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EX-32.1 - EX-32.1 - EPIRUS Biopharmaceuticals, Inc.eprs-20160331ex3212c217e.htm
EX-31.2 - EX-31.2 - EPIRUS Biopharmaceuticals, Inc.eprs-20160331ex312059b4b.htm
EX-31.1 - EX-31.1 - EPIRUS Biopharmaceuticals, Inc.eprs-20160331ex311e2fbf8.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 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

(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 May 9, 2016:  26,184,349 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)

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

 

 

    

(Unaudited)

    

(Audited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,865

 

$

31,515

 

Restricted cash

 

 

1,800

 

 

 —

 

Prepaids and other current assets

 

 

3,029

 

 

3,732

 

Total current assets

 

 

25,694

 

 

35,247

 

Property and equipment, net

 

 

2,695

 

 

2,073

 

Intangible assets, net

 

 

6,211

 

 

6,410

 

Goodwill

 

 

26,361

 

 

26,361

 

Restricted cash

 

 

124

 

 

1,924

 

Other assets

 

 

256

 

 

249

 

Total assets

 

$

61,341

 

$

72,264

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,750

 

$

2,051

 

Accrued development costs

 

 

5,472

 

 

4,438

 

Accrued expenses

 

 

2,704

 

 

4,003

 

Short term debt, net of debt discount

 

 

14,852

 

 

14,833

 

Accrued purchase price liability

 

 

1,625

 

 

5,493

 

Deferred revenue

 

 

3,349

 

 

957

 

Current portion of settlement of obligation

 

 

490

 

 

978

 

Other current liabilities

 

 

200

 

 

343

 

Deferred tax benefit

 

 

185

 

 

185

 

Total current liabilities

 

 

32,627

 

 

33,281

 

Deferred revenue, net of current portion

 

 

1,167

 

 

1,173

 

Deferred tax liability

 

 

648

 

 

648

 

Deferred tax benefit, net of current portion

 

 

323

 

 

369

 

Other non-current liabilities

 

 

410

 

 

425

 

Total liabilities

 

 

35,175

 

 

35,896

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; Authorized - 5,000,000 shares, Issued and Outstanding - 0 shares at March 31, 2016 and December 31, 2015

 

 

 —

 

 

 —

 

Common stock, $0.001 par value; Authorized - 70,000,000 shares at March 31, 2016 and December 31, 2015; Issued and Outstanding - 26,184,349 and 24,377,573 shares at March 31, 2016 and December 31, 2015, respectively

 

 

26

 

 

24

 

Additional paid-in capital

 

 

181,126

 

 

175,126

 

Accumulated other comprehensive income (loss)

 

 

39

 

 

(23)

 

Accumulated deficit

 

 

(155,025)

 

 

(138,759)

 

Total stockholders' equity

 

 

26,166

 

 

36,368

 

Total liabilities and stockholders' equity

 

$

61,341

 

$

72,264

 

 

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 March 31,

 

 

 

2016

    

2015

 

Revenue

 

$

803

 

$

25

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

10,342

    

 

3,079

 

General and administrative

 

 

6,468

 

 

4,168

 

Total operating expenses

 

 

16,810

 

 

7,247

 

Loss from operations

 

 

(16,007)

 

 

(7,222)

 

Other income (expense):

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(372)

 

 

(281)

 

Other income (expense), net

 

 

71

 

 

(30)

 

Total other income (expense), net

 

 

(301)

 

 

(311)

 

Loss before income taxes

 

 

(16,308)

 

 

(7,533)

 

Benefit from income taxes

 

 

42

 

 

12

 

Net loss

 

$

(16,266)

 

$

(7,521)

 

Net loss per share--basic and diluted

 

$

(0.66)

 

$

(0.39)

 

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

 

 

24,818,224

 

 

19,284,653

 

Foreign currency translation adjustment

 

 

62

 

 

 —

 

Comprehensive loss

 

$

(16,204)

 

$

(7,521)

 

 

See accompanying notes to condensed consolidated financial statements

4


 

EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

    

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(16,266)

 

$

(7,521)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

287

 

 

96

 

Non-cash interest expense

 

 

66

 

 

133

 

Non-cash accretion expense

 

 

117

 

 

 —

 

Stock-based compensation and vesting of restricted stock

 

 

1,999

 

 

468

 

Deferred rent and lease incentive activity

 

 

(15)

 

 

(6)

 

Deferred taxes

 

 

(46)

 

 

(46)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaids and other current assets

 

 

703

 

 

(360)

 

Other non-current assets

 

 

(7)

 

 

154

 

Accounts payable

 

 

1,104

 

 

175

 

Accrued expenses and other current liabilities

 

 

(455)

 

 

(1,399)

 

Other non-current liabilities

 

 

 —

 

 

(125)

 

Settlement obligation

 

 

(488)

 

 

 —

 

Deferred revenue

 

 

2,386

 

 

243

 

Net cash used in operating activities

 

 

(10,615)

 

 

(8,188)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(70)

 

 

 —

 

Net cash provided by investing activities

 

 

(70)

 

 

 —

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from the issuance of common stock, net of costs

 

 

18

 

 

48,027

 

Proceeds from the exercise of common stock options

 

 

 —

 

 

245

 

Net cash used in financing activities

 

 

18

 

 

48,272

 

Non-cash activity

 

 

 

 

 

 

 

Effect of exchange rate on cash

 

 

17

 

 

 —

 

Net increase (decrease) in cash and cash equivalents

 

 

(10,650)

 

 

40,084

 

Cash and cash equivalents—Beginning of period

 

 

31,515

 

 

21,462

 

Cash and cash equivalents—End of period

 

$

20,865

 

$

61,546

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Issuance of common stock related to Bioceros acquisition (see Note 5)

 

$

5,000

 

$

 —

 

Cash paid for interest

 

$

309

 

$

149

 

Cash paid for income taxes

 

$

3

 

$

34

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

Amounts in accounts payable for capital expenditures

 

$

595

 

$

 —

 

 

See accompanying notes to condensed consolidated financial statements

5


 

EPIRUS Biopharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2016

(unaudited)

(In thousands, except share and per share amounts)

1.Organization

 

EPIRUS Biopharmaceuticals, Inc. (the “Company”) is a global biopharmaceutical company focused on building biosimilar business targeting rare diseases by improving patient access through cost-effective medicines. The Company’s ability to deliver on this vision is anchored in its strong technical platform and pragmatic approach to development and commercialization.

 

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. As a result of the acquisition, Bioceros has become the Company’s wholly-owned subsidiary, renamed Epirus Biopharmaceuticals (Netherlands) B.V. See Note 5, “Acquisition,” for additional discussion of the acquisition of Bioceros.

 

In May 2016, the Company announced the reprioritization of its pipeline to focus exclusively on developing biosimilars for the treatment of rare diseases.  This includes reallocating the Company’s resources to focus on the development of BOW080 (eculizumab; reference biologic Soliris®) for the potential treatment of ultra-rare blood disorders and BOW070 (tocilizumab; reference biologic Actemra®) for the potential treatment of an uncommon lymphoproliferative disorder known as Castleman’s disease.  The Company will suspend the development of its prior lead program, BOW015 (infliximab, reference biologic Remicade®), and work to further evaluate strategic options for that program, which may include partnerships, divestitures and/or other value-generating alternatives. The Company’s decision to suspend its BOW015 program is based on cost-savings, not technical reasons, and the program remains ready to commence its planned global Phase 3 clinical study. In connection with the matters described above, the Company also announced staff reductions of up to approximately 40% of the Company’s workforce.

 

To date, the Company has devoted substantially all of its efforts to product research and development market research, and raising capital. The Company is subject to a number of risks similar to those of other development stage life science companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products, and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the industry, including rapid technological change, regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability, and dependence on key individuals. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve profitability. As presented in the financial statements, at March 31, 2016, the Company had cash and cash equivalents of $20,865 and an accumulated deficit of $155,025. During the three months ended March 31, 2016, the Company incurred a net loss of $16,266. The Company believes that its existing cash and cash equivalents, following the staff reductions and related operational changes described above, will be sufficient to fund its current operating plan and capital expenditure requirements through the second quarter of 2016. The Company is currently evaluating options for obtaining financing to fund its operations, which it will need to accomplish in the near term.

 

6


 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has net losses for the period from inception (January 2011) through March 31, 2016 of $155,025, as well as negative cash flows from operating activities. Presently, the Company does not have sufficient cash resources to meet its cash requirements for the twelve months following March 31, 2016. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management is in the process of evaluating various financing alternatives for operations, as the Company will need to finance future research and development activities and general and administrative expenses through fund raising in the public or private equity markets.

 

The condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders would be reduced, and such securities might have rights, preferences or privileges senior to the common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

 

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 months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2016. 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, 2015, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 28, 2016.

 

3.Summary of Significant Accounting Policies

 

In the three months ended March 31, 2016, 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, 2015, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 28, 2016. 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Epirus and its wholly owned subsidiaries as of March 31, 2016: 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 and Epirus Biopharmaceuticals (Netherlands) B.V., a Netherlands corporation.  All significant intercompany balances and transactions have been eliminated in consolidation.

   

7


 

Recent Accounting Pronouncements

 

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The standard is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted for any interim and annual financial statements that have not yet been issued.  The Company early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis.  Adoption of this ASU resulted in a reclassification of the net current deferred tax asset of $109 and the net current deferred tax liability of $80 to the net non-current deferred tax liability in the Company’s consolidated balance sheet as of December 31, 2015.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The new standard simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. The new standard will be effective for the Company on January 1, 2017. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which amends ASC Topic 718, Compensation – Stock Compensation.  The new standard identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the potential impact that ASU 2016-09 may have on the Company’s financial position or results of operations.

 

4.Business Agreements

 

As noted above, in May 2016, the Company made the strategic decision to suspend the development of its prior lead program, BOW015, and will work to further evaluate strategic options for that program, which may include partnerships, divestitures and/or other value-generating alternatives.  As the Company pursues this strategic review, it will also be reviewing its rights and obligations under the agreements described below.

 

Sun Pharmaceutical Industries (formerly known as Ranbaxy Laboratories)

 

In January 2014, the Company and Sun Pharmaceutical Industries Limited (formerly known as Ranbaxy Laboratories Limited) (“Sun”) executed a royalty-bearing and non-transferrable license agreement (“Sun License Agreement”) for BOW015 to Sun for a broad range of territories including India, selected Southeast Asian markets and North Africa. Under the terms of the Sun License Agreement, the Company and Sun agreed to pursue the commercialization of BOW015 in India and Sun received the right to sell BOW015 in the territories specified in the agreement. Sun does not have the right to manufacture BOW015.

 

For the three months ended March 31, 2016 and 2015, the Company recorded royalty revenue of $40 and $17, 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 March 31, 2016, outstanding royalty payments under the Sun agreement were $40.

8


 

 

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 $1,375 in milestone payments, including the upfront payment, and received payments totaling $1,250 through March 31, 2016.

 

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. Specifically, the Company will earn $250 upon the first commercial sale for each first commercial sale in each of the territory countries. 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 March 31, 2016.

 

Unless terminated earlier in accordance with the terms of the agreement or extended by mutual agreement of the parties, the MabX Agreement expires 15 years following 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.

 

The Polpharma Collaboration Agreement provides that Polpharma would bear 51% and the Company would 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, under the agreement, Polpharma would bear 19% and the Company would bear 81% of total clinical trial costs incurred. Following commercial launch, profits and losses for the three products in the designated territories would be split 51% for Polpharma and 49% for the Company.

 

9


 

For the three month period ended March 31, 2016, the Company recorded revenue of $570 related to this agreement.  The Company invoiced and received a payment in the amount of $2,309 from Polpharma in January 2016.  As of March 31, 2016, the Company had a deferred revenue balance of $2,263 related to the payment received for services that will be performed in future quarters of 2016.

 

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.

 

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 Livzon 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). For the three month period ended March 31, 2016, the Company recorded expense of $500 under the Livzon Supplement Agreement. 

 

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 March 31, 2016, Livzon owned approximately 6% of the Company’s issued and outstanding common stock.

5. 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. 

 

The Company paid a total of $14,100 in consideration 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 $4,000 using a 10 day pre-closing date average price for issuance of $5.07  (value of $4,568 on acquisition date) 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, issued on the date that was 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 were to be issued to Bioceros key employees.  In addition, the shareholders of Bioceros would 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) revenue agreements signed from select 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.  As of September 9, 2015, the Company estimated this amount to be $409.

 

As of December 31, 2015, the Company evaluated the net cash payout liability of $409 and reduced the fair value to $0.  This reduction was recorded as a credit to general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended December 31, 2015.

 

On March 9, 2016, the Company issued 1,772,107 shares of Common Stock using a 10 day pre-closing date average price of $2.82 for the Second Installment Shares.

10


 

Second Installment Shares

 

As described above, shares with an undiscounted value of $1,015 from the Second Installment Shares were 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. 

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.

 

On March 8, 2016, the Company entered into the First Amendment to the Stock Purchase Agreement between the Company and seller representatives of Bioceros (the “First Amendment”). The First Amendment removes any future employment requirements of Bioceros key employees to receive the Second Installment Shares, removes the lock-up period for the Second Installment Shares and updates the maximum equity consideration to be issued pursuant to the

Stock Purchase Agreement from 10% to 19.99% of the aggregate number of the Company’s total shares outstanding on the date preceding the date of the Stock Purchase Agreement.

 

The Company recognized $889 of stock-based compensation expense related to the Second Installment Shares for the key employees in the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2016.

11


 

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)

 

 

3,788

 

Net cash payout (3)

 

 

409

 

Final payment of cash consideration (4)

 

 

1,535

 

Preliminary estimated purchase price

 

$

13,613

 

 

 

 

(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 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 10.7%.

 

 

(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 consolidated balance sheet as of September 9, 2015 and recorded at fair value utilizing a discount rate of 10.7%. The amount of the net cash payout is dependent on revenue agreements signed from select Bioceros customers subsequent to the acquisition date and through December 31, 2015.

 

 

(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 consolidated balance sheet as of September 9, 2015 and recorded at fair value utilizing a discount rate of 10.7%.    

 

12


 

 

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

 

 

 

 

 

 

 

    

(in thousands)

 

Cash and cash equivalents

 

$

889

 

Deferred tax assets

 

 

161

 

Accounts receivable

 

 

49

 

Prepaid expenses and other current assets

 

 

226

 

Property and equipment, net

 

 

447

 

Intangible assets, net

 

 

3,191

 

Goodwill

 

 

10,734

 

Accounts payable

 

 

(146)

 

Accrued expenses and other current liabilities

 

 

(704)

 

Deferred revenue

 

 

(436)

 

Deferred tax liabilities

 

 

(798)

 

    Net assets acquired

 

$

13,613

 

 

 

 

 

 

 

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.

 

6.Goodwill and Intangible Assets, Net

 

Goodwill

 

The Company’s goodwill balance as of March 31, 2016 was $26,361.  As of March 31, 2016, 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.

 

Intangibles

 

Intangible assets, net of accumulated amortization is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

    

December 31, 2015

 

Intangible assets (excluding IPR&D)

 

$

6,878

 

$

6,878

 

Less: accumulated amortization—intangible assets

 

 

(667)

 

 

(468)

 

Intangible assets, net (excluding IPR&D)

 

$

6,211

 

$

6,410

 

 

Amortization expense, which is included within research and development expense in the consolidated statements of operations and comprehensive loss, was $199 for the three months ended March 31, 2016 and $57 for the three months ended March 31, 2015. The weighted average amortization period for intangible assets is 11.6 years.

 

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The estimated aggregate amortization of intangible assets as of March 31, 2016, for each of the five succeeding years and thereafter is as follows:

 

 

 

 

 

 

 

    

March 31, 2016

 

 

 

 

 

 

April 1, 2016 - December 31, 2016

 

$

558

 

2017

 

 

757

 

2018

 

 

757

 

2019

 

 

757

 

2020

 

 

757

 

2021 and thereafter

 

 

2,625

 

Total

 

$

6,211

 

 

 

 

 

 

 

7.Accrued Expenses

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

    

 

 

 

March 31, 2016

 

December 31, 2015

Accrued compensation

 

$

819

 

$

2,057

Accrued professional fees

 

 

1,112

 

 

1,502

Accrued interest expense

 

 

311

 

 

264

Other

 

 

462

 

 

180

Total accrued expenses

 

$

2,704

 

$

4,003

 

 

8.Debt

 

Hercules Notes

 

As of March 31, 2016, the Company had outstanding borrowings under the Loan Agreement of $15,000. Due to the going concern opinion issued as of December 31, 2015 and the fact that the Note may be declared immediately due by Hercules, upon the occurrence of a material adverse change in the Company’s business or other events of default under the Loan Agreement, the Company has recorded all amounts due under the Note as a short-term debt obligation. As of March 31, 2016, the short-term debt obligation was $14,852, net of a debt discount of $148. Amortization of the debt discount, which was recorded as interest expense in the statement of operations, was approximately $19 and $16 for the three months ended March 31, 2016 and March 31, 2015, respectively.

 

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 Loan Agreement, as of March 31, 2016 are as follows:

 

 

 

 

 

 

 

    

Principal Payments

 

April 1, 2016 - December 31, 2016

 

$

3,693

 

2017

 

 

5,940

 

2018

 

 

5,367

 

Total

 

$

15,000

 

 

 

9.Capital Stock

 

On February 29, 2016, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”), pursuant to which the Company may sell at its option from time to time up to an aggregate

14


 

of $30 million in shares of the Company’s common stock, through BTIG, as sales agent (the “Offering”). Sales of the common stock made pursuant to the Sales Agreement, if any, will be made under the Company’s previously filed and currently effective Registration Statement on Form S-3 (File No. 333-205420) and a related prospectus supplement.


The Company will pay BTIG a commission equal to 3% of the gross proceeds from the sale of shares of

common stock under the Sales Agreement, if any. Pursuant to the terms of the Sales Agreement, the Company also provided BTIG with customary indemnification rights. The Company has also agreed to reimburse BTIG for its reasonable out-of-pocket expenses, including the fees and disbursements of counsel to BTIG, incurred in connection with the Offering. The Company intends to use the net proceeds from the Offering for general corporate purposes, which may include research and development expenditures, clinical trial expenditures, commercialization activities and working capital. As of April 28, 2016, proceeds under this Sales Agreement have not been material.

 

On March 9, 2016 the Company issued 1,772,107 shares of its common stock to former holders of Bioceros preferred and common stock in connection with the acquisition of Bioceros (see Note 5).

 

10.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 March 31, 2016 and December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2016

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,865

 

$

 —

 

$

 —

 

$

20,865

 

 

 

$

20,865

 

$

 —

 

$

 —

 

$

20,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,515

 

$

 

$

 

$

31,515

 

 

 

$

31,515

 

$

 —

 

$

 —

 

$

31,515

 

 

As of March 31, 2016, the Company did not have any liabilities measured at fair value on a recurring basis.

 

11.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. On March 29, 2016, the Company increased the shares of common stock authorized issuance under the 2015 Plan by 975,102 as a result of an automatic annual increase effective as of January 1, 2016.  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. As of March 31, 2016, the Company had 1,401,244 shares of common stock available for issuance under the 2015 Plan.

 

For the three months ended March 31, 2016, the Company recognized stock-based compensation expense of approximately $1,999 in connection with its stock-based payment awards, including $889 related to key employees of Bioceros (see Note 5).  For the three months ended March 31, 2015, the Company recognized stock-based compensation expense of approximately $526 in connection with its stock-based payment awards. The Company also recorded a reduction in stock-based compensation expense for the three months ended March 31, 2015 of $100 resulting from the modification of an award for a former officer of the Company.

 

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Stock Options

 

A summary of stock option activity during the three months ended March 31, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Weighted-

    

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

 

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

 

Number

 

Exercise

 

Term

 

Intrinsic

 

 

    

of Options

    

Price

    

(in years)

    

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2015

 

 

3,613,427

 

$

8.81

 

8.8

 

 

485

 

Granted

 

 

54,400

 

 

3.34

 

 

 

 

 

 

Exercised

 

 

 —

 

 

 —

 

 

 

 

 

 

Cancelled

 

 

(103,380)

 

 

6.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

3,564,447

 

$

8.80

 

8.7

 

$

390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at March 31, 2016

 

 

3,421,869

 

$

8.80

 

8.7

 

$

374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2016

 

 

1,047,693

 

$

12.81

 

7.8

 

$

297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

2.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received upon exercise of options

 

$

 —

 

 

 

 

 

 

 

 

 

 

The aggregate intrinsic value in the table above represents the value (the difference between the Company’s common stock fair value on March 31, 2016 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 March 31, 2016. As of March 31, 2016, there was $10,025 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 2.9 years.

 

During the three months ended March 31, 2016 and 2015, the range of assumptions used in the Black-Scholes pricing model for new grants were as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

    

2016

    

2015

    

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.58%

 

1.35%-1.82%

 

 

Expected volatility

 

82.00%

 

61.40%-62.53%

 

 

Expected term (in years)

 

6.00

 

6.00

 

 

Expected dividend yield

 

0.0%

 

0.0%

 

 

 

Restricted Stock Units

 

A summary of the activity of nonvested restricted stock units (“RSUs”) for the nine months ended March 31, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Number

 

 

Weighted-

 

Remaining

 

 

 

 

 

 

of

 

 

Average

 

Contractual

 

 

Aggregate

 

 

 

Restricted

 

 

Grant Date

 

Term

 

 

Intrinsic

 

16


 

 

    

Stock Units

    

 

Fair Value

    

(in years)

    

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested at December 31, 2015

 

124,442

 

$

10.53

 

2.9

 

$

385

 

Granted

 

 —

 

 

 —

 

 —

 

 

 —

 

Vested

 

(38,238)

 

 

10.53

 

 —

 

 

 —

 

Cancelled

 

(852)

 

 

10.53

 

 —

 

 

 —

 

Nonvested at March 31, 2016

 

85,352

 

$

10.53

 

1.9

 

$

230

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at:

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

81,938

 

$

10.53

 

1.9

 

$

221

 

Exercisable at:

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 —

 

$

 —

 

 —

 

$

 —

 

 

As of March 31, 2016, there was $872 of total unrecognized stock-based compensation expense related to nonvested RSUs. The expense is expected to be recognized over a weighted-average period of 2.9 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.

 

Employee Stock Purchase Plan

 

The Company has an Employee Stock Purchase Plan (“ESPP”) that permits eligible employees to enroll in a six-month offering period.  Participants may purchase shares of the Company’s Common Stock, through payroll deductions, at a price equal to 85% of the fair market value of the Common Stock on the first day of the applicable six-month offering period, or the last day of the applicable six-month offering period, whichever is lower.  Purchase dates under the ESPP occur on or about June 1 and December 1 of each year.  On March 29, 2016, the Company increased the shares of common stock under the ESPP by 120,000 as a result of an automatic annual increase.

 

 As of March 31, 2016, 472,722 shares of the Company’s Common Stock remain available for issuance under the ESPP. 

 

12.Income Taxes

 

For the three months ended March 31, 2016, the Company recorded an income tax benefit of $42, which is due primarily to the amortization of the Company’s deferred tax benefit related to the transfer of IPR&D to the Company’s subsidiary, Epirus Switzerland GmbH, a Swiss corporation (the “Tax Benefit”) of $46, offset by tax expense for cash flows generated in foreign territories of $4.

 

For the three months ended March 31, 2015, the Company recorded an income tax benefit of $12, which is due primarily to the Tax Benefit of $46, offset by tax expense for cash flows generated in foreign territories of $27 and minimum state taxes due in the United States of $7.

 

The Company has evaluated the positive and negative evidence on the realizability of its deferred tax assets in each jurisdiction and management has determined that it is more likely than not that the Company will not utilize the benefits of its deferred tax assets in each jurisdiction except the Netherlands. Accordingly, the deferred tax assets have been fully reserved as of March 31, 2016 and December 31, 2015.

 

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13.Commitments

 

As of March 31, 2016, future minimum lease payments under all of the Company’s operating leases are as follows:

 

 

 

 

 

 

 

    

March 31, 2016

 

April 1, 2016 - December 31, 2016

 

$

1,791

 

2017

 

 

1,106

 

2018

 

 

644

 

2019

 

 

655

 

2020

 

 

666

 

2021 and thereafter

 

 

464

 

Total

 

$

5,326

 

Less: Future sublease payments to be received

 

 

(941)

 

Net future lease payments

 

$

4,385

 

 

 

14.Net Loss Per Share

 

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding for the three months ended March 31, 2016 and 2015, as they would be anti-dilutive.

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2016

    

2015

Options to purchase common stock

 

3,564,447

 

2,411,898

Settlement of loan agreement

 

248,093

 

248,093

Warrants to purchase common stock

 

92,892

 

93,040

Nonvested restricted stock units

 

85,352

 

126,621

Employee stock purchase plan

 

10,586

 

 —

Nonvested restricted stock awards

 

 —

 

13,259

 

 

 

15Legal Proceedings

 

From time to time, the Company is involved in legal proceedings and claims of various types and accounts for these legal proceedings in accordance with ASC Topic 450, “Contingencies.” The Company records a liability in its consolidated financial statements for these matters when a loss is considered probable and the amount of loss can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.

   

Reliance Life Sciences Dispute 

   

In December 2014, Reliance Life Sciences Pvt Ltd, or RLS, the Company’s BOW015 contract manufacturer for India, exercised its three-year termination for-convenience right with respect to the parties’ Manufacturing and Supply Agreement, dated as of May 14, 2014 and as amended from time to time (the “RLS Agreement”), which would have caused the RLS Agreement to terminate in December 2017. In addition, in March 2015, RLS initiated an arbitration proceeding under the RLS Agreement alleging that the RLS Agreement grants RLS exclusive global supply rights for BOW015, that the terms of the Company’s collaboration agreements with Fujifilm Diosynth Biotechnologies U.S.A., Inc. and Livzon MabPharm Inc. violate the RLS Agreement, and sought to terminate the RLS Agreement. The proceeding initiated by RLS sought a declaratory judgment, but did not seek any monetary damages.

  

On April 22, 2015, the Company entered into a Settlement Agreement with RLS (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the parties finalized the remaining BOW015 batch production schedule with RLS

18


 

agreeing to manufacture 15 final batches of BOW015 on or before June 30, 2016 with the Company’s option to have RLS manufacture an additional 5 batches on or before December 31, 2016. In January 2016, the Company amended the Settlement with RLS to extend the time for RLS to manufacture the 15 final batches from June 30, 2016 to June 30, 2017. RLS has also agreed to use reasonable commercial efforts to transfer the existing Indian marketing authorization for BOW015 granted by the Drug Controller General of India (“DCGI”) to the Company or its designee, with all costs of the transfer to be borne by the Company and subject to the DCGI’s approval of such transfer. The Company has agreed to pay to RLS a fee of approximately $2,250, payable in four installments over the course of the final batch manufacture, with the final installment to be paid no later than ten days after June 30, 2016. Pursuant to the Settlement Agreement, on May 4, 2015, RLS withdrew the arbitration proceeding it initiated, and the parties have agreed to release each other from all causes of actions or claims, present and future, arising under the RLS Agreement. Following the satisfaction by both parties of all of the terms of the Settlement Agreement, the RLS Agreement and related agreements between the parties shall be terminated and neither party shall have any further rights or obligations thereunder. The Company made the first payment of $750 on April 27, 2015 and made two additional payments of $500 on September 10, 2015 and February 3, 2016.

 

16.Subsequent Events

 

On May 9, 2016, the Company announced the reprioritization of the Company’s pipeline to focus exclusively on developing biosimilars for the treatment of rare diseases. This will involve, among other things, reallocating the Company’s resources to focus on the development of BOW080 (eculizumab; reference biologic Soliris®) for the potential treatment of ultra-rare blood disorders and BOW070 (tocilizumab; reference biologic Actemra®) for the potential treatment of an uncommon lymphoproliferative disorder known as Castleman’s disease. The Company has also suspended development of what had previously been its lead program, BOW015 (infliximab, reference biologic Remicade®). The Company is engaged in a strategic review of its options, including with respect to the BOW015 program, which may include partnerships, divestitures and/or other value-generating alternatives. The Company’s decision to suspend its BOW015 program is based on cost-savings, not technical reasons, and the program remains ready to commence its planned global Phase 3 clinical study. If the Company is not able to form a partnership for or divestiture as planned for BOW015, the intangible asset associated with the BOW015 program with a carrying value of $3,323 as of March 31, 2016, may be subject to future impairment.

 

The Company’s new focus on biosimilars that treat rare diseases necessitates a restructuring of the Company’s operations and a corresponding reduction in up to approximately 40% of its workforce, to align its resources more closely with its corporate objectives.

 

Additionally, as announced on May 9, 2016, Amit Munshi, the Company’s President and Chief Executive Officer and a Director, has resigned from those positions with the Company. Scott Rocklage, a Director of the Company, has been appointed Acting Chief Executive Officer of the Company and Michael Wyand, the Company’s Chief Technical Officer, was appointed as President and Chief Operating Officer of the Company. In connection with these actions, the size of the Company’s Board has also been reduced from eight members to seven, with two members remaining in Class III.

19


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing in this quarterly report on Form 10‑Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report on Form 10‑Q include historical information and other information with respect to our plans and strategy for our business and contain forward‑looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward‑looking statements as a result of certain factors, including but not limited to those set forth under the “Risk Factors” section of this report and elsewhere in this quarterly report on Form 10‑Q.

 

In the following discussion, the terms “Epirus,” “we,” “our,” “us” or the “Company” refer to EPIRUS Biopharmaceuticals, Inc., a Delaware corporation.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Various statements throughout this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may appear throughout this report. Words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “seek,” “could,” “may,” “might,” or the negative of these terms and similar expressions or words, identify forward-looking statements. Forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. Important factors that could cause actual results to differ materially from those reflected in our forward-looking statements include, among others:

 

·

our inability to obtain regulatory approval for, or successfully commercialize, our product candidates;

 

·

our inability to access sufficient capital resources to fund our operations as a going concern beyond the second quarter of 2016;

 

·

our inability to successfully transition the strategic direction of our company to one that is focused on the development of biosimilar product candidates for the treatment of rare diseases;

 

our inability to secure and maintain relationships with collaborators and single-source contract manufacturers;

 

·

our history of operating losses and inability to ever become profitable;

 

·

our limited history of complying with public company reporting requirements;

 

·

our limited sales and marketing infrastructure;

 

·

uncertainty and volatility in the price of our common stock;

 

·

our inability to develop, implement and maintain appropriate internal controls;

 

·

our inability to remediate the material weaknesses in our internal control over financial reporting;

 

·

uncertainty as to our employees’, independent contractors’ and other collaborators’ compliance with regulatory standards and requirements and insider trading rules;

 

·

uncertainty as to the relationship between the benefits of our product candidates and the risks of their side‑effect profiles;

 

20


 

·

our inability to effectively compete with the reference biologic products for our biosimilar product candidates and from other pharmaceuticals approved for the same indication as the reference biologic products;

 

·

our inability to complete our in-house cell line and process development activities;

 

·

dependence on the efforts of third-parties to conduct and oversee our clinical trials for our product candidates, to manufacture nonclinical and clinical supplies of our product candidates, to store critical components of our product candidates, and to commercialize our product candidates;

 

·

uncertainty relating to U.S. regulatory and legal landscapes and a fragmented payer market;

 

 

 

·

the extent of government regulations;

 

·

uncertainty of clinical trial results;

 

·

a loss of any of our key management personnel;

 

·

our inability to develop or commercialize our product candidates due to intellectual property rights held by third parties and our inability to protect the confidentiality of our trade secrets; and

 

·

the cost and effects of potential litigation.

 

All written and verbal forward‑looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward‑looking statements we make or that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward‑looking statements, whether as a result of new information, future events or otherwise.

 

We encourage you to read the discussion and analysis of our financial condition and our unaudited interim financial statements contained in this report. We also encourage you to read Item 1A of Part II of this quarterly report on Form 10-Q entitled “Risk Factors” and Item 1A of Part I of our annual report on Form 10-K for the fiscal year ended December 31, 2015, which contains a discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Item 1A of this report, other unknown or unpredictable factors also could affect our results. Therefore, the information in this report should be read together with other reports and documents that we file with the Securities and Exchange Commission (“SEC”) from time to time, including on Form 10-K, Form 10‑Q and Form 8‑K, which may supplement, modify, supersede or update those risk factors. As a result of these factors, we cannot assure you that the forward‑looking statements in this report will prove to be accurate. Furthermore, if our forward‑looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward‑looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

 

Overview

 

We are a global biopharmaceutical company focused on building a biosimilar business by improving patient access through cost-effective medicines for the treatment of rare diseases. Our ability to deliver on this vision is anchored in our strong technical platform and pragmatic approach to development and commercialization.

 

Our business focuses on biosimilars, which are biologic drugs that are demonstrated to be “highly similar” to a previously approved biologic drug, known as a “reference product”. A biosimilar has to undergo extensive analytical

21


 

characterization and prove similarity in efficacy and safety to the reference product in order to be approved by regulators. 

 

On May 9, 2016, we announced the reprioritization of our pipeline to focus exclusively on developing biosimilars for the treatment of rare diseases. This will involve, among other things, reallocating our resources to focus on the development of BOW080 (eculizumab; reference biologic Soliris®) for the potential treatment of ultra-rare blood disorders and BOW070 (tocilizumab; reference biologic Actemra®) for the potential treatment of an uncommon lymphoproliferative disorder known as Castleman’s disease. We have also suspended work on what had previously been our lead program, BOW015 (infliximab, reference biologic Remicade®). We are engaged in a strategic review of our options, including with respect to the BOW015 program, which may include partnerships, divestitures and/or other value-generating alternatives. Our decision to suspend our BOW015 program is based on cost-savings, not technical reasons, and the program remains ready to commence its planned global Phase 3 clinical study.  Our new focus on biosimilars that treat rare diseases necessitates a restructuring of our operations and a corresponding reduction in workforce, by up to approximately 40%of our employees, to align our resources more closely with our corporate objectives.

 

Additionally, as announced on May 9, 2016, Amit Munshi, our President and Chief Executive Officer and a Director, has resigned from those positions with us. Scott Rocklage, a Director, has been appointed Acting Chief Executive Officer of Epirus and Michael Wyand, our Chief Technical Officer, was appointed as President and Chief Operating Officer of Epirus. In connection with these actions, the size of our Board has also been reduced from eight members to seven, with two members remaining in Class III.

 

Global healthcare systems continue to be challenged with expensive therapies. According to Express Scripts®, in the United States, the cost of a biologic drug accounted for approximately 40% of total drug spending in 2014. These cost pressures provide a large opportunity for biosimilars. Over the next decade, biologic drugs with approximately $90 billion worth of annual sales will lose patent protection, based on projected global sales estimates from EvaluatePharma®. Approximately half of the biosimilar market opportunity is outside the United States. We believe that biosimilars are likely to play a crucial role in reducing healthcare costs and improving patient access. 

   

We are headquartered in Boston, Massachusetts, with laboratories and technical capabilities, including our proprietary CHOBC® cell line platform, in Utrecht, the Netherlands, and business operations, clinical and regulatory teams based in Zug, Switzerland.

   

We believe the path to achieving our goals has a foundation in the following key strategies:

 

·

focus on the development of biosimilars for the treatment of rare diseases;

 

·

build and utilize technical capabilities to optimize product characteristics and manage costs;

 

·

enter into partnership arrangements where we expect to retain substantial economics over time; and

 

·

implement an efficient global tax structure.

 

 

 

 

 

Since our inception, we have maintained in-house technical capabilities supported by external vendor laboratories. In September 2015, we acquired our primary vendor laboratory, Bioceros Holding B.V., a Netherlands company, or Bioceros, to expand our biosimilar pipeline and to vertically integrate our product development capabilities. As a result of the acquisition, Bioceros has become our wholly-owned subsidiary, renamed Epirus Biopharmaceuticals (Netherlands) B.V.

   

Bioceros was focused on the development of monoclonal antibodies (mAbs). We 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 our new rare disease biosimilar product candidate BOW080, as further described below. We believe that the addition of Bioceros staff and capabilities, combined with existing in-house expertise, provides us with a strong

22


 

technical foundation to accelerate product development and optimize product quality. Specifically, we believe that our ability to rapidly and efficiently conduct and repeat experiments to optimize product quality and cell line titers and process yields will help us to reduce regulatory risk and manage long term cost of goods.

   

The product candidates on which we are currently focusing are BOW080 (eculizumab; reference biologic Soliris®) for the potential treatment of ultra-rare blood disorders and BOW070 (tocilizumab; reference biologic Actemra®) for the potential treatment of an uncommon lymphoproliferative disorder known as Castleman’s disease. We expect the standardization of our technology platform and the clustering of the therapeutic area will allow us to have a greater degree of focus, synergy and cost management across product development, manufacturing, clinical and commercialization. We believe there will be a significant unmet need for cost-effective therapies for rare diseases. 

 

For BOW015, which previously was our lead product candidate, we reported bioequivalence, efficacy and safety data from a previous Phase 1 study in healthy volunteers and a Phase 3 study in active rheumatoid arthritis patients, both of which demonstrated the equivalence of BOW015 to Remicade. Our Phase 3 study included an open label phase, where we 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, in 2014, in collaboration with our commercialization partner Sun Pharmaceutical Industries Ltd., or Sun, we launched BOW015 as the first infliximab biosimilar in India, sold under the brand name InfimabTM. We have also filed for approval in additional Southeast Asian and Latin American countries.

 

To date, nearly 1,000 patients have been treated with BOW015. We expect this early experience to provide valuable in-market experience to support filings in developed markets, such as Europe and North America, and to build important commercial experience.

 

In November 2015, we completed manufacturing readiness for BOW015 to support the initiation of a global clinical program for BOW015 in early 2016. In February 2016, we initiated this global clinical program, which we expect to support regulatory filings in established markets such as Europe and the United States. The UNIFORM (Understanding BOW015 (infliximab-EPIRUS) and reference infliximab (Remicade®) in patients with active rheumatoid arthritis on stable doses of methotrexate) study was a 58-week, double-blind, one-to-one randomized, comparator-controlled multi-center global study to compare safety, efficacy and immunogenicity and demonstrate clinical equivalence of BOW015 with Remicade. Until the shift in strategic focus of our business in May 2016 to focus on rare diseases, we planned to enroll over 500 patients with active rheumatoid arthritis in the UNIFORM study, which was to be conducted at sites in Europe, North America and Latin America. The design of the trial provided for a primary endpoint at week 16 involving the assessment of the proportion of patients that meet ACR20, which is a 20 percent or greater improvement in American College of Rheumatology criteria. We were 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.

 

We believe that the biosimilar market in the United States will likely be attractive over the long term.  Currently there are near term challenges in the United States, including an evolving but uncertain regulatory framework and legal situation, a complex commercial environment, a fragmented payor market and a market which focuses on switching patients off existing reference drugs.

   

For European markets and select additional territories, in July 2015, we entered into an agreement with Swiss Pharma International AG, an affiliate of Pharmaceutical Works Polpharma S.A., or, together with Swiss Pharma International AG, Polpharma, for the development and commercialization of BOW015, BOW050 and BOW070 in certain designated territories. The designated territories include the European Union (with the exception of Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands and Sweden, which are reserved for us, along with

23


 

Switzerland and Norway), together with certain countries in the Middle East, Turkey, Russia, and other countries comprising the Commonwealth of Independent States, or CIS.

   

We have entered into agreements with Livzon Mabpharm Inc., or Livzon, for the global development and commercialization of certain antibodies or related biological compounds, including BOW015 and BOW070, for China and associated markets.

   

In near-term markets, such as India and Latin America, in which our current BOW015 data package is expected to be sufficient for approval, we intend to pursue near-term product launches with our partners. In collaboration with our commercialization partner Sun, we launched BOW015 in India in November 2014, under the brand name Infimab. We expect to utilize our existing regulatory data package to gain regulatory approval for BOW015 in additional countries. In May 2015, we also entered into a development and future distribution agreement with mAbxience S.A., or Mabxience, a company organized and existing under the laws of Uruguay and a wholly owned subsidiary of CHEMO Group, for BOW015 in Latin American markets, including Argentina, Chile, Ecuador, Paraguay, Uruguay and Venezuela.

   

The combination of a global sales approach and a focus on deals which would allow us to retain substantial economic value is supported by our Swiss-based tax structure, which we believe will allow us to efficiently manage future cash for operations outside the United States.

   

Our long-term ability to deliver these important medicines to patients worldwide can only be achieved through a disciplined approach. Our experienced management team plans to address the diverse regulatory, legal and commercial landscape by gaining near-term market access, creating a strong technical platform with opportunities for sustainable pipeline growth, and finding tax-optimized partnership deals that maximize future value to provide us with a path forward to build a sustainable and profitable biosimilar business.

 

As of March 31, 2016, we had an accumulated deficit of $155.0 million. We had a net loss of $16.3 million and $7.5 million for the three months ended March 31, 2016 and 2015, respectively.

 

Critical Accounting Policies and Estimates

 

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.

 

There were no changes to our critical accounting policies between December 31, 2015 and March 31, 2016. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2015 which are included in our annual report on Form 10-K filed with the SEC on March 28, 2016.

 

Recent Accounting Pronouncements

 

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The standard is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted for any interim and annual financial statements that have not yet been issued.  We early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis.  Adoption of this ASU resulted in a reclassification of the net current deferred tax asset of $109 and the net current deferred tax liability of $80 to the net non-current deferred tax liability in our consolidated balance sheet as of December 31, 2015.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and

24


 

quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. We are currently evaluating the potential impact that this standard may have on its consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The new standard simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have an impact on our consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which amends ASC Topic 718, Compensation – Stock Compensation.  The new standard identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. We are currently evaluating the potential impact that ASU 2016-09 may have on our financial position or results of operations.

 

Results of Operations

 

The following discussion summarizes the key factors our management team believes are necessary for an understanding of our financial statements.

 

Comparison of the Three Months Ended March 31, 2016 and 2015:

 

The following table sets forth our results of operations for each of the periods set forth below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

Change

 

 

2016

 

2015

 

$

 

%

Revenue, net of costs

    

$

803

    

$

25

    

$

778

 

3112%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

10,342

 

$

3,079

 

$

7,263

 

236%

General and administrative

 

 

6,468

 

 

4,168

 

 

2,300

 

55%

Total operating expenses

 

 

16,810

 

 

7,247

 

 

9,563

 

132%

Loss from operations

 

 

(16,007)

 

 

(7,222)

 

 

(8,785)

 

122%

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(372)

 

 

(281)

 

 

(91)

 

32%

Other income (expense):

 

 

71

 

 

(30)

 

 

101

 

-337%

Total other expense, net

 

 

(301)

 

 

(311)

 

 

10

 

-3%

Loss before income taxes

 

$

(16,308)

 

$

(7,533)

 

$

(8,775)

 

116%

Benefit from income taxes

 

 

42

 

 

12

 

 

30

 

250%

Net loss

 

$

(16,266)

 

$

(7,521)

 

$

(8,745)

 

116%

Revenue — For the three months ended March 31, 2016, we recorded revenue of $803,000 consisting of collaboration revenues under our agreement with Polpharma of $570,000, license and other revenue earned by Epirus Netherlands, of $187,000, royalties of $40,000 and amortization of deferred revenue of $6,000 under our agreement with Sun.  We expect revenue to be lower in future periods due to the suspension of our BOW015 development program.

 

Research and development expenses—For the three months ended March 31, 2016, research and development expense was $10.3 million compared to $3.1 million for the three months ended March 31, 2015, an increase of $7.3 million, or 236%. This increase was primarily the result of an increase in development costs of $3.8 million related primarily to our BOW015 and BOW050 programs, which have now been suspended.  In addition, clinical related costs

25


 

increased by $1.1 million due to costs related to our Phase 3 study, employee related costs increased by $0.9 million, non-cash expenses increased by $1.0 million and other expenses increased by $0.4 million. We expect research and development expense to decrease in future quarters as compared to the current quarter due to the reprioritization of the Company’s pipeline, as announced on May 9, 2016 to focus exclusively on developing biosimilars for the treatment of rare diseases.

 

The following table sets forth our research and development expenses by program for each of the periods set forth below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31,

 

Change

 

Project

 

2016