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EX-31.2 - EX-31.2 - VIVUS INCvvus-20160331ex3120587d5.htm
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EX-32 - EX-32 - VIVUS INCvvus-20160331xex32.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 March 31, 2016

 

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 001-33389

 

VIVUS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

94-3136179

(State or other jurisdiction of

 

(IRS employer

incorporation or organization)

 

identification number)

 

 

 

 

 

351 East Evelyn Avenue

 

 

Mountain View, California

 

94041

(Address of principal executive office)

 

(Zip Code)

 

(650) 934-5200

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 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   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. (Check one):

 

 

 

 

Large accelerated filer 

 

Accelerated filer 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

(Do not check if a smaller reporting company)

 

 

 

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

 

       At April 29, 2016, 104,089,388 shares of common stock, par value $.001 per share, were outstanding.

 

 

 

 


 

VIVUS, INC.

 

Quarterly Report on Form 10-Q 

 

INDEX

 

 

 

 

 

PART I —  FINANCIAL INFORMATION

3

 

 

 

Item 1: 

Condensed Consolidated Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2016 and 2015

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2: 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3: 

Quantitative and Qualitative Disclosures about Market Risk

27

Item 4: 

Controls and Procedures

27

 

 

 

 

PART II  — OTHER INFORMATION

28

 

 

 

Item 1: 

Legal Proceedings

28

Item 1A: 

Risk Factors

29

Item 2: 

Unregistered Sales of Equity Securities and Use of Proceeds

63

Item 3: 

Defaults Upon Senior Securities

64

Item 4: 

Mine Safety Disclosures

64

Item 5: 

Other Information

64

Item 6: 

Exhibits

64

 

Signatures

65

 

 

2


 

PART I: FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

VIVUS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

ASSETS

    

 

Unaudited

    

 

Note 1

  

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,701

 

$

95,395

 

Available-for-sale securities

 

 

144,109

 

 

146,168

 

Accounts receivable, net

 

 

11,855

 

 

8,997

 

Inventories

 

 

11,424

 

 

13,602

 

Prepaid expenses and other current assets

 

 

5,335

 

 

9,430

 

Total current assets

 

 

256,424

 

 

273,592

 

Property and equipment, net

 

 

884

 

 

994

 

Non-current assets

 

 

2,426

 

 

2,616

 

Total assets

 

$

259,734

 

$

277,202

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

7,664

 

$

7,060

 

Accrued and other liabilities

 

 

10,300

 

 

15,891

 

Deferred revenue

 

 

18,223

 

 

22,142

 

Current portion of long-term debt

 

 

14,944

 

 

14,356

 

Total current liabilities

 

 

51,131

 

 

59,449

 

Long-term debt, net of current portion

 

 

218,782

 

 

217,034

 

Deferred revenue, net of current portion

 

 

7,682

 

 

6,508

 

Non-current accrued and other liabilities

 

 

1,243

 

 

1,296

 

Total liabilities

 

 

278,838

 

 

284,287

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Preferred stock; $1.00 par value; 5,000 shares authorized; no shares issued and outstanding at March 31, 2016 and December 31, 2015

 

 

 —

 

 

 —

 

Common stock; $.001 par value; 200,000 shares authorized; 104,076 and 104,055 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively

 

 

104

 

 

104

 

Additional paid-in capital

 

 

829,680

 

 

829,428

 

Accumulated other comprehensive income (loss)

 

 

176

 

 

(261)

 

Accumulated deficit

 

 

(849,064)

 

 

(836,356)

 

Total stockholders’ deficit

 

 

(19,104)

 

 

(7,085)

 

Total liabilities and stockholders’ deficit

 

$

259,734

 

$

277,202

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

VIVUS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

     

2016

    

2015

 

Revenue:

 

 

    

    

 

    

    

Net product revenue

 

$

12,412

 

$

12,628

 

License and milestone revenue

 

 

 —

 

 

11,574

 

Supply revenue

 

 

1,526

 

 

8,478

 

Royalty revenue

 

 

1,386

 

 

(514)

 

Total revenue

 

 

15,324

 

 

32,166

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Cost of goods sold

 

 

3,704

 

 

9,896

 

Selling, general and administrative

 

 

15,122

 

 

26,400

 

Research and development

 

 

1,029

 

 

2,694

 

Total operating expenses

 

 

19,855

 

 

38,990

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,531)

 

 

(6,824)

 

 

 

 

 

 

 

 

 

Interest expense and other expense, net

 

 

8,161

 

 

8,636

 

Loss before income taxes

 

 

(12,692)

 

 

(15,460)

 

Provision for income taxes

 

 

16

 

 

6

 

Net loss

 

$

(12,708)

 

$

(15,466)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.12)

 

$

(0.15)

 

Shares used in per share computation:

 

 

 

 

 

 

 

Basic and diluted

 

 

104,071

 

 

103,797

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

Net loss

    

$

(12,708)

    

$

(15,466)

 

Unrealized gain on securities, net of taxes

 

 

437

 

 

66

 

Comprehensive loss

 

$

(12,271)

 

$

(15,400)

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

Cash flows from operating activities:

    

 

    

    

 

    

 

Net loss

 

$

(12,708)

 

$

(15,466)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

291

 

 

385

 

Amortization of debt issuance costs and discounts

 

 

4,535

 

 

4,180

 

Amortization of discount or premium on available-for-sale securities

 

 

253

 

 

838

 

Share-based compensation expense

 

 

252

 

 

1,550

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,858)

 

 

(117)

 

Inventories

 

 

2,178

 

 

(1,483)

 

Prepaid expenses and other assets

 

 

4,104

 

 

848

 

Accounts payable

 

 

604

 

 

(1,073)

 

Accrued and other liabilities

 

 

(5,644)

 

 

(31)

 

Deferred revenue

 

 

(2,745)

 

 

(1,053)

 

Net cash used for operating activities

 

 

(11,738)

 

 

(11,422)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Property and equipment purchases

 

 

 —

 

 

(47)

 

Purchases of available-for-sale securities

 

 

(30,423)

 

 

(47,488)

 

Proceeds from maturity of available-for-sale securities

 

 

29,000

 

 

74,750

 

Proceeds from sales of available-for-sale securities

 

 

3,666

 

 

 

 

Net cash provided by investing activities

 

 

2,243

 

 

27,215

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of notes payable

 

 

(2,199)

 

 

(79)

 

Net cash used for financing activities

 

 

(2,199)

 

 

(79)

 

Net increase (decrease) in cash and cash equivalents

 

 

(11,694)

 

 

15,714

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning of year

 

 

95,395

 

 

83,174

 

End of period

 

$

83,701

 

$

98,888

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

VIVUS, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2016

 

1. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Management has evaluated all events and transactions that occurred after March 31, 2016, through the date these unaudited condensed consolidated financial statements were filed. There were no events or transactions during this period that require recognition or disclosure in these unaudited condensed consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed on March 9, 2016 with the Securities and Exchange Commission, or SEC, and as amended by the Form 10-K/A filed on April 22, 2016 with the SEC. The unaudited condensed consolidated financial statements include the accounts of VIVUS, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

 

When reference is made to the “Company” or “VIVUS” in these footnotes, it refers to the Delaware corporation, or VIVUS, Inc., and its California predecessor, as well as all of its consolidated subsidiaries.

 

Implementation of ASU 2015-03

 

In April 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this standard as required beginning in the first quarter of 2016 and retrospectively applied this standard to the balance sheet as of December 31, 2015. The amounts impacted by the adoption of this standard are as follows:

 

 

 

 

 

As Reported December 31, 2015

Adjustment to reflect ASU 2015-03

As Adjusted December 31, 2015

Prepaid expenses and other assets

$
10,624 
$
(1,194)
$
9,430 

Total current assets

$
274,786 
$
(1,194)
$
273,592 

Non-current assets

$
4,801 
$
(2,185)
$
2,616 

Total assets

$
280,581 
$
(3,379)
$
277,202 

 

 

 

 

Long-term debt, current portion

$
15,550 
$
(1,194)
$
14,356 

Total current liabilities

$
60,643 
$
(1,194)
$
59,449 

Long-term debt, net of current portion

$
219,219 
$
(2,185)
$
217,034 

Total liabilities

$
287,666 
$
(3,379)
$
284,287 

Total liabilities and stockholders’ equity

$
280,581 
$
(3,379)
$
277,202 

6


 

 

Use of Estimates

 

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including critical accounting policies or estimates related to available-for-sale securities, debt instruments, research and development expenses, income taxes, inventories, revenues, contingencies and litigation and share-based compensation. The Company bases its estimates on historical experience, information received from third parties and on various market specific and other relevant assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions or conditions.

 

Significant Accounting Policies

 

There have been no changes to the Company’s significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), which modifies the accounting by lessees for all leases with a term greater than 12 months. The standard will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. For public companies, the standard is effective for annual and interim periods beginning on or after December 15, 2018 and must be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In March 2016, the FASB issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting, which is designed to simplify several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. For public companies, the standard is effective for annual and interim periods beginning on or after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

 

2. SHARE-BASED COMPENSATION

 

Total share-based compensation expense for all of the Company’s share-based awards was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

   

2016

   

2015

 

Cost of goods sold

 

$

32

 

$

29

 

Selling, general and administrative

 

 

253

 

 

275

 

Research and development

 

 

(33)

 

 

1,246

 

Total share-based compensation expense

 

$

252

 

$

1,550

 

 

There was $ 3,000 and $11,000 of share-based compensation cost capitalized as part of the cost of inventory for the three months ended March 31, 2016 and 2015, respectively.

 

7


 

3. CASH, CASH EQUIVALENTS, AND AVAILABLE-FOR-SALE SECURITIES

 

The fair value and the amortized cost of cash, cash equivalents, and available-for-sale securities by major security type at March 31, 2016 and December 31, 2015, are presented in the tables that follow (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of March 31, 2016

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

Cash and cash equivalents and available-for-sale securities

     

Cost

     

Gains

     

Losses

     

Fair Value

 

Cash and money market funds

 

$

83,701

 

$

 —

 

$

 —

 

$

83,701

 

U.S. Treasury securities

 

 

60,819

 

 

13

 

 

(4)

 

 

60,828

 

Corporate debt securities

 

 

83,115

 

 

187

 

 

(21)

 

 

83,281

 

Total

 

 

227,635

 

 

200

 

 

(25)

 

 

227,810

 

Less amounts classified as cash and cash equivalents

 

 

(83,701)

 

 

 —

 

 

 —

 

 

(83,701)

 

Total available-for-sale securities

 

$

143,934

 

$

200

 

$

(25)

 

$

144,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of December 31, 2015

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

Cash and cash equivalents and available-for-sale securities

     

Cost

     

Gains

     

Losses

     

Fair Value

 

Cash and money market funds

 

$

95,395

 

$

 —

 

$

 —

 

$

95,395

 

U.S. Treasury securities

 

 

84,734

 

 

 —

 

 

(107)

 

 

84,627

 

Corporate debt securities

 

 

61,696

 

 

20

 

 

(175)

 

 

61,541

 

Total

 

 

241,825

 

 

20

 

 

(282)

 

 

241,563

 

Less amounts classified as cash and cash equivalents

 

 

(95,395)

 

 

 —

 

 

 —

 

 

(95,395)

 

Total available-for-sale securities

 

$

146,430

 

$

20

 

$

(282)

 

$

146,168

 

 

As of March 31, 2016, the Company’s available-for-sale securities had original contractual maturities up to 46 months. However, the Company may or may not hold securities with stated maturities greater than 12 months until maturity. In response to changes in the availability of and the yield on alternative investments as well as liquidity requirements, the Company may sell these securities prior to their stated maturities. As these securities are viewed by the Company as available to support current operations, securities with maturities beyond 12 months are classified as current assets. Due to their short-term maturities, the Company believes that the fair value of its bank deposits, accounts payable and accrued expenses approximate their carrying value.

 

Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value. The three levels are:

 

·

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

·

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

8


 

The following table represents the fair value hierarchy for our cash equivalents and available-for-sale securities by major security type as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of March 31, 2016

 

     

Level 1

     

Level 2

     

Level 3

     

Total

Cash and money market funds

 

$

83,701

 

$

 —

 

$

 —

 

$

83,701

U.S. Treasury securities

 

 

60,828

 

 

 —

 

 

 —

 

 

60,828

Corporate debt securities

 

 

 —

 

 

83,281

 

 

 —

 

 

83,281

Total

 

$

144,529

 

$

83,281

 

$

 —

 

$

227,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of December 31, 2015

 

     

Level 1

     

Level 2

     

Level 3

     

Total

Cash and money market funds

 

$

95,395

 

$

 —

 

$

 —

 

$

95,395

U.S. Treasury securities

 

 

84,627

 

 

 —

 

 

 —

 

 

84,627

Corporate debt securities

 

 

 —

 

 

61,541

 

 

 —

 

 

61,541

Total

 

$

180,022

 

$

61,541

 

$

 —

 

$

241,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. ACCOUNTS RECEIVABLE

 

Accounts receivable consist of (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Balance as of

 

 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

Qsymia

    

$

8,322

    

$

8,508

 

STENDRA/SPEDRA

 

 

3,691

 

 

652

 

 

 

 

12,013

 

 

9,160

 

Qsymia allowance for cash discounts

 

 

(158)

 

 

(163)

 

Net

 

$

11,855

 

$

8,997

 

 

 

 

5. INVENTORIES

 

Inventories consist of (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Balance as of

 

 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

Raw materials

    

$

8,528

    

$

8,645

 

Work-in-process

 

 

94

 

 

247

 

Finished goods

 

 

2,429

 

 

4,282

 

Deferred costs

 

 

373

 

 

428

 

Inventories

 

$

11,424

 

$

13,602

 

 

Raw materials inventories consist primarily of the active pharmaceutical ingredients, or API, for Qsymia and STENDRA/SPEDRA. Deferred costs inventories consist primarily of Qsymia and represents Qsymia product shipped to the Company’s wholesalers and certified retail pharmacies, but not yet dispensed to patients through prescriptions, net of prompt payment discounts, and for which recognition of revenue has been deferred.

 

Inventories are stated at the lower of cost or market. Cost is determined using the first in, first out method for all inventories, which are valued using a weighted average cost method calculated for each production batch. The

9


 

Company periodically evaluates the carrying value of inventory on hand for potential excess amount over demand using the same lower of cost or market approach as that used to value the inventory.

 

6. PREPAID EXPENSES AND OTHER ASSETS

 

Prepaid expenses and other assets consist of (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Balance as of

 

 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

Prepaid sales and marketing expenses

    

$

2,490

    

$

3,434

    

Prepaid insurance

 

 

803

 

 

1,124

 

Other prepaid expenses and assets

 

 

2,042

 

 

4,872

 

Total

 

$

5,335

 

$

9,430

 

 

 

The amounts included in prepaid expenses and other assets consist primarily of prepayments for future services, a receivable from a supplier, prepaid interest and interest income receivable. These costs have been deferred as prepaid expenses and other current assets on the consolidated balance sheets and will be either (i) charged to expense accordingly when the related prepaid services are rendered to the Company, or (ii) converted to cash when the receivable is collected by the Company.

 

7. NON-CURRENT ASSETS

 

Non-current assets of $2.4 million and $2.6 million as of March 31, 2016 and December 31, 2015, respectively, consist primarily of patent acquisition and assignment costs.

 

8. ACCRUED AND OTHER LIABILITIES

 

Accrued and other liabilities consist of (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Balance as of

 

 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

Accrued employee compensation and benefits

    

$

1,454

    

$

3,621

 

Accrued non-recurring charges (see Note 10)

 

 

388

 

 

503

 

Accrued interest on debt (see Note 13)

 

 

1,748

 

 

1,293

 

Accrued manufacturing costs

 

 

347

 

 

5,408

 

Other accrued liabilities

 

 

6,363

 

 

5,066

 

Total

 

$

10,300

 

$

15,891

 

 

 

The amounts included in other accrued liabilities consist of obligations primarily related to sales, marketing, research, clinical development, corporate activities and royalties, including a payable to Endo International, plc, or Endo, related to a royalty revenue adjustment in 2015.

 

9. NON-CURRENT ACCRUED AND OTHER LIABILITIES

 

Non-current accrued and other liabilities at March 31, 2016 and December 31, 2015 were $1.2 and $1.3 million, respectively, and primarily consisted of costs associated with the exit of certain operating leases and security deposits relating to the sublease agreements.

 

10


 

10. INVENTORY IMPAIRMENT AND OTHER NON-RECURRING CHARGES

 

The following table sets forth activities for the Company’s cost reduction plan obligations during the three months ended March 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Facilities-

    

 

 

 

 

Severance

 

related

 

 

 

 

 

obligations

 

obligations

 

Total

 

Balance of accrued costs at December 31, 2015

 

$

410

 

$

471

 

$

881

 

Charges

 

 

 —

 

 

 —

 

 

 —

 

Payments

 

 

(116)

 

 

(26)

 

 

(142)

 

Balance of accrued costs at March 31, 2016

 

$

294

 

$

445

 

$

739

 

 

Of the total accrued employee severance and facilities-related costs in the Company’s unaudited condensed consolidated balance sheet at March 31, 2016, $0.3 million is included under current liabilities in “Accrued and other liabilities” and $0.4 million is included in “Non-current accrued and other liabilities.”

 

The balance of the accrued employee severance and facilities-related costs at March 31, 2016 is anticipated to be paid out as follows (in thousands):

 

 

 

 

 

 

2016 (remaining nine months)

 

$

362

 

2017

 

 

350

 

2018

 

 

11

 

2019

 

 

16

 

 

 

$

739

 

 

 

 

11. DEFERRED REVENUE

 

Deferred revenue consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

Balance as of

 

 

March 31, 

 

December 31, 

 

 

2016

 

2015

Qsymia deferred revenue - current

    

$

16,820 

    

$

19,275 

SPEDRA deferred revenue - current

 

 

1,403 

 

 

2,867 

Total deferred revenue - current

 

$

18,223 

 

$

22,142 

 

 

 

 

 

 

 

SPEDRA deferred revenue - non-current

 

$

7,682 

 

$

6,508 

 

Qsymia deferred revenue consists of product shipped to the Company’s wholesalers, certified retail pharmacies and certified home delivery pharmacy services networks, but not yet dispensed to patients through prescriptions, net of prompt payment discounts. SPEDRA deferred revenue relates to a prepayment for future royalties on sales of SPEDRA.

 

12. LICENSE, COMMERCIALIZATION AND SUPPLY AGREEMENTS

 

During 2013, the Company entered into separate license and commercialization agreements and separate commercial supply agreements with each of the Menarini Group, through its subsidiary Berlin Chemie AG, or Menarini, Auxilium Pharmaceuticals, Inc, or Auxilium, and Sanofi and its affiliate, or Sanofi, to commercialize and promote STENDRA or SPEDRA in their respective territories. Menarini’s territory is comprised of over 40 European countries, including the European Union, or EU, plus Australia and New Zealand. Auxilium’s territory is comprised of the United States and Canada and their respective territories. In January 2015, Auxilium was acquired by Endo. In December 2015, Auxilium notified the Company of its intention to return the U.S. and Canadian commercial rights for STENDRA to the Company. Auxilium has provided its contractually required six-month notice of termination which, absent an agreement between Auxilium and the Company for an earlier termination

11


 

date, will result in the termination of the license agreement and supply agreement on June 30, 2016. Sanofi’s territory is comprised of Africa, the Middle East, Turkey and Eurasia.

 

13. LONG-TERM DEBT AND COMMITTMENTS

 

Convertible Senior Notes Due 2020

 

In May 2013, the Company closed an offering of $220.0 million in 4.5% Convertible Senior Notes due May 2020, or the Convertible Notes. The Convertible Notes are governed by an indenture, dated May 2013 between the Company and Deutsche Bank National Trust Company, as trustee. In May 2013, the Company closed on an additional $30.0 million of Convertible Notes upon exercise of an option by the initial purchasers of the Convertible Notes at a conversion rate of approximately $14.86 per share. Total net proceeds from the Convertible Notes were approximately $241.8 million. The Convertible Notes are convertible at the option of the holders under certain conditions at any time prior to the close of business on the business day immediately preceding November 1, 2019. On or after November 1, 2019, holders may convert all or any portion of their Convertible Notes at any time at their option at the conversion rate then in effect, regardless of these conditions. Subject to certain limitations, the Company will settle conversions of the Convertible Notes by paying or delivering, as the case may be, cash, shares of its common stock or a combination of cash and shares of our common stock, at the Company’s election. Interest payments are made quarterly.

 

For the three months ended March 31, 2016, total interest expense related to the Convertible Notes was $7.2 million, including amortization of $4.2 million of the debt discount and amortization of $225,000 of deferred financing costs. For the three months ended March 31, 2015, total interest expense related to the Convertible Notes was $6.6 million, including amortization of $3.9 million of the debt discount and amortization of $205,000 of deferred financing costs.

 

Senior Secured Notes Due 2018

 

In March 2013, the Company entered into the Purchase and Sale Agreement between the Company and BioPharma Secured Investments III Holdings Cayman LP, or Biopharma, a Cayman Islands exempted limited partnership, providing for the purchase of a debt like instrument, or the Senior Secured Notes. Under the agreement, the Company received $50 million, less $500,000 in funding and facility payments, at the initial closing in April 2013. The scheduled quarterly payments on the Senior Secured Notes are subject to the net sales of (i) Qsymia and (ii) any other obesity agent developed or marketed by us or our affiliates or licensees. The scheduled quarterly payments, other than the payment(s) scheduled to be made in the second quarter of 2018, are capped at the lower of the scheduled payment amounts or 25% of the net sales of (i) and (ii) above. Accordingly, if 25% of the net sales is less than the scheduled quarterly payment, then 25% of the net sales is due for that quarter, with the exception of the payment(s) scheduled to be made in the second quarter of 2018, when any unpaid scheduled quarterly payments plus any accrued and unpaid make whole premiums must be paid. Any quarterly payment less than the scheduled quarterly payment amount will be subject to a make whole premium equal to the applicable scheduled quarterly payment of the preceding quarter less the actual payment made to BioPharma for the preceding quarter multiplied by 1.03. The Company may elect to pay full scheduled quarterly payments if it chooses.

 

For the three months ended March 31, 2016, the interest expense related to the Senior Secured Notes was $1.2 million, including amortization of deferred financing costs amounting to $76,000. For the three months ended March 31, 2015, the interest expense related to the Senior Secured Notes was $1.7 million, including amortization of deferred financing costs amounting to $109,000.

 

12


 

Debt is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

    

 

 

2016

 

 

    

 

 

 

Convertible Senior Notes due 2020

 

$

250,000

 

Senior Secured Notes due 2018

 

 

38,803

 

 

 

 

288,803

 

Less: Debt issuance costs

 

 

(3,079)

 

Less: Discount on convertible senior notes

 

 

(51,998)

 

 

 

 

233,726

 

Less: Current portion

 

 

(14,944)

 

Long-term debt, net of current portion

 

$

218,782

 

 

 

 

 

 

    Future estimated payments on debt as of March 31, 2016 are as follows:

 

 

 

 

 

 

 

 

 

2016 (remaining nine months)

 

26,250

 

2017

 

 

31,250

 

2018

 

 

21,611

 

Total

 

 

79,111

 

Less: Interest portion

 

 

(40,308)

 

Senior Secured Notes

 

$

38,803

 

 

As a condition of the FDA granting approval to commercialize Qsymia in the U.S., the Company agreed to complete certain post-marketing requirements. One requirement was to perform a cardiovascular outcomes trial, or CVOT, on Qsymia. The cost of a CVOT is estimated to be between $180 million and $220 million incurred over a period of approximately five years. The Company is working with the FDA to determine a pathway to provide the FDA with information to support the safety of Qsymia in a more cost effective manner. To date, the Company has not incurred expenses related to the CVOT.

 

 

 

 

14. NET INCOME (LOSS) PER SHARE

 

The Company computes basic net income (loss) per share applicable to common stockholders based on the weighted average number of common shares outstanding during the applicable period. Diluted net income per share is based on the weighted average number of common and common equivalent shares, which represent shares that may be issued in the future upon the exercise of outstanding stock options or upon a net share settlement of the Company’s Convertible Notes. Common share equivalents are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the price exceeds the average market price over the period have an anti-dilutive effect on net income per share and, accordingly, are excluded from the calculation. The triggering conversion conditions that allow holders of the Convertible Notes to convert have not been met. If such conditions are met and the note holders opt to convert, the Company may choose to pay in cash, common stock, or a combination thereof; however, if this occurs, the Company has the intent and ability to net share settle this debt security; thus the Company uses the treasury stock method for earnings per share purposes. Due to the effect of the capped call instrument purchased in relation to the Convertible Notes, there would be no net shares issued until the market value of the Company’s stock exceeds $20 per share, and thus no impact on diluted net income per share. Further, when there is a net loss, potentially dilutive common equivalent shares are not included in the calculation of net loss per share since their inclusion would be anti-dilutive.

 

As the Company recognized a net loss for each of the three month periods ended March 31, 2016 and 2015, all potential common equivalent shares were excluded for these periods as they were anti-dilutive. For the three months ended March 31, 2016 and 2015, awards and options outstanding of 10,354,000 and 7,587,000, respectively, were not included in the computation of diluted net loss per share for the Company because the effect would be anti-dilutive.

13


 

 

15. INCOME TAXES

 

For the three months ended March 31, 2016 and 2015, the Company recorded a provision for taxes of $16,000 and $6,000, respectively. The provision for income taxes for both the three months ended March 31, 2016 and 2015 was primarily comprised of state taxes during the period.

 

The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on the Company's ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company weighed both positive and negative evidence and determined that there is a continued need for a full valuation allowance on its deferred tax assets in the United States as of March 31, 2016. Should the Company determine that it would be able to realize its remaining deferred tax assets in the foreseeable future, an adjustment to its remaining deferred tax assets would cause a material increase to income in the period such determination is made.

 

As of March 31, 2016, the Company’s only unrecognized tax benefit of $47,000 is related to California research and development activities.  We do not expect to have any other significant changes to unrecognized tax benefits through the end of the fiscal year. Because of our history of tax losses, certain tax years remain open to tax audit. The Company’s policy is to recognize interest and penalties related to uncertain tax positions (if any) as a component of the income tax provision.

 

16. LEGAL MATTERS

 

Shareholder Lawsuit

On March 27, 2014, Mary Jane and Thomas Jasin, who purport to be purchasers of VIVUS common stock, filed an Amended Complaint in Santa Clara County Superior Court alleging securities fraud against the Company and three of its former officers and directors.  In that complaint, captioned Jasin v. VIVUS, Inc., Case No.  114-cv-261427, plaintiffs asserted claims under California’s securities and consumer protection securities statutes.    Plaintiffs alleged generally that defendants misrepresented the prospects for the Company’s success, including with respect to the launch of Qsymia, while purportedly selling VIVUS stock for personal profit. Plaintiffs alleged losses of “at least” $2.8 million, and sought damages and other relief.  On June 5, 2014, the Company and the other defendants filed a demurrer to the Amended Complaint seeking its dismissal.  With the demurrer pending, on July 18, 2014, the same plaintiffs filed a complaint in the United States District Court for the Northern District of California, captioned Jasin v. VIVUS, Inc., Case No. 5:14-cv-03263.  The Jasins’ federal complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, based on facts substantially similar to those alleged in their state court action.  On September 15, 2014, pursuant to an agreement between the parties, plaintiffs moved to voluntarily dismiss, with prejudice, the state court action.  In the federal action, defendants filed a motion to dismiss on November 12, 2014. On December 3, 2014, plaintiffs filed a First Amended Complaint in the federal action. On January 21, 2015, defendants filed a motion to dismiss the First Amended Complaint. The court ruled on that motion on June 18, 2015, dismissing the seven California claims with prejudice and dismissing the two federal claims with leave to amend. Plaintiffs filed a Second Amended Complaint on August 17, 2015. Defendants moved to dismiss that complaint on October 2, 2015. On September 10, 2015, plaintiffs moved for entry of judgment on their state claims. Briefing on both defendants’ motion to dismiss and plaintiffs’ motion for entry of judgment was completed on December 15, 2015. On April 19, 2016, the court issued a ruling granting defendants’ motion to dismiss without leave to amend and denying as moot plaintiffs’ motion for entry of judgment.  The time for plaintiffs to file an appeal has not yet expired. The Company maintains directors’ and officers’ liability insurance that it believes affords coverage for much of the anticipated cost of the remaining Jasin action, subject to the use of the Company’s financial resources to pay for its self-insured retention and the policies’ terms and conditions.

The Company and the defendant former officers and directors cannot predict the outcome of the lawsuit, but they believe the lawsuit is without merit and intend to continue vigorously defending against the claims.

14


 

Qsymia ANDA Litigation

On May 7, 2014, the Company received a Paragraph IV certification notice from Actavis Laboratories FL indicating that it filed an abbreviated new drug application, or ANDA, with the U.S. Food and Drug Administration, or FDA, requesting approval to market a generic version of Qsymia and contending that the patents listed for Qsymia in the FDA Orange Book at the time the notice was received (U.S. Patents 7,056,890, 7,553,818, 7,659,256, 7,674,776, 8,580,298, and 8,580,299 (collectively “patents-in-suit”)) are invalid, unenforceable and/or will not be infringed by the manufacture, use, sale or offer for sale of a generic form of Qsymia as described in their ANDA. On June 12, 2014, the Company filed a lawsuit in the U.S. District Court for the District of New Jersey against Actavis Laboratories FL, Inc., Actavis, Inc., and Actavis PLC, collectively referred to as Actavis. The lawsuit (Case No. 14-3786 (SRC)(CLW)) was filed on the basis that Actavis’ submission of their ANDA to obtain approval to manufacture, use, sell or offer for sale generic versions of Qsymia prior to the expiration of the patents-in-suit constitutes infringement of one or more claims of those patents.

In accordance with the Hatch-Waxman Act, as a result of having filed a timely lawsuit against Actavis, FDA approval of Actavis’ ANDA will be stayed until the earlier of (i) up to 30 months from the Company’s May 7, 2014 receipt of Actavis’ Paragraph IV certification notice (i.e. November 7, 2016) or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. 

On January 21, 2015, the Company received a second Paragraph IV certification notice from Actavis contending that two additional patents listed in the Orange Book for Qsymia (U.S. Patents 8,895,057 and 8,895,058) are invalid, unenforceable and/or will not be infringed by the manufacture, use, sale, or offer for sale of a generic form of Qsymia. On March 4, 2015, the Company filed a second lawsuit in the U.S. District Court for the District of New Jersey against Actavis (Case No. 15-1636 (SRC)(CLW)) in response to the second Paragraph IV certification notice on the basis that Actavis’ submission of their ANDA constitutes infringement of one or more claims of the patents-in-suit.

On July 7, 2015, the Company received a third Paragraph IV certification notice from Actavis contending that two additional patents listed in the Orange Book for Qsymia  (U.S. Patents 9,011,905 and 9,011,906) are invalid, unenforceable and/or will not be infringed by the manufacture, use, sale, or offer for sale of a generic form of Qsymia.  On August 17, 2015, the Company filed a third lawsuit in the U.S. District Court for the District of New Jersey against Actavis (Case No. 15-6256 (SRC)(CLW)) in response to the third Paragraph IV certification notice on the basis that Actavis’ submission of their ANDA constitutes infringement of one or more claims of the patents-in-suit.  The three lawsuits against Actavis have been consolidated into a single suit (Case No. 14-3786 (SRC)(CLW)).

On March 5, 2015, the Company received a Paragraph IV certification notice from Teva Pharmaceuticals USA, Inc. indicating that it filed an ANDA with the FDA, requesting approval to market a generic version of Qsymia and contending that eight patents listed for Qsymia in the Orange Book at the time of the notice (U.S. Patents 7,056,890, 7,553,818, 7,659,256, 7,674,776, 8,580,298, 8,580,299, 8,895,057 and 8,895,058) (collectively “patents-in-suit”) are invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of a generic form of Qsymia as described in their ANDA. On April 15, 2015, the Company filed a lawsuit in the U.S. District Court for the District of New Jersey against Teva Pharmaceutical USA, Inc. and Teva Pharmaceutical Industries, Ltd., collectively referred to as Teva. The lawsuit (Case No. 15-2693 (SRC)(CLW)) was filed on the basis that Teva’s submission of their ANDA to obtain approval to manufacture, use, sell, or offer for sale generic versions of Qsymia prior to the expiration of the patents-in-suit constitutes infringement of one or more claims of those patents.

In accordance with the Hatch-Waxman Act, as a result of having filed a timely lawsuit against Teva, FDA approval of Teva’s ANDA will be stayed until the earlier of (i) up to 30 months from our March 5, 2015 receipt of Teva’s Paragraph IV certification notice (i.e. September 5, 2017) or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed.

On August 5, 2015, the Company received a second Paragraph IV certification notice from Teva contending that two additional patents listed in the Orange Book for Qsymia (U.S. Patents 9,011,905 and 9,011,906) are invalid, unenforceable and/or will not be infringed by the manufacture, use, sale, or offer for sale of a generic form of Qsymia. On September 18, 2015, the Company filed a second lawsuit in the U.S. District Court for the District of New Jersey against Teva (Case No. 15-6957(SRC)(CLW)) in response to the second Paragraph IV

15


 

certification notice on the basis that Teva’s submission of their ANDA constitutes infringement of one or more claims of the patents-in-suit.  The two lawsuits against Teva have been consolidated into a single suit (Case No. 15-2693 (SRC)(CLW)).

The Company intends to vigorously enforce its intellectual property rights relating to Qsymia, but the Company cannot predict the outcome of these matters.

The Company is not aware of any other asserted or unasserted claims against it where it believes that an unfavorable resolution would have an adverse material impact on the operations or financial position of the Company.

 

17. SEGMENT INFORMATION

 

The Company operates in one reportable segment—the development and commercialization of novel therapeutic products. The Company has identified its Chief Executive Officer as the Chief Operating Decision Maker, or CODM, who manages the Company’s operations on a consolidated basis for purposes of allocating resources. When evaluating financial performance, the CODM reviews individual customer and product information, while other financial information is reviewed on a consolidated basis. Therefore, results of operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Disclosures about revenues by product and by geographic area are presented below.

 

Geographic Information

 

Outside the United States, or ROW, the Company sells products through a commercialization licensee principally in the EU. The geographic classification of product sales was based on the location of the customer. The geographic classification of supply, license and milestone revenue was based on the domicile of the entity from which the revenue was earned.

 

Net product revenue by geographic region for the three months ended March 31, 2016 and 2015 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2016

 

2015

 

 

 

U.S.

 

     ROW     

 

Total

 

U.S.

 

     ROW     

 

Total

 

Qsymia—Net product revenue

    

$

12,412

    

$

 —

    

$

12,412

    

$

12,628

    

$

 —

    

$

12,628

 

STENDRA/SPEDRA—License and milestone revenue

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

11,574

 

 

11,574

 

STENDRA/SPEDRA—Supply revenue

 

 

 —

 

 

1,526

 

 

1,526

 

 

5,012

 

 

3,466

 

 

8,478

 

STENDRA/SPEDRA —Royalty revenue

 

 

826

 

 

560

 

 

1,386

 

 

(959)

 

 

445

 

 

(514)

 

Total revenue

 

$

13,238

 

$

2,086

(1)  

$

15,324

 

$

16,681

 

$

15,485

(2)  

$

32,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)$2.1 million of which was attributable to Germany.

(2)$15.4 million of which was attributable to Germany.

 

16


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q contain “forward looking” statements that involve risks and uncertainties. These statements typically may be identified by the use of forward-looking words or phrases such as “may,” “believe,” “expect,” “forecast,” “intend,” “anticipate,” “predict,” “should,” “planned,” “likely,” “opportunity,” “estimated,” and “potential,” the negative use of these words or other similar words. All forward-looking statements included in this document are based on our current expectations, and we assume no obligation to update any such forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for such forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause actual results and experiences to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, and results of our business include but are not limited to:

·

our limited commercial experience with Qsymia® in the United States, or U.S.;

·

the timing of initiation and completion of the post-approval clinical studies required as part of the approval of Qsymia by the U.S. Food and Drug Administration, or FDA;

·

the response from the FDA to the data that we will submit relating to post-approval clinical studies;

·

the impact of the indicated uses and contraindications contained in the Qsymia label and the Risk Evaluation and Mitigation Strategy requirements;

·

our ability to continue to certify and add to the Qsymia retail pharmacy network and sell Qsymia through this network;

·

whether the Qsymia retail pharmacy network will simplify and reduce the prescribing burden for physicians, improve access and reduce waiting times for patients seeking to initiate therapy with Qsymia;

·

that we may be required to provide further analysis of previously submitted clinical trial data;

·

our ability to work with leading cardiovascular outcome trial experts in planning substantial revisions to the original design and execution of the clinical post-marketing cardiovascular outcomes trial, or CVOT, with the goal of reducing trial costs and obtaining FDA agreement that the revised CVOT would fulfill the requirement of demonstrating the long-term cardiovascular safety of Qsymia;

·

our ongoing dialog with the European Medicines Agency, or EMA, relating to our CVOT, and the resubmission of an application for the grant of a marketing authorization to the EMA, the timing of such resubmission, if any, the results of the CVOT, assessment by the EMA of the application for marketing authorization, and their agreement with the data from the CVOT;

·

our ability to successfully seek approval for Qsymia in other territories outside the U.S. and EU;

·

whether healthcare providers, payors and public policy makers will recognize the significance of the American Medical Association officially recognizing obesity as a disease, or the new American Association of Clinical Endocrinologists guidelines;

·

our ability to successfully commercialize Qsymia including risks and uncertainties related to expansion to retail distribution, the broadening of payor reimbursement, the expansion of Qsymia’s primary care presence, and the outcomes of our discussions with pharmaceutical companies and our strategic and franchise-specific pathways for Qsymia;

·

our ability to focus our promotional efforts on health-care providers and on patient education that, along with increased access to Qsymia and ongoing improvements in reimbursement, will result in the accelerated adoption of Qsymia;

·

our ability to eliminate expenses that are not essential to expanding the use of Qsymia and fully realize the anticipated benefits from our cost reduction and corporate restructuring plans, including the timing thereof;

·

the impact of lower annual net cost savings than currently expected;

17


 

·

the impact of our cost reduction and corporate restructuring plans on our business and unanticipated charges not currently contemplated that may occur as a result of such cost reduction and corporate restructuring plans;

·

our ability to ensure that the entire supply chain for Qsymia efficiently and consistently delivers Qsymia to our customers;

·

risks and uncertainties related to the timing, strategy, tactics and success of the launches and commercialization of STENDRA® (avanafil) or SPEDRA™ (avanafil) by our sublicensees in the EU, Australia, New Zealand, Africa, the Middle East, Turkey, and the Commonwealth of Independent States, including Russia;

·

our ability to successfully complete on acceptable terms, and on a timely basis, avanafil partnering discussions for territories under our license with Mitsubishi Tanabe Pharma Corporation in which we do not have or will be ending a commercial collaboration, including the U.S., Canada and Latin America;

·

our ability, either by ourselves or through a third party, to successfully commercialize STENDRA in the U.S. and Canada;

·

the impact of the return of the U.S. and Canadian rights for the commercialization of STENDRA;

·

Sanofi Chimie’s ability to undertake manufacturing of the avanafil active pharmaceutical ingredient and Sanofi Winthrop Industrie’s ability to undertake manufacturing of the tablets for avanafil;

·

the ability of our partners to maintain regulatory approvals to manufacture and adequately supply our products to meet demand;

·

our ability to accurately forecast Qsymia demand;

·

our ability to commercialize Qsymia efficiently in 2016;

·

the number of Qsymia prescriptions dispensed through the mail order system and through certified retail pharmacies;

·

the impact of promotional programs for Qsymia on our net product revenue and net income (loss) in future periods;

·

our history of losses and variable quarterly results;

·

substantial competition;

·

risks related to the failure to protect our intellectual property and litigation in which we are involved or may become involved;

·

uncertainties of government or third-party payor reimbursement;

·

our reliance on sole-source suppliers, third parties and our collaborative partners;

·

our failure to continue to develop innovative investigational drug candidates and drugs;

·

risks related to the failure to obtain FDA or foreign authority clearances or approvals and noncompliance with FDA or foreign authority regulations;

·

our ability to demonstrate through clinical testing the quality, safety, and efficacy of our investigational drug candidates;

·

the timing of initiation and completion of clinical trials and submissions to foreign authorities;

·

the results of post-marketing studies are not favorable;

·

compliance with post-marketing regulatory standards, post-marketing obligations or pharmacovigilance rules is not maintained;

·

the volatility and liquidity of the financial markets;

·

our liquidity and capital resources;

·

our expected future revenues, operations and expenditures;

·

potential change in our business strategy to enhance long-term stockholder value;

·

the impact, if any, of changes to our Board of Directors or management team; and

18


 

·

other factors that are described from time to time in our periodic filings with the Securities and Exchange Commission, or the SEC, including those set forth in this filing as “Item 1A. Risk Factors.”

 

When we refer to “we,” “our,” “us,” the “Company” or “VIVUS” in this document, we mean the current Delaware corporation, or VIVUS, Inc., and its California predecessor, as well as all of our consolidated subsidiaries.

 

All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full fiscal year or any future period.

 

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 9, 2016 and as amended by the Form 10-K/A filed with the SEC on April 22, 2016, and other disclosures (including the disclosures under “Part II. Item 1A. Risk Factors”) included in this Quarterly Report on Form 10-Q. Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

 

OVERVIEW

 

VIVUS is a biopharmaceutical company with two therapies approved by the FDA: Qsymia® (phentermine and topiramate extended release) for chronic weight management and STENDRA® (avanafil) for erectile dysfunction, or ED. STENDRA is also approved by the European Commission, or EC, under the trade name, SPEDRA, for the treatment of ED in the EU.

Qsymia was approved by the FDA in July 2012, as an adjunct to a reduced calorie diet and increased physical activity for chronic weight management in adult patients with an initial body mass index, or BMI, of 30 or greater, or obese patients, or 27 or greater, or overweight patients, in the presence of at least one weight related comorbidity, such as hypertension, type 2 diabetes mellitus or high cholesterol, or dyslipidemia. Qsymia incorporates a proprietary formulation combining low doses of active ingredients from two previously approved drugs, phentermine and topiramate. Although the exact mechanism of action is unknown, Qsymia is believed to suppress appetite and increase satiety, or the feeling of being full, the two main mechanisms that impact eating behavior. In September 2012, Qsymia became available in the U.S. market through a limited number of certified home delivery networks. In July 2013, Qsymia became available in retail pharmacies nationwide. As of the date of this report, Qsymia is available in over 40,000 certified retail pharmacies nationwide, including all of the major pharmacy chains in the country. We intend to continue to certify and add new pharmacies to the Qsymia retail pharmacy network, including national and regional chains as well as independent pharmacies.

Prior to 2015, we commercialized Qsymia in the U.S. primarily through a dedicated contract sales force of approximately 150 contract sales representatives, supported by an internal commercial team. In 2015, we completed two realignments of our field sales territories, reducing the number of sales territories to approximately 90 in April 2015 and then to 50 in July 2015. Each of these adjustments was accompanied by a parallel streamlining of corporate headquarters headcount as we have sought to right-size the organization to match the Qsymia market opportunity as it currently exists. In August 2015, we directly hired approximately 50 former contract sales representatives to continue promoting Qsymia to physicians. 

Our efforts to expand the appropriate use of Qsymia include scientific publications, participation and presentations at medical conferences, and development and implementation of patient-directed support programs. Most recently, we have rolled out unique marketing programs to encourage targeted prescribers to gain more experience with Qsymia with their obese patient population. In 2015, we increased our investment in digital media in order to amplify our messaging to information-seeking consumers. The digital messaging encourages those consumers most likely to take action to speak with their physicians about obesity treatment options. We believe our enhanced web-based strategies deliver clear and compelling communications to potential patients. We have also employed a physician referral service to help patients identify prescribers in their area. In 2016, we are focused on upgrading our patient savings offer plan, optimizing the use of our field sales force and our digital campaign,

19


 

continuing to work with third-party institutions and advancing our efforts to fulfill, in a cost-effective manner, the remaining Qsymia regulatory post-marketing requirements.

Challenges continue within the obesity pharmacotherapy market, in particular with respect to the tendency on the part of healthcare providers to treat the co-morbid conditions of obesity rather than the obesity disease itself. In addition, there is a narrow focus on certain patient types for treatment, historically low third-party insurance coverage, and the continued exclusion of anti-obesity medications from Medicare Part D.

We defined and identified the healthcare provider, or HCP, audience of anti-obesity prescribers as numbering approximately 8,000 to 10,000.  Of these, we believe the most highly productive writers are adequately covered by the VIVUS sales force.  We are focused on maintaining a commercial presence with important Qsymia prescribers, and we have capacity to cover new potential prescribers, who are those physicians that begin prescribing branded obesity products. We are constantly monitoring prescribing activity in the market, and we have seen new prescriptions being written by HCPs on whom we have not previously dedicated field sales resources.  We believe that part of the current realignment addresses this new prescriber group, and we look forward to initiating and maintaining dialog with these HCPs.

Qsymia is approved for the treatment of obesity in the U.S.  In October 2012, we received a negative opinion from the European Medicines Agency, or EMA, Committee for Medicinal Products for Human Use, or CHMP, recommending refusal of the marketing authorization for the medicinal product QsivaTM, the intended trade name for Qsymia in the EU, due to concerns over the potential cardiovascular and central nervous system effects associated with long-term use, potential for interfering with the development of a fetus and use by patients for whom Qsiva would not have been indicated. We requested that this opinion be re-examined by the CHMP. After re-examination of the CHMP opinion, in February 2013, the CHMP adopted a final opinion that reaffirmed the Committee’s earlier negative opinion to refuse the marketing authorization for Qsiva in the EU. In May 2013, the EC issued a decision refusing the grant of marketing authorization for Qsiva in the EU.

In September 2013, we submitted a request to the EMA for Scientific Advice, a procedure similar to the U.S. Special Protocol Assessment process, regarding use of a pre-specified interim analysis from the CVOT, known as AQCLAIM, to assess the long-term treatment effect of Qsymia on the incidence of major adverse cardiovascular events in overweight and obese subjects with confirmed cardiovascular disease. Our request was to allow this interim analysis to support the resubmission of an application for a marketing authorization for Qsiva for treatment of obesity in accordance with the EU centralized marketing authorization procedure. We received feedback in 2014 from the EMA and the various competent authorities of the EU Member States associated with review of the AQCLAIM CVOT protocol, and we received feedback from the FDA in late 2014 regarding the amended protocol. As a part of addressing the FDA comments from a May 2015 meeting to discuss alternatives to completion of a CVOT, we are now working with cardiovascular and epidemiology experts in exploring alternate solutions to demonstrate the long-term cardiovascular safety of Qsymia. After reviewing a summary of Phase 3 data relevant to cardiovascular, or CV, risk and post-marketing safety data, the cardiology experts noted that they believe there was an absence of an overt CV risk signal and indicated that they did not believe a randomized placebo controlled CVOT would provide additional information regarding the CV risk of Qsymia. The epidemiology experts maintained that a well-conducted retrospective observational study could provide data to further inform on potential CV risk. We are working with the expert group to develop a protocol for the retrospective observational study and feasibility assessment. Although we and the consulted experts believe there is no overt signal for CV risk to justify the AQCLAIM CVOT, VIVUS is committed to working with the FDA to reach a resolution. As for the EU, even if the FDA were to accept a retrospective observational study in lieu of a CVOT, there would be no assurance that the EMA would accept the same.

In addition, we are in the process of pursuing a new indication for Qsymia in obstructive sleep apnea, or OSA. We do not anticipate spending resources on new indications for Qsymia until the CVOT issue is resolved. We also intend to seek regulatory approval for Qsymia in territories outside the U.S. and the EU and, if approved, to commercialize the product through collaboration agreements with third parties. We plan to optimize spending while pursuing these potential objectives.

STENDRA is an oral phosphodiesterase type 5, or PDE5, inhibitor that we have licensed from Mitsubishi Tanabe Pharma Corporation, or MTPC. STENDRA was approved by the FDA in April 2012 for the treatment of ED in the United States. In June 2013, the EC adopted a decision granting marketing authorization for SPEDRA, the

20


 

approved trade name for avanafil in the EU, for the treatment of ED in the EU. In July 2013, we entered into an agreement with the Menarini Group, through its subsidiary Berlin Chemie AG, or Menarini, under which Menarini received an exclusive license to commercialize and promote SPEDRA for the treatment of ED in over 40 European countries, including the EU, as well as Australia and New Zealand. Menarini commenced its commercialization launch of the product in the EU in early 2014. As of the date of this filing, SPEDRA is commercially available in 25 countries within the territory granted to Menarini pursuant to the license and commercialization agreement.

In October 2013, we entered into an agreement with Auxilium Pharmaceuticals, Inc., or Auxilium, under which Auxilium received an exclusive license to commercialize and promote STENDRA in the United States and Canada. On the same date, we also entered into a supply agreement with Auxilium, whereby we would supply Auxilium with STENDRA for commercialization. Auxilium began commercializing STENDRA in the U.S. market in December 2013. In January 2015, Auxilium was acquired by Endo International, plc, or Endo. In December 2015, Auxilium notified us of its intention to return the U.S. and Canadian commercial rights for STENDRA to us. Auxilium has provided its contractually required six-month notice of termination which, absent an agreement between Auxilium and us for an earlier termination date, will result in the termination of the license agreement and supply agreement on June 30, 2016.

In December 2013, we entered into an agreement with Sanofi under which Sanofi received an exclusive license to commercialize and promote avanafil for therapeutic use in humans in Africa, the Middle East, Turkey, and the Commonwealth of Independent States, or CIS, including Russia. Sanofi will be responsible for obtaining regulatory approval in its territories. Sanofi intends to market avanafil under the trade name SPEDRA or STENDRA. Effective as of December 11, 2013, we also entered into a supply agreement, or the Sanofi Supply Agreement, with Sanofi Winthrop Industrie, a wholly owned subsidiary of Sanofi.

On September 18, 2014, the FDA approved a supplemental new drug application (sNDA) for STENDRA. STENDRA is now indicated to be taken as early as approximately 15 minutes before sexual activity. Additionally, on January 23, 2015, the EC adopted a commission implementing decision amending the marketing authorization for SPEDRA. SPEDRA is now indicated to be taken as needed approximately 15 to 30 minutes before sexual activity.

Foreign regulatory approvals, including EC marketing authorization to market Qsiva in the EU, may not be obtained on a timely basis, or at all, and the failure to receive regulatory approvals in a foreign country would prevent us from marketing our products that have failed to receive such approval in that market, which could have a material adverse effect on our business, financial condition and results of operations.

We are currently in discussions with potential collaboration partners to market and sell STENDRA for our other territories, including Latin America, in which we do not currently have a commercial collaboration. Also, we are continuing in the evaluation of our alternatives not only for the return of our U.S. and Canadian STENDRA commercial rights, including the evaluation of commercializing STENDRA by ourselves, but also for our overall business strategy with the advisor we engaged in the first quarter of 2016.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including those related to available-for-sale securities, research and development expenses, income taxes, inventories, revenues, including revenues from multiple-element arrangements, contingencies and litigation and share-based compensation. We base our estimates on historical experience, information received from third parties and on various market specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.

 

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Our significant accounting policies are more fully described in Note 1 to our audited consolidated financial statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K, or our Annual Report, as filed with the SEC on March 9, 2016. There have been no significant changes in our critical accounting policies during the three months ended March 31, 2016, as compared to those disclosed in our Annual Report.

 

RESULTS OF OPERATIONS

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change

 

 

 

Three Months Ended March 31, 

 

Increase/ (Decrease)

 

(in thousands, except for percentages)

 

2016

 

2015

    

2016 vs 2015

 

Revenue:

 

 

 

 

 

 

 

 

 

Net product revenue

 

$

12,412

 

$

12,628

 

(2)

%

License and milestone revenue

 

 

 —

 

 

11,574

 

(100)

%

Supply revenue

 

 

1,526

 

 

8,478

 

(82)

%

Royalty revenue

 

 

1,386

 

 

(514)

 

(370)

%

Total revenue

 

$

15,324

 

$

32,166

 

(52)

%

 

Net product revenue

 

For the three months ended March 31, 2016, there were approximately 116,000 Qsymia prescriptions dispensed, compared to 136,000 for the same period of 2015. Approximately 64% of our total prescriptions for the first quarter of 2016 included either a free good or discount offer, with approximately 17,000 of those prescriptions dispensed as free goods. In comparison, for the three months ended March 31, 2015, approximately 63% of our total prescriptions included either a free good or discount offer, with approximately 25,000 of those prescriptions dispensed as free goods.

 

As of March 31, 2016, we had deferred revenue related to gross sales of Qsymia of $16.9 million, which represents Qsymia product shipped to wholesalers and certified retail pharmacies, but not yet dispensed to patients through prescriptions, net of prompt-payment discounts.

 

License and milestone revenue

 

For the three months ended March 31, 2015, under the terms of the license and commercialization agreement with Menarini, we recognized $11.6 million in license and milestone revenue related to the time-to-onset claim, which was approved by the EC in January 2015. There was no license and milestone revenue for the three months ended March 31, 2016.

 

Supply revenue

 

For the three months ended March 31, 2016, we recognized $1.5 million in supply revenue, compared to $8.5 million for the three months ended March 31, 2015. The decrease in supply revenue in 2016 as compared to 2015 is due to the timing of orders from our commercialization partners. The variations in supply revenue are a result of the timing of orders placed by our partners and may or may not reflect end user demand for STENDRA and SPEDRA. To date, Sanofi has not launched the commercialization of SPEDRA in its territories.

 

Royalty revenue

 

For the three months ended March 31, 2016, we recognized $1.4 million in net royalty revenue on net sales reported by our commercialization partners, compared to $(0.5) million in royalty revenue in the three months ended March 31, 2015. Beginning in 2014, we began earning royalty revenue from sales of STENDRA by these partners. We record royalty revenue related to STENDRA based on reports provided by our partners.  One of our partners, Auxilium, was acquired by Endo in January 2015. In April 2015, we were informed by Endo that Endo had revised its accounting estimate for its return reserve for STENDRA sold in 2014. Under the terms of the license and commercialization agreement, adjustments to the return reserve can be deducted from the reported net revenue. As a

22


 

result, in the first quarter of 2015, we recorded an adjustment of $1.2 million to reduce our royalty revenue. In December 2015, Auxilium notified us of its intention to return the U.S. and Canadian commercial rights for STENDRA to us. Auxilium has provided its contractually required six-month notice of termination which, absent an agreement between Auxilium and us for an earlier termination date, will result in the termination of the license agreement and supply agreement on June 30, 2016.

 

 

Cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2016

 

2015

Qsymia cost of goods sold

 

$

2,071 

 

$

1,867 

STENDRA/SPEDRA cost of goods sold

 

 

1,633 

 

 

8,029 

Cost of goods sold

 

$

3,704 

 

$

9,896 

 

Cost of goods sold decreased overall due to the reduction in net product and supply revenue. The change in the cost of goods sold as a percentage of net product and supply revenue was due to the effect of price increases in 2015 and the sales mix between Qsymia and STENDRA/SPEDRA during the periods. Cost of goods sold for Qsymia dispensed to patients includes the inventory costs of APIs, third-party contract manufacturing and packaging and distribution costs, royalties, cargo insurance, freight, shipping, handling and storage costs, and overhead costs of the employees involved with production. Cost of goods sold for STENDRA or SPEDRA shipped to our commercialization partners includes the inventory costs of purchased tablets, freight, shipping and handling costs. The cost of goods sold associated with deferred revenue on Qsymia and STENDRA or SPEDRA product shipments is recorded as deferred costs, which are included in inventories in the condensed consolidated balance sheets, until such time as the deferred revenue is recognized.

 

 

Selling, general and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change

 

 

 

Three Months Ended March 31, 

 

Increase/ (Decrease)

 

 

 

2016

 

2015

 

2016 vs 2015

 

 

 

(In thousands, except percentages)

Selling and marketing

    

$

7,648

    

$

18,041

    

(58)

%

General and administrative

 

 

7,474

 

 

8,359

 

(11)

%

Total selling, general and administrative expenses

 

$

15,122

 

$

26,400

 

(43)

%

 

The decrease in selling and marketing expenses for the three months ended March 31, 2016, compared to the same period in 2015, was due primarily to the efforts to reduce marketing programs cost and the reduction in the number of territories from 150 to approximately 50 effective in August 2015.

 

The decrease in general and administrative expenses in the three months ended March 31, 2016, compared to the same period in 2015, was primarily due to the corporate restructuring plan begun in July 2015 and decreased share-based compensation, as well as our continuing efforts to cut costs and lower spending for corporate activities and professional fees.

 

23


 

Research and development expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change

 

 

 

Three Months Ended March 31, 

 

Increase/(Decrease)

 

Drug Indication/Description

 

2016

 

2015

 

2016 vs 2015

 

 

 

(In thousands, except percentages)

Qsymia for obesity

    

$

198

    

$

280

    

(29)

%

STENDRA for ED