and closed a definitive Stock Purchase Agreement with Bioceros and purchased all of the outstanding shares of the share capital of Bioceros. As a result of the acquisition, Bioceros has become the Company’s wholly-owned subsidiary, renamed Epirus Biopharmaceuticals (Netherlands) B.V. See Note 6, “Acquisition,” for additional discussion of the acquisition of Bioceros.

 

Bioceros is focused on the development of monoclonal antibodies (mAbs). The Company acquired Bioceros’ proprietary CHOBC cell line platform, all related intellectual property rights, a fully equipped laboratory and bioreactor capabilities designed for the development of mAbs and protein therapeutics, with a focus on biosimilars, including capabilities for the production of three new biosimilar product candidates to add to the Company’s pipeline of biosimilar product candidates, as further described below. The Company believes that the addition of Bioceros staff and capabilities, combined with existing in-house expertise, provides the Company with a strong technical foundation to accelerate product development and optimize product quality. Specifically, the Company believes that its ability to rapidly and efficiently conduct and repeat experiments to optimize product quality and cell line titers and process yields will allow it to reduce regulatory risk and manage long term cost of goods.

 

The Company’s pipeline of biosimilar product candidates includes BOW015, a biosimilar version of Remicade® (infliximab), BOW050, a biosimilar version of Humira® (adalimumab), BOW070, a biosimilar version of Actemra® (tocilizumab), BOW080, a biosimilar version of Soliris® (eculizumab), BOW090, a biosimilar version of STELARA® (ustekinumab) and BOW100, a biosimilar version of SIMPONI® (golimumab).

 

For the Company’s lead product candidate, BOW015, the Company has reported bioequivalence and efficacy data from a Phase 1 clinical trial in the United Kingdom and a Phase 3 clinical trial in India, both of which demonstrated the equivalence of BOW015 to Remicade. The Company also announced positive 58 week follow up data from the Phase 3 trial. In this open label phase, the Company demonstrated that patients can be safely initiated and effectively maintained on BOW015 for 58 weeks, and that patients can be safely switched from Remicade to BOW015 and effectively maintained out to 58 weeks. Using this regulatory package, the Company filed for and received approval in India in September 2014, and has filed for approval in additional markets including Malaysia, Thailand and Indonesia. In collaboration with the Company’s commercialization partner Sun Pharmaceutical Industries Ltd. (“Sun”), the Company launched BOW015 in India in November 2014. BOW015 is sold under the brand name InfimabTM and is the first infliximab biosimilar approved in India.

 

In November 2015, the Company completed manufacturing readiness for BOW015 to support the initiation of a global clinical program for BOW015 in early 2016. The Company has been designing this clinical program in consultation with European regulatory bodies in order to obtain the data that may be necessary to support potential approval of BOW015 in developed markets. The Company expects to file for approval of BOW015 in developed

6


 

markets, including Europe, Canada, Australia and the United States, in 2017. For the remainder of the Company’s pipeline products, the Company expects that its filings will be global and harmonized.

 

On July 15, 2014, EPIRUS Biopharmaceuticals, Inc., a Delaware corporation and private company ("Private Epirus"), completed its merger with EB Sub, Inc., a wholly-owned subsidiary of Zalicus Inc., a Delaware corporation ("Zalicus") (the "Merger"). As part of the Merger, Zalicus was renamed EPIRUS Biopharmaceuticals, Inc. ("Public Epirus") and Private Epirus was renamed EB Sub, Inc. ("EB Sub"). The boards of directors of Private Epirus and Zalicus approved the Merger on April 15, 2014, and the stockholders of Private Epirus and Zalicus approved the Merger and related matters on July 15, 2014. Following completion of the Merger, EB Sub, Inc. (formerly Private Epirus), is the surviving corporation of the Merger and a wholly-owned subsidiary of Public Epirus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company, and are included in this quarterly report on Form 10-Q. 

 

The terms “Company” and “Epirus” as used in these notes to consolidated financial statements refer to Private Epirus and its subsidiaries prior to the completion of the Merger and to Public Epirus and its subsidiaries subsequent to the completion of the Merger.

 

2.Basis of Presentation and Use of Estimates

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2015. For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual consolidated financial statements for the year ended December 31, 2014, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015.

 

3.Summary of Significant Accounting Policies

 

In the three and nine months ended September 30, 2015, there were no changes to the Company’s significant accounting policies identified in the Company’s most recent annual consolidated financial statements for the fiscal year ended December 31, 2014, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2015. 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Epirus and its wholly owned subsidiaries as of September 30, 2015:  EB Sub, Inc., a Delaware Corporation, Epirus Biopharmaceuticals Ltd., a United Kingdom corporation, Epirus Biopharmaceuticals (Switzerland) GmbH, a Swiss corporation, Epirus Brasil Tecnologia Ltda, a Brazilian corporation, Epirus Biopharmaceuticals (Netherlands) B.V., a Netherlands corporation, and Zalicus Pharmaceuticals Ltd., a Canadian corporation.   All significant intercompany balances and transactions have been eliminated in consolidation.

 

Merger and Exchange Ratio

 

The Merger has been accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with Private Epirus treated as the accounting acquirer of Zalicus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company,

7


 

and are included in this quarterly report on Form 10-Q. Since the Merger, costs related to Zalicus operations have been immaterial. As a result of the Merger, historical common stock, stock options and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of Public Epirus, including the effect of the Merger exchange ratio and the Public Epirus common stock par value of $0.001 per share. See Note 5, “Merger,” for additional discussion of the Merger and the exchange ratio.

 

Reverse Stock Split

 

On July 16, 2014, Public Epirus effected a 1-for-10 reverse stock split of its outstanding common stock, par value $0.001 per share (“Public Epirus Common Stock”) (the “Reverse Stock Split”). The accompanying consolidated financial statements and these notes to consolidated financial statements, including the Merger exchange ratio applied to historical Private Epirus common stock and stock options, give retroactive effect to the Reverse Stock Split for all periods presented. The shares of Public Epirus Common Stock retained a par value of $0.001 per share. See Note 5, “Merger,” for additional discussion of the Merger and the exchange ratio.

 

Impairment of Long-Lived Assets

 

Long-lived assets, including finite-lived intangible assets, to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Indefinite lived intangible assets are also tested at least annually for impairment. Determination of the recoverability of long-lived assets, including finite-lived intangible assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.

 

When performing the impairment assessment of in-process research and development (“IPR&D”), the Company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of its acquired IPR&D. If the Company determines, as a result of the qualitative assessment, that it is more likely than not that the fair value of acquired IPR&D is less than its carrying amount, it calculates the asset's fair value. If the carrying value of the Company's acquired IPR&D exceeds its fair value, then the intangible asset is written down to its fair value.

 

Goodwill is evaluated for impairment within the Company's single reporting unit on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company's reporting unit below its carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of goodwill is impaired, the Company must perform the first step of the goodwill impairment test.

 

As described in Note 7, the IPR&D has been classified as held-for-sale as of September 30, 2015.   During the three and nine months ended September 30, 2015, the Company determined that there was an impairment related to the IPR&D acquired in the Merger.  As a result, the Company has recorded a loss on impairment of IPR&D in the amount of $1,671 in the three and nine months ended September 30, 2015.  This impairment charge was recorded within research and development expense.

 

Recent Accounting Pronouncements

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09.  This ASU will be effective for annual and interim periods beginning on or after December 15, 2017. Early adoption is permitted,

8


 

however not before the original effective date of annual periods beginning after December 15, 2016. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. The Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on its consolidated financial statements.

 

Going Concern

 

In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to continue as a Going Concern. This ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements and to provide related footnote disclosures. This guidance is effective for fiscal years beginning after December 15, 2016, with early application permitted. The Company is currently evaluating what effect, if any, the adoption of this guidance will have on the disclosures included in its condensed consolidated financial statements.

 

 

Debt Issuance Costs

 

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related liability, rather than as a deferred charge. The updated guidance is effective retroactively for financial statements covering fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted, but the Company does not anticipate electing early adoption. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.

 

Technical Corrections and Improvements

 

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. ASU 2015-10 covers a wide range of Topics in the ASC. The amendments in this ASU represent changes to clarify the ASC, correct unintended application of guidance, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of the amendments will make the ASC easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the ASC. The amendments in ASU 2015-10 that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments will be effective upon the issuance of this ASU.  The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements and footnote disclosures.

 

Business Combinations

 

In September 2015, the FASB issued ASC Update No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement - Period Adjustments. Update No. 2015-16 eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. Update No. 2015-16 requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The prior period impact of the adjustment should be either presented separately on the face of the income statement or disclosed in the notes. Update No. 2015-16 is effective for fiscal years beginning after December 15, 2015. The adoption of Update No. 2015-16 is not expected to have a material impact on the Company’s financial position or results of operations.

 

 

9


 

4.Business Agreements

 

Sun Pharmaceutical Industries (formerly known as Ranbaxy Laboratories)

 

For the three and nine months ended September 30, 2015, the Company recorded royalty revenue of $28 and $82, respectively, related to commercial sales of the Company’s product, Infimab, which the Company launched with its commercialization partner Sun during the fourth quarter of 2014.  As of September 30, 2015, all royalty payments have been received.

 

Sun made an upfront payment of $500 upon the execution of the license agreement by and between the Company and Sun, dated as of January 3, 2014 and as amended from time to time (the “Sun License Agreement”) and is obligated to pay the Company up to $1,000 if certain development and regulatory approval milestones are achieved and up to $10,000 if certain sales milestones are achieved. Under certain circumstances of uncured breach by the Company and termination of the Sun License Agreement by Sun, monetary damages of $500 would be due to Sun.

 

The Company has invoiced Sun for a total of $1,250 in milestone payments, including the upfront payment, and received payments totaling $1,250 through September 30, 2015.

 

Mabxience, S.A.

 

On May 13, 2015, the Company entered into an Exclusive License Agreement (the “MabX Agreement”) with mAbxience S.A., a company organized and existing under the laws of Uruguay and a wholly owned subsidiary of CHEMO Group (“Mabxience”), for the development, manufacturing and commercialization of BOW015.

 

Under the MabX Agreement, the Company licensed to Mabxience an exclusive, royalty-bearing, non-transferable, sublicenseable license to develop, manufacture, commercialize and distribute BOW015 in the Mabxience territory. The Mabxience territory consists of Argentina, Chile, Ecuador, Paraguay, Uruguay and Venezuela. Pursuant to the MabX Agreement, Mabxience will be solely responsible, at its expense, for all aspects of commercialization of licensed product in the Mabxience territory. As consideration for the license granted to Mabxience, the Company is eligible to receive certain non-refundable, non-creditable milestone payments up to $1,500 upon the achievement of certain commercial sales in the Mabxience territory. In addition, the Company is eligible to receive certain royalty payments in the high teen percentages and distribution payments from Mabxience.

 

These potential milestone and royalty payments have not been earned as of September 30, 2015.

 

If not terminated earlier or extended by mutual agreement of the parties, the MabX Agreement expires in its entirety upon the fifteenth (15) anniversary of the first commercial sale of BOW015 in the Mabxience territory.

 

Polpharma

 

On July 13, 2015, the Company entered into a Collaboration Agreement (the “Polpharma Collaboration Agreement”) with Swiss Pharma International AG, an affiliate of Pharmaceutical Works Polpharma S.A. (together with Swiss Pharma International AG, “Polpharma”), for the development and commercialization in certain designated territories of the Company’s product candidates, BOW015, BOW050 and BOW070. The designated territories include the European Union (with the exception of Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands and Sweden, which are reserved for the Company), together with certain countries in the Middle East, Turkey, Russia, and other countries comprising the Commonwealth of Independent States, or CIS. The Company will also retain exclusive rights for the three products in North America and other markets outside of the designated territories, including Switzerland and Norway. Within the designated territories, the Polpharma Collaboration Agreement contains exclusivity provisions such that each of the Company and Polpharma agrees not to exploit any other biosimilar product based on reference product other than the three products licensed under the Polpharma Collaboration Agreement, subject to limited exceptions.

 

10


 

Under the Polpharma Collaboration Agreement, the Company and Polpharma have cross-licensed all intellectual property rights and technology relating to their applicable biosimilar development programs to enable the parties to develop and commercialize the three above-mentioned biosimilar products in the designated territories and the Company to develop and commercialize these biosimilar products outside of the designated territories. The three product programs will consist of process development, clinical trials, regulatory, manufacturing and commercialization activities in the designated territories. For such programs, the Company will lead the global product development and clinical programs and will also be responsible for process development, scale-up and manufacturing in the designated territories, both parties will collaborate on regulatory filings in the designated territories, and Polpharma will be responsible for the commercialization of the products in the designated territories. Polpharma has the right to be a second source manufacturer for any of the products, including a right to perform fill and finish production for all three products, subject to certain conditions. A joint management committee will oversee the collaboration on behalf of both parties.

 

Polpharma will bear 51% and the Company will bear 49% of total costs associated with the development programs for the three products in the designated territories.  For clinical trial costs incurred in connection with global development, the cost sharing ratio is changed from 100% to 38% of total costs.  As a result, Polpharma will bear 19% and the Company will bear 81% of total clinical trial costs incurred. Following commercial launch, profits and losses for the three products in the designated territories will be split 51% for Polpharma and 49% for the Company.

 

For the three and nine months ended September 30, 2015, the Company recorded revenue of $50 related to this agreement.  No amounts were invoiced by the Company nor were any payments made by Polpharma as of September 30, 2015.

 

Livzon Mabpharm

 

On September 24, 2015, the Company entered into a New Collaboration Compound Supplement to the Collaboration Agreement (the “Supplement Agreement”) with Livzon Mabpharm Inc. (“Livzon”). The Supplement Agreement amends the Exclusive License and Collaboration Agreement, dated as of September 24, 2014, by and between the Company and Livzon (the “Livzon Collaboration Agreement”), to add the Company’s product candidate, BOW070, a biosimilar version of Actemra® (tocilizumab), as one of the additional compounds to be developed and commercialized pursuant to the terms of the Livzon Collaboration Agreement.

 

Under the Supplement Agreement, the Company and Livzon each granted the other party, in the other party’s territory, exclusive, royalty-bearing licenses under certain patent rights and know-how to develop, manufacture and commercialize BOW070. Livzon’s territory consists of China, Hong Kong, Macau and Taiwan, and the Company’s territory consists of the rest of the world. Livzon will be responsible for certain pre-clinical development activities, including analytical and process development, characterization work and formulation development, with the costs for such pre-clinical development activities to be borne by both parties, and each party will be responsible at its sole expense for clinical development, regulatory filings and approvals, and commercialization of BOW070 in each such party’s territory. Livzon will be a preferred supplier of BOW070 for clinical and commercialization purposes, subject to Livzon’s satisfaction of certain performance criteria. As part of such preferred supplier designation, the parties have agreed to certain minimum supply price and purchase commitments following commercial launch of BOW070.

 

The Company will pay a total of $4,500 to Livzon to complete the pre-clinical development activities, consisting of: (i) an initial cash payment of $1,500 within 10 days of entry into the Supplement Agreement, which amount was paid on October 10, 2015, and (ii) three additional cash payments of $1,000 each upon the achievement of certain pre-clinical development milestones. The Company is expensing costs under the Supplement Agreement, as incurred, over the period that the work is performed (currently estimated at 18 months).  The Company did not record any expense under the Supplement Agreement as of September 30, 2015. 

 

Each of the parties is eligible to receive from the other party royalty payments, based on gross margin of BOW070 in the other party’s territory, ranging from the low- to mid-single digit percentages.

 

As of September 30, Livzon owned approximately 7% of the Company’s issued and outstanding common stock.

11


 

 

5.Merger

 

As described in Note 1, “Organization,” on July 15, 2014 (the “Effective Time”), the Company completed the Merger with Zalicus. Pursuant to the Merger Agreement, each share of capital stock of Private Epirus was exchanged for 0.13259 shares of Public Epirus Common Stock (the “Exchange Ratio”). All Private Epirus stock options granted under the Private Epirus stock option plans (whether or not then exercisable) that were outstanding prior to the effective time of the Merger and all warrants to purchase Private Epirus capital stock that were outstanding prior to the effective time of the Merger were exchanged at the same ratio as described below. Upon the consummation of the Merger, equity holders of Private Epirus were issued an aggregate of 10,288,180 shares of Public Epirus Common Stock, plus 1,152,042 and 21,996 shares of Public Epirus Common Stock which could be issued in the future upon exercise of stock options and warrants, respectively.

 

After the Effective Time, all outstanding and unexercised Private Epirus stock options assumed by Zalicus were exercised solely for shares of Public Epirus Common Stock and all outstanding and unexercised warrants to purchase Private Epirus capital stock were exercised solely for shares of Public Epirus Common Stock. The number of shares of Public Epirus Common Stock subject to each Private Epirus stock option or warrant assumed by Zalicus was determined by multiplying (a) the number of shares of Private Epirus common stock that were subject to such Private Epirus stock option or warrant, as in effect immediately prior to the Effective Time, by (b) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Public Epirus Common Stock. The per share exercise price for the Public Epirus Common Stock issuable upon exercise of each Private Epirus stock option or warrant assumed by Zalicus was determined by dividing (a) the per share exercise price of Private Epirus common stock subject to such Private Epirus stock option or warrant, as in effect immediately prior to the Effective Time, by (b) the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent.

 

All Zalicus equity awards granted prior to the Merger remained outstanding.

 

The Merger was accounted for as a reverse acquisition under the acquisition method of accounting with Private Epirus treated as the accounting acquirer and Zalicus treated as the acquired company for financial reporting purposes. Private Epirus was determined to be the accounting acquirer based upon the terms of the Merger and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management. Accordingly, the Zalicus tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the excess consideration transferred recorded as goodwill.

 

See Note 12, “Stock-Based Compensation,” for additional details regarding the accounting treatment for the equity awards of Private Epirus and Zalicus.

 

The acquisition-date fair value of the consideration transferred is as follows:

 

 

 

 

 

 

Number of shares of Public Epirus Common Stock owned by Zalicus stockholders (1)

    

 

2,635,871

 

Multiplied by the price per share of Public Epirus Common Stock (2)

 

$

11.80

 

Fair value of shares of Public Epirus Common Stock owned by Zalicus stockholders

 

$

31,104

 

Acquisition-date fair value of assumed Zalicus equity awards attributable to precombination services (3)

 

$

220

 

Total consideration transferred

 

$

31,324

 

 


(1)

The stock transferred in the table above is comprised of 2,610,871 common shares outstanding at the time of the Merger plus 25,000 restricted stock units (RSUs) that vested immediately upon the closing of the Merger. The fair value of shares of Public Epirus Common Stock owned by Zalicus shareholders of $31,104 includes approximately $1 related to fractional shares resulting from the Reverse Stock Split.

 

(2)

The shares outstanding are multiplied by the closing trading price of Public Epirus Common Stock as of the Merger date.

12


 

 

(3)

Consideration transferred includes approximately $220 of Zalicus equity awards assumed and deemed attributable to precombination services to Zalicus. The fair value of the equity awards at July 15, 2014 was determined using a Black-Scholes option-pricing model with the following ranges of assumptions: exercise price of $14.70 per share to $591.00 per share; underlying stock value of $11.80 per share; expected volatility of 66.02%; expected term of 0.1 years to 6.0 years; and risk-free interest rate of 1.91%.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

 

 

 

 

 

    

July 15, 2014

 

Cash and cash equivalents

 

$

13,756

 

In-process research and development

 

 

5,500

 

Goodwill

 

 

14,127

 

Restricted cash

 

 

1,850

 

Other assets

 

 

253

 

Total assets acquired

 

 

35,486

 

Accounts payable

 

 

(1,584)

 

Accrued expenses

 

 

(381)

 

Other current liabilities

 

 

(376)

 

Other liabilities

 

 

(391)

 

Deferred tax liabilities

 

 

(1,430)

 

Total liabilities assumed

 

 

(4,162)

 

Total net assets acquired

 

$

31,324

 

 

The purchase price allocation was prepared on a preliminary basis and was subject to change as additional information became available concerning the tax basis of the assets acquired and the liabilities assumed. All adjustments to the purchase price were made within one year from July 15, 2014, the acquisition date.

 

For acquired working capital accounts such as accounts receivable, prepaid expenses and other current assets, accounts payable and certain accrued expenses, the Company determined that no fair value adjustments were required due to the short timeframe until settlement for these assets and liabilities.

 

The fair value of the IPR&D was determined using the multi-period excess earnings method, a variation of the income approach, including a discount rate of 13.1% applied to the projected cash flows. The Company believes the assumptions used were consistent and representative of those a market participant would use in estimating the fair value of the IPR&D. The Company will not begin amortizing the IPR&D asset until the research and development is complete and the asset is reclassified to a definite-lived amortizing asset.

 

Goodwill was calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill was recorded as an indefinite-lived asset and is not currently being amortized but is tested for impairment on an annual basis or when indications of impairment exist.

 

Other liabilities of $391 and $376 of other current liabilities related to a sublease liability assumed for Zalicus’ Cambridge, Massachusetts facility. The liability represented the fair value of the difference between the total sublease payments and the total payments for the facility per the lease agreement. The original lease and the sublease agreement terminate in January 2017.

 

The deferred tax liability represents the temporary difference associated with the $5,500 value of the IPR&D asset, which is not deductible for tax purposes. During the three months ended September 30, 2015, the Company completed its analysis of the tax basis of the IPR&D asset and reduced the preliminary deferred tax liability of $2,166 to $1,430 resulting in an adjustment to goodwill of $736

 

13


 

The operating results of Zalicus for the period from July 16, 2014 to December 31, 2014, including an operating loss of $25, were included in the Company’s consolidated financial statements as of and for the year ended December 31, 2014. During the three and nine months ended September 30, 2015, operating results for Zalicus were immaterial.

The Company incurred a total of $5,779 in transaction costs in connection with the Merger, excluding Zalicus transaction costs, which were included in general and administrative expense within the consolidated statement of operations for the year ended December 31, 2014.

 

6.Acquisition

On September 9, 2015, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) whereby it acquired 100% of the voting interests of Bioceros Holding B.V. (“Bioceros”), enabling the Company to expand its biosimilar pipeline and vertically integrate product development capabilities. 

Bioceros was a privately-held, Netherlands-based biopharmaceutical R&D company focused on the development of mAbs and generation of GMP-ready cell lines. From the Bioceros platform, the Company will expand its pipeline with the addition of three preclinical product candidates: BOW080, a proposed biosimilar to eculizumab (reference biologic Soliris®); BOW090, a proposed biosimilar to ustekinumab (reference biologic STELARA®); and BOW100, a proposed biosimilar to golimumab (reference biologic SIMPONI®).  Soliris, marketed by Alexion Pharmaceuticals, is currently indicated to treat ultra-rare blood disorders, including paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).  SIMPONI and STELARA are marketed by Janssen Pharmaceuticals and indicated in inflammatory and immune mediated disorders.

Epirus will pay a total of $14,668 in consideration, undiscounted, consisting of:  (i) an initial cash payment of $3,400 at closing, (ii) a second cash payment of $1,700, to be paid on the first anniversary of the closing date, (iii) an initial issuance of 788,960 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”), with a value of $4,568 and (iv) a second issuance of shares of Common Stock with a value of $5,000, calculated based on the Company’s stock price as set forth in the Stock Purchase Agreement, to be issued on the date that is six months after the closing date (“Second Installment Shares”), subject to the Company’s setoff rights with regard to the second cash payment and Second Installment Shares. Of the Second Installment Shares, shares with an undiscounted value of $1,015 are to be issued to Bioceros key employees and are subject to those employees’ continued employment.  In addition, the shareholders of Bioceros will receive a pro rata share of a net cash payout equal to the aggregate amount of: (a) Bioceros’ net working capital as the acquisition date; plus (b) cash received from Bioceros customers subsequent to the acquisition date and through December 31, 2015; in excess of (c) $1,200, calculated as set forth in the Stock Purchase Agreement.

Second Installment Shares

As described above, shares with an undiscounted value of $1,015 from the Second Installment Shares are to be issued to Bioceros key employees and are subject to those employees’ continued employment.  Pursuant to the Stock Purchase Agreement, 75% of the shares to be issued to Bioceros key employees on March 9, 2016 in connection with the Second Installment Shares will be held in an escrow account and released in three equal installments 12, 18 and 24 months after the closing date, unless the employee is terminated for cause or voluntarily resigns prior to each release date.  The other 25% will be paid when issued as of March 9, 2016, unless the employee is terminated for cause or voluntarily resigns prior to this date.  As a result, the consideration related to such $1,015 of shares was determined to be attributable to post-combination service to Epirus and will be recognized as stock-based compensation expense by the combined company as the shares vest.  The Company recognized $30 of stock-based compensation expense related to those shares in the condensed consolidated statement of operations and other comprehensive income for the nine months ended September 30, 2015. 

 

 

 

14


 

The acquisition-date fair value of the consideration transferred is as follows:

 

 

 

 

 

 

Initial equity consideration paid at closing

 

 

 

 

Initial shares issued to Bioceros shareholders

    

 

788,960

 

Price per Epirus share at issuance

 

$

5.79

 

 

 

$

4,568

 

Initial cash consideration paid at closing

 

 

3,400

 

Total consideration paid at closing

 

 

7,968

 

 

 

 

 

 

Settlement of preexisting Epirus accounts payable to Bioceros (1)

 

 

(87)

 

Second Installment Shares, excluding key employee stock compensation expense (2)

 

 

3,689

 

Net cash payout (3)

 

 

1,601

 

Final payment of cash consideration (4)

 

 

1,452

 

Preliminary estimated purchase price

 

$

14,623

 

 

 

(1)

Represents the settlement of preexisting accounts payable to Bioceros as a result of activity prior to the transaction.

 

 

(2)

Represents the fair value of the undiscounted $3,985 of Second Installment Shares to be paid and issued on March 9, 2016, which excludes the undiscounted $1,015 of shares to be issued to Bioceros key employees contingent upon the delivery of postcombination service to the Company, as described above.  This amount has been recorded as a liability on the Company’s condensed consolidated balance sheet, because it represents an obligation to issue a variable number of shares based on a fixed dollar amount of $3,985, and recorded at fair value utilizing a discount rate of 17%.

 

 

(3)

Represents the fair value of the net cash payout to be made pursuant to the Stock Purchase Agreement. This amount has been recorded as a contingent consideration liability on the Company’s condensed consolidated balance sheet and recorded at fair value utilizing a discount rate of 17%. The amount of the net cash payout is dependent on the amount of cash received by the Company from Bioceros customers through December 31, 2015. The Company estimates that this amount will be between $1,200 and $1,600

 

 

(4) 

Represents the fair value of the final cash payment of $1,700, which, pursuant to the Stock Purchase Agreement, the Company will pay on September 9, 2016. This amount has been recorded as a liability on the Company’s condensed consolidated balance sheet and recorded at fair value utilizing a discount rate of 17%. 

 

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

 

 

 

 

 

    

September 9, 2015

 

Cash and cash equivalents

 

$

833

 

Deferred tax assets

 

 

329

 

Prepaid expenses and other current assets

 

 

387

 

Property and equipment, net

 

 

447

 

Intangible assets, net

 

 

1,992

 

Goodwill

 

 

12,212

 

Accounts payable

 

 

(171)

 

Accrued expenses and other current liabilities

 

 

(472)

 

Deferred revenue

 

 

(436)

 

Deferred tax liabilities

 

 

(498)

 

    Net assets acquired

 

$

14,623

 

 

15


 

The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and the liabilities assumed. The purchase price allocation will remain preliminary until Epirus completes a final valuation of the assets acquired and liabilities assumed, including deferred tax assets and liabilities, deferred revenue and the identification and valuation of all intangible assets, as of the transaction closing date. The excess of consideration transferred over the estimated fair value of net identifiable assets acquired will be allocated to goodwill, which represents the expected synergies between the companies and acquired workforce. Goodwill is not expected to be deductible for tax purposes. The final determination of the allocation of consideration transferred is expected to be completed as soon as practicable, but will in no event exceed one year from September 9, 2015, the closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented above. 

For acquired working capital accounts such as accounts receivable, prepaid expenses and other current assets, including deferred tax assets, accounts payable and certain accrued expenses, Epirus determined that no preliminary fair value adjustments were required due to the short timeframe until settlement for these assets and liabilities. The Company acquired gross contractual accounts receivable of $248, which it determined represents fair value and expects to collect in full. 

Intangible asset, or acquired know how technology, currently represent the preliminary estimated fair value for the CHOBC® cell line platform and cell line technology platform which will be the platform for future research.  Based on the estimated time to commercialization and other factors, the intangible asset is being amortized over a 20 year expected useful life, which is the estimated period of time the Company expects to receive benefit from the platform  during its development processes. The estimated fair value of the intangible was determined based on a cost approach.  The present value of the investment costs was then determined utilizing an estimated risk-adjusted discount rate. The estimated fair value may be adjusted based upon the final valuation and any such adjustments could be significant. The final valuation is expected to be completed within one year from the acquisition closing date. If the platform becomes impaired or is abandoned, the carrying value of the related intangible asset will be written down to its fair value and an impairment charge will be recorded in the period in which the impairment occurs. The Company is currently evaluating whether certain additional intangible assets were acquired and will be assessing the value of these assets within one year from the acquisition date.

 

Goodwill represents the excess of the preliminary estimated purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed and recognizes results from the expected synergies from combining operations of the Bioceros technical team’s expertise and the Company’s existing pipeline and management expertise.  The Company believes that the addition of Bioceros staff and capabilities, combined with existing in-house expertise, provides the Company with a strong technical foundation to accelerate product development and optimize product quality. Goodwill will not be amortized, but will be evaluated for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value below its carrying amount. In the event that Epirus determines that the value of goodwill has become impaired, an impairment charge will be recorded in the period in which the determination is made.

 

Deferred revenue balances were preliminarily adjusted to amounts that represent the estimated costs to fulfill the underlying obligations plus a normal profit margin, consistent with what the Company determined to be a market participant’s estimate of such costs and profit margin.

The deferred tax liability relates to the temporary difference associated with the preliminary estimated value of the intangible asset and has been estimated using a 25% effective tax rate.

 

The operating results of Bioceros for the period from September 9, 2015 to September 30, 2015, include revenue of $131 and  an operating loss of $80 have been included in the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015.

 

The Company incurred a total of $502 in transaction costs in connection with the transaction, excluding Bioceros transaction costs, which were included in selling, general and administrative expense within the condensed consolidated statement of operations and other comprehensive income for the nine months ended September 30, 2015.

16


 

 

Proforma revenue and earnings are not disclosed as the Company has not yet been able to obtain the required information from the acquired company.  Fiscal year 2015 and fiscal year 2014 pro forma information will be presented in the Company’s 2015 Annual Report on Form 10-K.

 

7.Goodwill, IPR&D and Intangible Assets, Net

 

Goodwill

 

The Company’s goodwill balance as of September 30, 2015 was $27,838.  As of September 30, 2015, there were no accumulated impairment losses. Goodwill has been assigned to the Company’s single reporting unit, which is the single operating segment by which the chief operating decision maker manages the Company.

 

IPR&D

 

In connection with the Merger in 2014, the Company recognized IPR&D related to the Company’s product candidate Z944. The carrying value of the IPR&D related to Z944 as of December 31, 2014 was $5,500. See Note 5, “Merger,” for additional details.  This asset was sold on October 1, 2015 as part of a Share Purchase Agreement with Taro Pharmaceuticals Inc. and the Company has classified the IPR&D as held-for-sale as of September 30, 2015. See Note 17, “Subsequent Events,” for more details.  As a result, in September 2015, the Company performed an impairment analysis of this asset and recognized an impairment charge of $1,671 which was recorded within research and development expense and reduced the carrying value of the IPR&D asset to $3,829.  The Company determined the fair value of IPRD utilizing the income approach. 

 

Intangibles

 

In connection with the Acquisition in September 2015, the Company recognized an intangible asset related to Bioceros’ platform technology. The carrying value of the intangible asset related to the platform technology as of September 30, 2015 was $1,992. See Note 6, “Acquisition,” for additional details.

 

Intangible assets, net of accumulated amortization is as follows:

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

Intangible assets (excluding IPR&D)

 

$

5,679

 

$

3,687

 

Total intangible assets (excluding IPR&D)

 

 

5,679

 

 

3,687

 

Less: accumulated amortization—intangible assets

 

 

(257)

 

 

(82)

 

Intangible assets, net (exlcuding IPR&D)

 

$

5,422

 

$

3,605

 

 

Amortization expense, which is included within research and development expense in the consolidated statements of operations and comprehensive loss, was $62 and $175 for the three and nine months ended September 30, 2015, respectively, and $0 for the three and nine months ended September 30, 2014. The weighted average amortization period for intangible assets is 10 years.

 

17


 

The estimated aggregate amortization of intangible assets as of September 30, 2015, for each of the five succeeding years and thereafter is as follows:

 

 

 

 

 

 

 

    

September 30, 2015

 

 

 

 

 

 

October 1, 2015 - December 31, 2015

 

$

80

 

2016

 

 

325

 

2017

 

 

325

 

2018

 

 

325

 

2019

 

 

325

 

2020 and thereafter

 

 

4,042

 

Total

 

$

5,422

 

 

 

 

8.Accrued Expenses and Other Current Liabilities

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

 

    

 

 

    

 

Accrued clinical and development expenses

 

$

2,588

 

$

876

 

Accrued compensation

 

 

1,825

 

 

1,244

 

Accrued professional fees

 

 

1,741

 

 

1,822

 

Accrued interest expense

 

 

213

 

 

71

 

Other

 

 

55

 

 

88

 

Total accrued expenses

 

$

6,422

 

$

4,101

 

 

 

9.Debt

 

Hercules Notes

 

As of September 30, 2015, the Company had outstanding borrowings under the Loan and Security Agreement with Hercules Technology Growth Capital, Inc., dated as of September 30, 2014 and as amended from time to time (the “2014 Loan Agreement”) of $15,000. The first term loan, with a principal amount of $7,500 was drawn down on October 1, 2014. The second term loan, with a principal amount of $7,500 was drawn down on May 29, 2015. 

 

As of September 30, 2015, the Company has recorded a short term debt obligation of $2,263, net of a debt discount of $26 and a long-term debt obligation of $12,567, net of debt discount of $144. Amortization of the debt discount, which was recorded as interest expense in the statement of operations, was approximately $17 and $48 for the three and nine months ended September 30, 2015, respectively.  There was no related amortization expense within the 2014 periods.

 

Future principal payments, which exclude the 3% end of term charge that will be payable upon repayment of the notes in full, in connection with the 2014 Loan Agreement, as of September 30, 2015 are as follows:

 

 

 

 

 

 

 

    

Principal Payments

 

October 1, 2015 - December 31, 2015

 

$

 —

 

2016

 

 

3,702

 

2017

 

 

5,942

 

2018

 

 

5,356

 

Total

 

$

15,000

 

 

18


 

 

10.Capital Stock

 

On February 4, 2015 the Company closed on an underwritten public offering of 9,600,000 shares of its common stock, offered at a price of $5.00 per share. Net proceeds to the Company from this offering were approximately $43,570, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. On February 13, 2015, the Company closed on the sale of an additional 958,208 shares of its common stock at a price of $5.00 per share. Net proceeds to the Company from the exercise of this overallotment option were approximately $4,391, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to continue to use the net proceeds of $47,961 from the offering to progress its global BOW015 clinical program and to advance the development of its other product candidates, as well as for general corporate and working capital purposes.

 

On September 9, 2015 the Company issued 788,960 shares of its common stock to former holders of Bioceros preferred and common stock in connection with the acquisition of Bioceros (see Note 6).

 

 

 

11.Fair Value Measurements

 

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis in the accompanying balance sheets as of September 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2015

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,424

 

$

 —

 

 

 —

 

$

44,424

 

 

 

$

44,424

 

$

 —

 

$

 —

 

$

44,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,462

 

$

 

 

 

$

21,462

 

 

 

$

21,462

 

$

 —

 

$

 —

 

$

21,462

 

 

As of September 30, 2015, the Company did not have any liabilities measured at fair value on a recurring basis except for the contingent consideration obligation of $1,601 issued in connection with the acquisition of Bioceros (Note 6), which is measured using Level 3 inputs.

 

12.Stock-Based Compensation

 

On April 2, 2015, the board of directors of the Company adopted the 2015 Equity Incentive Plan (“2015 Plan”) and on June 4, 2015, the stockholders of the Company approved the 2015 Plan.  Pursuant to the 2015 Plan, 1,700,000 shares of common stock were initially authorized for issuance. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted and unrestricted stock and stock units, performance awards, cash-based awards and awards that are convertible into or otherwise based on the Company's common stock.

 

For the three and nine months ended September 30, 2015, the Company recognized stock-based compensation expense of approximately $898 and $2,267 respectively, in connection with its stock-based payment awards.  The Company recorded a reduction in stock-based compensation expense in the nine months ended September 30, 2015 of $100 resulting from the modification of an award for a former officer of the company.  For the three and nine months ended September 30, 2014, the Company recognized stock-based compensation expense of approximately $943 and $1,314, respectively, in connection with its stock-based payment awards.

19


 

 

Stock Options

 

A summary of stock option activity during the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Weighted-

    

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

 

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

 

Number

 

Exercise

 

Term

 

Intrinsic

 

 

    

of Options

    

Price

    

(in years)

    

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2014

 

 

1,652,882

 

$

10.03

 

 

 

 

 

 

Granted

 

 

1,208,012

 

 

9.47

 

 

 

 

 

 

Exercised

 

 

(101,994)

 

 

3.12

 

 

 

 

 

 

Cancelled

 

 

(151,736)

 

 

7.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2015

 

 

2,607,164

 

$

10.20

 

8.8

 

$

897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at: September 30, 2015

 

 

2,494,655

 

$

10.27

 

8.8

 

$

888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at: September 30, 2015

 

 

600,862

 

$

16.14

 

7.8

 

$

524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average grant-date fair value of options granted during the period

 

$

5.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received upon exercise of options

 

$

318

 

 

 

 

 

 

 

 

 

 

The aggregate intrinsic value in the table above represents the value (the difference between the Company’s common stock fair value on September 30, 2015 and the exercise price of the options, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2015. As of September 30, 2015, there was $10,080 of total unrecognized stock-based compensation expense related to stock options granted under the plans. The expense is expected to be recognized over a weighted-average period of 2.93 years.

 

During the three and nine months ended September 30, 2015 and 2014, the range of assumptions used in the Black-Scholes pricing model for new grants were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.96%

 

1.95% - 2.01%

 

1.51% - 1.96%

 

1.91% - 2.09%

 

Expected volatility

 

65.21%

 

65.84% - 65.94%

 

61.40% - 67.65%

 

64.07% - 66.07%

 

Expected term (in years)

 

6.00

 

6.00

 

5.3 - 6.00

 

6.00

 

Expected dividend yield

 

0.0%

 

0.0%

 

0.0%

 

0.0%

 

 

20


 

Restricted Stock Units

 

A summary of the activity of nonvested restricted stock units (“RSUs”) for the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Number

 

 

Weighted-

 

Remaining

 

 

 

 

 

 

of

 

 

Average

 

Contractual

 

 

Aggregate

 

 

 

Restricted

 

 

Grant Date

 

Term

 

 

Intrinsic

 

 

    

Stock Units

    

 

Fair Value

    

(in years)

    

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested at December 31, 2014

 

 

 

 

 

 

 

 

 

 

Granted

 

126,621

 

$

10.53

 

 

 

$

 —

 

Vested

 

 —

 

 

 —

 

 —

 

 

 —

 

Cancelled

 

(1,364)

 

 

10.53

 

 —

 

 

 —

 

Nonvested at September 30, 2015

 

125,257

 

$

10.53

 

3.2

 

$

554

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

116,531

 

$

10.53

 

3.2

 

 

515

 

Exercisable at:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

 —

 

 

 —

 

 —

 

 

 —

 

 

As of September 30, 2015, there was $1,093 of total unrecognized stock-based compensation expense related to nonvested RSUs. The expense is expected to be recognized over a weighted-average period of 3.2 years.

 

During February 2015, the Company issued 117,131 RSUs to certain employees, which vest with respect to one quarter (1/4) of the RSUs on the first anniversary of the grant date and an additional one quarter (1/4) on each anniversary thereafter until the fourth anniversary of the grant date. In addition, the Company issued 9,490 RSUs to certain employees as merit grants in lieu of annual raises. These RSUs vest in full on the first year anniversary of the grant date.

 

Restricted Stock Awards

 

In April 2014, the Company granted 53,056 shares of restricted common stock to a vendor for consulting services in connection with the Livzon Collaboration Agreement.  The restricted stock award is subject to certain performance-based vesting conditions under which 25% of the award vested on April 15, 2014, 50% vested on September 24, 2014 and the remaining 25% would vest following the successful achievement of certain performance milestones and the passage of time.  As of September 30, 2015, the award was fully vested.

 

As of September 30, 2015, the Company had outstanding 0 shares of nonvested restricted common stock. As of December 31, 2014, the Company had outstanding 13,259 shares of nonvested restricted common stock at a