☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
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 001-35726
Radius Health, Inc.
(Exact name of registrant as specified in its charter)
Delaware
80-0145732
(State or other jurisdiction of
(IRS Employer
Incorporation or organization)
Identification Number)
950 Winter Street
Waltham, Massachusetts02451
(Address of Principal Executive Offices and Zip Code)
(617) 551-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value per share
RDUS
The Nasdaq Global Market
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 every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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, $0.0001 par value per share, outstanding as of November 2, 2020: 46,547,387 shares
(Unaudited, in thousands, except share and per share amounts)
September 30, 2020
December 31, 2019
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
81,830
$
69,886
Restricted cash
567
567
Marketable securities
43,873
91,015
Accounts receivable, net
21,175
23,289
Inventory
7,506
5,323
Prepaid expenses
11,346
12,131
Other current assets
17,078
846
Total current assets
183,375
203,057
Property and equipment, net
1,276
2,293
Intangible assets
5,984
6,583
Right of use assets - operating leases
4,832
6,704
Other assets
484
514
Total assets
$
195,951
$
219,151
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable
$
15,767
$
6,030
Accrued expenses and other current liabilities
63,662
53,030
Operating lease liability, current
2,229
2,198
Total current liabilities
81,658
61,258
Convertible notes payable
208,902
195,591
Term loan
9,941
—
Operating lease liability, long term
4,031
4,581
Total liabilities
304,532
261,430
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock, 0.0001 par value; 200,000,000 shares authorized, 46,548,201 shares and 46,189,870 shares issued and outstanding at September 30, 2020 and December 31, 2019
5
5
Additional paid-in-capital
1,215,769
1,194,327
Accumulated other comprehensive income
82
3
Accumulated deficit
(1,324,437)
(1,236,614)
Total stockholders’ equity (deficit)
(108,581)
(42,279)
Total liabilities and stockholders’ equity (deficit)
$
195,951
$
219,151
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
REVENUES:
Product revenue, net
$
50,412
$
46,766
$
148,448
$
117,652
License revenue
27,414
—
27,414
—
Total revenue
$
77,826
$
46,766
$
175,862
$
117,652
OPERATING EXPENSES:
Cost of sales - product
3,839
3,971
11,771
10,809
Cost of sales - intangible amortization
200
200
599
599
Research and development, net of amounts reimbursable (a)
39,450
31,791
123,340
82,230
Selling, general and administrative
33,692
35,617
108,356
116,918
Income (Loss) from operations
645
(24,813)
(68,204)
(92,904)
OTHER INCOME (EXPENSE):
Other (expense) income
(87)
59
(144)
21
Interest expense
(7,069)
(6,298)
(20,747)
(18,500)
Interest income
222
1,008
1,272
3,105
NET LOSS
$
(6,289)
$
(30,044)
$
(87,823)
$
(108,278)
OTHER COMPREHENSIVE LOSS:
Unrealized (loss) gain from available-for-sale debt securities
(26)
66
79
776
COMPREHENSIVE LOSS
$
(6,315)
$
(29,978)
$
(87,744)
$
(107,502)
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS - BASIC AND DILUTED (Note 8)
$
(6,289)
$
(30,044)
$
(87,823)
$
(108,278)
LOSS PER SHARE:
Basic and diluted
$
(0.14)
$
(0.65)
$
(1.89)
$
(2.36)
WEIGHTED AVERAGE SHARES:
Basic and diluted
46,493,126
46,141,217
46,395,124
45,975,691
(a) Amounts reimbursable for the three and nine months ended September 30, 2020 were $15.4 million and $0 for the three and nine months ended September 30, 2019.
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Radius Health, Inc. (“Radius” or the “Company”) is a science-driven fully integrated biopharmaceutical company that is committed to developing and commercializing innovative endocrine therapeutics. In April 2017, the Company’s first commercial product, TYMLOS® (abaloparatide) injection, was approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapies. In July 2017, the Company entered into a license and development agreement with Teijin Limited (“Teijin”) for abaloparatide for subcutaneous injection (“abaloparatide-SC”) in Japan, under which the Company received an upfront payment and is entitled to receive milestone payments upon the achievement of certain regulatory and sales milestones, and a fixed low double-digit royalty based on net sales of abaloparatide-SC in Japan during the royalty term. In January 2019, the European Commission adopted a decision refusing approval of the Company’s European Marketing Authorisation Application (“MAA”) for abaloparatide-SC. The Company is developing an abaloparatide transdermal patch, or abaloparatide-patch, for potential use in the treatment of postmenopausal women with osteoporosis. In connection with its strategic plans to focus on bone health and targeted endocrine diseases, in July 2020 the Company entered into a license agreement with Berlin-Chemie AG, a company of the Menarini Group (“Berlin-Chemie”), under which the Company granted Berlin-Chemie an exclusive license to develop and commercialize products containing elacestrant (RAD1901), a selective estrogen receptor degrader (“SERD”), worldwide. Elacestrant is being developed for potential use in the treatment of hormone receptor-positive breast cancer. Further, the Company completed its divestment of its oncology program with the sale of RAD140, an internally discovered non-steroidal selective androgen receptor modulator (“SARM”) the Company was developing for potential use in the treatment of hormone receptor-positive breast cancer, to Ellipses Pharma in September 2020.
The Company is subject to the risks associated with biopharmaceutical companies with a limited operating history, including dependence on key individuals, a developing business model, the necessity of securing regulatory approvals to market its investigational product candidates, market acceptance of the Company’s investigational product candidates following receipt of regulatory approval, competition for its investigational product candidates following receipt of regulatory approval, and the continued ability to obtain adequate financing to fund the Company’s future operations, inclusive of the impacts from the coronavirus disease 2019 (“COVID-19”) pandemic. The Company has incurred losses and expects to continue to incur additional losses for the foreseeable future. As of September 30, 2020, the Company had an accumulated deficit of $1,324.4 million, and total cash, cash equivalents, and marketable securities of $125.7 million.
The ongoing global COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus and while the Company cannot predict their scope and severity, these developments and measures havehad an effect on the Company’s business, results of operations and financial condition and may adversely affect its business, results of operations and financial condition in the future. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and is taking steps to minimize its impact on its business. However, the full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 pandemic or the effectiveness of actions taken to contain the pandemic or minimize its impact, among others. Furthermore, if the Company or any of the third parties with whom it engages were to experience additional or prolonged shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on its business, results of operations and financial condition.
Based upon its cash, cash equivalents, and marketable securities balance as of September 30, 2020, the Company believes that, prior to the consideration of revenue from the potential future sales of any of its investigational product candidates that may receive regulatory approval or proceeds from partnering and/or collaboration activities, it has sufficient capital as well as access to other capital discussed in Note 7, “Term Loan and Credit Facility” to fund its development plans, U.S. commercial scale-up and other operational activities, for at least one year from the date of this filing. The Company expects to finance the future development costs of its clinical product portfolio with its existing cash and cash equivalents, and marketable securities, or through strategic financing opportunities that could include, but are not limited to collaboration or partnership agreements, future offerings of its equity, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may be unable to complete its clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements and the related disclosures of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all the information and footnotes required by U.S. 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 U.S. GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2020. Subsequent events have been evaluated up to the date of issuance of these financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.
Significant Accounting Policies—The significant accounting policies identified in the Company’s 2019 Form 10-K that require the Company to make estimates and assumptions include: revenue recognition, inventory obsolescence, long-lived assets and intangible assets, accounting for stock-based compensation, contingencies, tax valuation reserves, fair value measures, and accrued expenses. There were no changes to significant accounting policies during the nine months ended September 30, 2020, except for the adoption of the Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”) detailed below.
Accounting Standards Updates—Recently Adopted—In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Certain amendments thereto were also issued by the FASB. ASU 2016-13 and the related amendments require that credit losses be reported using an expected losses model, representing the entity’s current estimate of credit losses expected to be incurred. The previous accounting guidance, as applied by the Company through December 31, 2019, was based on an incurred losses model. The standard replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. For available-for-sale debt securities with unrealized losses, ASU 2016-13 and the related amendments now requires allowances to be recorded instead of reducing the amortized cost of the investment. These amendments under ASU 2016-13 are effective for interim and annual fiscal periods beginning after December 15, 2019. The Company adopted ASU 2016-13 as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement, or (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments under ASU 2018-13 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 on January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”). ASU 2018-15 updates guidance regarding accounting for a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 on January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
Other -In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy. The business tax provisions of the CARES Act include temporary changes to income and non-income-based tax laws. Some of the key income tax provisions include eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (“NOL”) carryforwards to offset taxable income in 2018, 2019, or 2020 and reinstating it for tax years after 2020; allowing NOLs generated in 2018, 2019, or 2020 to be carried back five years; increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2019 and 2020 tax years; allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cut and Jobs Act; and allowing entities to deduct more of their charitable cash contributions made
during calendar year 2020 by increasing the taxable income limitation to 25% from 10%. Companies are required to account for these provisions in the period that includes the March 2020 enactment date (i.e., the first quarter for calendar year-end entities). The Company has assessed the impact of these provisions and they are not material to the Company’s condensed consolidated financial statements or related disclosures. Measures of the CARES Act not related to income-based taxes include allowing an employer to pay its share of Social Security payroll taxes that would otherwise be due from the date of enactment through December 31, 2020 over the following two years and allowing eligible employers subject to closure due to the COVID-19 pandemic to receive a 50% credit on qualified wages against their employment taxes each quarter, with any excess credits eligible for refunds. These measures of the CARES Act are also not material to the Company’s condensed consolidated financial statements as the Company did not apply for any credit during the period.
Accounting Standards Updates, Recently Issued—In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interest period and the recognition of deferred tax liabilities for outside basis differences, and also clarifies and simplifies other aspects of the accounting for income taxes. The amendments under ASU 2010-12 are effective for interim and annual fiscal periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effects the adoption of ASU 2019-12 will have on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The guidance simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently in the process of determining the effect that the adoption will have on its condensed consolidated financial statements and related disclosures.
3. Marketable Securities
Available-for-sale marketable securities and cash and cash equivalents as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
The Company reviews marketable securities whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. We evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss on the condensed consolidated balance sheet, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that is not related to credit is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense on the condensed consolidated statement of operations. Losses are charged against the allowance when the Company believes the uncollectability of an available-for-sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. The unrealized losses at September 30, 2020 and December 31, 2019 are attributable to changes in interest rates and the Company does not believe any unrealized losses represent credit losses.
As of September 30, 2020 and December 31, 2019, the Company had 2 and 8 available-for-sale debt securities in an unrealized loss position, respectively, for which an allowance for credit losses has not been recorded. The following table summarizes such investments by major security type and length of time in a continuous unrealized loss position as of September 30, 2020 (in thousands).
Less than 12 Months
12 months or longer
Total
Fair value
Unrealized losses
Fair value
Unrealized losses
Fair value
Unrealized losses
Available-for-sale debt securities
Domestic corporate debt securities
$
4,621
$
(3)
—
—
$
4,621
$
(3)
Domestic corporate commercial paper
4,964
(5)
—
—
4,964
(5)
Total available-for-sale debt securities
$
9,585
$
(8)
—
—
$
9,585
$
(8)
4. Fair Value Measurements
The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:
•Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
•Level 2—Observable inputs other than Level 1 prices, 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.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no material transfers between any levels during the nine months ended September 30, 2020. There were no material transfers between any levels during 2019.
The following table summarizes the financial instruments measured at fair value on a recurring basis in the Company’s accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 (in thousands):
As of September 30, 2020
Level 1
Level 2
Level 3
Total
Assets
Cash and cash equivalents:
Cash
$
55,796
$
—
$
—
$
55,796
Money market funds (1)
26,034
—
—
26,034
Total
$
81,830
$
—
$
—
$
81,830
Marketable Securities
Domestic corporate debt securities (2)
$
—
$
38,910
$
—
$
38,910
Domestic corporate commercial paper (2)
—
4,963
—
4,963
Total
$
—
$
43,873
$
—
$
43,873
As of December 31, 2019
Level 1
Level 2
Level 3
Total
Assets
Cash and cash equivalents:
Cash
$
34,726
$
—
$
—
$
34,726
Money market funds (1)
35,160
—
—
35,160
Total
$
69,886
$
—
$
—
$
69,886
Marketable Securities
Domestic corporate debt securities (2)
$
—
$
41,229
$
—
$
41,229
Domestic corporate commercial paper (2)
—
24,905
—
24,905
Agency bonds (2)
—
12,389
—
12,389
US treasury bonds (2)
$
—
$
12,492
$
—
$
12,492
Total
$
—
$
91,015
$
—
$
91,015
(1) Fair value is based upon quoted market prices.
(2) Fair value is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources, including market participants, dealers and brokers.
As of September 30, 2020, the carrying amounts of the cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, long-term debt and operating lease liabilities approximated their estimated fair values.
5. Inventory
Inventory consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
Finished goods manufactured by the Company have a 36-month shelf life from date of manufacture.
6. Convertible Notes Payable
On August 14, 2017, in a registered underwritten public offering, the Company issued $300.0 million aggregate principal amount of 3% Convertible Senior Notes due September 1, 2024 (the “Convertible Notes”). In addition, on September 12, 2017, the Company issued an additional $5.0 million principal amount of Convertible Notes pursuant to the exercise of an over-allotment option granted to the underwriters in the offering. In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability component (the “Liability Component”) and embedded conversion option (the “Equity Component”) of the Convertible Notes by allocating the proceeds between the Liability Component and the Equity Component, due to the Company’s ability to settle the Convertible Notes in cash, common stock or a combination of cash and common stock, at its option. In connection with the issuance of the Convertible Notes, the Company incurred approximately $9.4 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the Liability and Equity Components based on the allocation of the proceeds. Of the total $9.4 million of debt issuance costs, $4.3 million was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $5.1 million was allocated to the Liability Component and is now recorded as a reduction of the Convertible Notes in the Company’s condensed consolidated balance sheet. The portion allocated to the Liability Component is amortized to interest expense using the effective interest method over seven years.
The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 3.00% per annum, payable semi-annually in arrears on March 1 and September 1. Upon conversion, the Convertible Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Convertible Notes will be subject to redemption at the Company’s option, under certain restrictions as noted below, on or after September 1, 2021, in whole or in part, if the conditions described below are satisfied. The redemption of the Convertible Notes may also be subject to certain restrictions included in Note 7, “Term Loan and Credit Facility”. The Convertible Notes will mature on September 1, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms. Subject to satisfaction of certain conditions and during the periods described below, the Convertible Notes may be converted at an initial conversion rate of 20.4891 shares of common stock per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $48.81 per share of common stock).
Holders of the Convertible Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding June 1, 2024 only under the following circumstances:
(1)if the last reported sale price of the Company’s common stock for at least 20 trading days (whether consecutive or not) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
(2)during the five-business day period after any five-consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
(3)if the Company calls the Convertible Notes for redemption, until the close of business on the business day immediately preceding the redemption date; or
(4)upon the occurrence of specified corporate events.
As of September 30, 2020, none of the above circumstances had occurred and, as such, the Convertible Notes were not convertible.
Prior to September 1, 2021, the Company may not redeem the Convertible Notes. On or after September 1, 2021, the Company may redeem for cash all or part of the Convertible Notes if the last reported sale price of the Company’s common stock equals or exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30-
consecutive trading day period ending within five trading days prior to the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, calling any Convertible Note for redemption will constitute a make-whole fundamental change with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances.
The initial carrying amount of the Liability Component of $166.3 million was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The Equity Component of the Convertible Notes of $138.7 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the Convertible Notes of $305.0 million and the fair value of the Liability of the Convertible Notes of approximately $166.3 million on their respective dates of issuance. The excess of the principal amount of the Liability Component over its carrying amount (the “Debt Discount”) is amortized to interest expense using the effective interest method over seven years. The Equity Component is not remeasured as long as it continues to meet the conditions for equity classification. In connection with issuance of the Convertible Notes, the Company also incurred certain offering costs directly attributable to the offering. Such costs are deferred and amortized over the term of the debt to interest expense using the effective interest method.
The outstanding balances of the Convertible Notes as of September 30, 2020 consisted of the following (in thousands):
2024 Convertible Notes
Liability component:
Principal
$
305,000
Less: debt discount and issuance costs, net
(96,098)
Net carrying amount
$
208,902
Equity component:
$
134,450
The Company determined the expected life of the Convertible Notes was equal to their seven-year term. The effective interest rate on the Liability Components of the Convertible Notes for the period from the date of issuance through September 30, 2020 was 13.04%. As of September 30, 2020, the “if-converted value” did not exceed the remaining principal amount of the Convertible Notes. The fair value of the Convertible Notes are based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, the Convertible Notes are classified within Level 2 in the fair value hierarchy. The fair value of the Convertible Notes, which differs from their carrying value, is influenced by interest rates, the Company’s stock price and stock price volatility. The estimated fair value of the Convertible Notes as of September 30, 2020 was approximately $250.8 million.
The following table sets forth total interest expense recognized related to the Convertible Notes during the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Contractual interest expense
$
2,288
$
2,288
$
6,863
$
6,863
Amortization of debt discount
4,421
3,865
12,830
11,216
Amortization of debt issuance costs
165
145
480
421
Total interest expense
$
6,874
$
6,298
$
20,173
$
18,500
Future minimum payments on the Company’s long-term debt as of September 30, 2020 are as follows (in thousands):
On January 10, 2020, the Company and Radius Pharmaceuticals, Inc., a wholly-owned subsidiary of the Company (collectively, the “Borrowers”), entered into a (i) Credit and Security Agreement, as amended (Term Loan) (the “Term Credit Agreement”) with MidCap Financial Trust, in its capacity as administrative agent (the “Agent”) and as a lender, and the financial institutions or other entities from time to time parties thereto and (ii) Credit and Security Agreement (Revolving Loan) (the “Revolving Credit Agreement,” together with the Term Credit Agreement, the “Credit Agreements”), with the Agent, and the financial institutions or other entities from time to time parties thereto.
The Credit Agreements consist of a secured term loan facility (the “Term Facility”) in an aggregate amount of $55.0 million, which will be made available to the Borrowers under the following four tranches: (i) Tranche 1 - $10.0 million, available at closing; (ii) Tranche 2 - $15.0 million, available no earlier than June 25, 2020, but no later than December 31, 2020; (iii) Tranche 3 - $15.0 million, available no later than December 31, 2021, subject to the Company’s satisfaction of certain conditions described in the Term Credit Agreement; and (iv) Tranche 4 - $15.0 million, available no later than December 31, 2021, subject to the Company’s satisfaction of certain conditions described in the Term Credit Agreement.
The Credit Agreements also consist of a secured revolving credit facility (the “Revolving Facility”, together with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $20.0 million, the availability of which is determined based on a borrowing base as follows: (i) up to 85% of the net collectible value of the Borrowers’ domestic accounts receivable due from eligible direct and third-party payors, plus (ii) up to 40% of the Borrowers’ domestic eligible inventory, provided that the availability from eligible inventory may not exceed 20% of the total availability at any time. The Borrowers also have the right, subject to certain customary conditions, to increase the Revolving Facility by $20.0 million.
The Facilities have a maturity date of June 1, 2024. The Borrowers guarantee their obligations under the Credit Agreements. The obligations are secured by first priority liens on substantially all of the assets of the Borrowers, including, with certain exceptions, all of the capital stock of the Borrowers’ subsidiaries. On July 23, 2020, the Company entered into a Partial Release and Acknowledgement Agreement (the “Release Agreement”) with the Agent pursuant to which the Agent agreed to release the security interest on certain assets of the Company that are licensed to Berlin-Chemie AG pursuant to the license agreement between the Company and Berlin-Chemie AG.
The proceeds of the Term Facility may be used for (i) transaction fees in connection with the transactions contemplated by the Credit Agreements, (ii) the payment in full on the closing date of certain existing debt, and (iii) working capital needs and general corporate purposes of the Borrowers and their subsidiaries. The proceeds of the Revolving Facility may be used for (i) transaction fees in connection with the transactions contemplated by the Credit Agreements and (ii) working capital needs and general corporate purposes of the Borrowers and their subsidiaries.
Borrowings under the Term Facility will bear interest through maturity at a variable rate based upon the LIBOR rate plus 5.75%, subject to a LIBOR floor of 2.00%. Borrowings under the Revolving Facility will bear interest through maturity at a variable rate based upon the LIBOR rate plus 3.50%, subject to a LIBOR floor of 2.00%.
Subject to the terms and conditions set forth in the Credit Agreements, the Borrowers may be required to make certain mandatory prepayments prior to maturity.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, will limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness as noted above in Note 6, “Convertible Notes Payable,” enter into transactions with affiliated persons, make investments, and change the nature of their businesses. The
Credit Agreements also contain customary events of default, including subject to thresholds and grace periods, among others, payment default, covenant default, cross default to other material indebtedness, and judgment default. In addition, the Credit Agreements require the Borrowers to maintain a minimum level of net revenue, or in the case where the Borrowers fail to maintain a minimum level of net revenue, certain levels of market capitalization and unrestricted cash. As of September 30, 2020, the Company was not in violation of any covenants contained in the Credit Agreements.
As of September 30, 2020, the Company had received net proceeds of approximately $9.8 million from the Term Loan, net of fees and expenses of $0.2 million. The estimated fair value of the Term Facility as of September 30, 2020 was approximately $8.2 million. The outstanding balance of the Term Loan as of September 30, 2020 was (in thousands):
Term loan
Principal
$
10,000
Less: debt issuance costs, net
(59)
Net carrying amount
$
9,941
The following table sets forth total interest expense recognized related to the Term Facility during the three and nine months ended September 30, 2020 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Contractual interest expense
$
198
$
—
$
573
$
—
Amortization of debt discount
1
—
2
—
Total interest expense
$
199
$
—
$
575
$
—
Future minimum payments on the Term Facility as of September 30, 2020 are as follows (in thousands):
Basic and diluted net loss per share for the periods set forth below is calculated as follows (in thousands, except share and per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Numerator:
Net loss
$
(6,289)
$
(30,044)
$
(87,823)
$
(108,278)
Denominator:
Weighted-average number of common shares used in loss per share - basic and diluted
46,493,126
46,141,217
46,395,124
45,975,691
Loss per share - basic and diluted
$
(0.14)
$
(0.65)
$
(1.89)
$
(2.36)
The following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding, as they would be anti-dilutive. For the three and nine months ended September 30, 2020 and 2019, respectively, all of the Company’s options to purchase common stock and restricted stock units outstanding were assumed to be anti-dilutive as earnings attributable to common stockholders was in a loss position.
Three and Nine Months Ended September 30,
2020
2019
Options to purchase common stock
5,868,348
4,860,997
Restricted stock units
686,069
655,723
Performance units
70,000
79,000
The Company has the option to settle the conversion obligation for the Convertible Notes in cash, shares or any combination of the two. As the Convertible Notes are not convertible as of September 30, 2020, they are not participating securities and they will not have an impact on the calculation of basic earnings or loss per share. Based on the Company’s net loss position, there is no impact on the calculation of dilutive loss per share during the three and nine-month periods ended September 30, 2020 and 2019, respectively.
9. Product Revenue Reserves and Allowances
To date, the Company’s only source of product revenue has been from the U.S. sales of TYMLOS, which it began shipping to customers in May 2017. The following table summarizes activity in each of the product revenue allowance and reserve categories for the nine months ended September 30, 2020 and 2019 (in thousands):
Chargebacks, Discounts, and Fees
Government and other rebates
Returns
Total
Ending balance at December 31, 2018
$
3,198
$
7,620
$
411
$
11,229
Provision related to sales in the current year
21,203
44,426
698
66,327
Adjustments related to prior period sales
(27)
697
—
670
Credits and payments made
(19,759)
(34,190)
(575)
(54,524)
Ending balance at September 30, 2019
4,615
18,553
534
23,702
Ending balance at December 31, 2019
$
5,739
$
17,280
$
1,583
$
24,602
Provision related to sales in the current year
16,123
57,120
2,030
75,273
Adjustments related to prior period sales
(107)
(1,570)
—
(1,677)
Credits and payments made
(20,011)
(50,717)
(893)
(71,621)
Ending balance at September 30, 2020
$
1,744
$
22,113
$
2,720
$
26,577
Chargebacks, discounts, fees, and returns are recorded as reductions of trade receivables, net on the condensed consolidated balance sheets. Government and other rebates are recorded as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.
To date, the Company has no bad debt write-offs and the Company does not currently have credit issues with any customers. There were no credit losses associated with the Company’s trade receivables as of September 30, 2020 and 2019.
10. License Revenue and Reimbursable Expenses
General
The Company has generated revenue from contracts with customers, which include upfront payments for licenses.
Berlin-Chemie
On July 23, 2020, the Company entered into a license agreement (“License Agreement”) with Berlin-Chemie under which the Company granted Berlin-Chemie an exclusive license to develop and commercialize products containing elacestrant (RAD1901) worldwide.
The Company and Berlin-Chemie simultaneously entered into a Transition Services Agreement (the “TSA”), pursuant to which the Company agreed to perform certain services for Berlin-Chemie related to the EMERALD Phase 3 monotherapy study until the earlier of the completion of the contemplated services or the filing with the FDA of a New Drug Application for elacestrant. Pursuant to the TSA, Berlin-Chemie agreed to reimburse the Company for all out-of-pocket and full-time employee costs in performing the services, for total estimated reimbursements of $111.5 million. The Company will continue to incur research and development expenses in support of scale up costs under the TSA.
Pursuant to the terms of the License Agreement, Berlin-Chemie made a nonrefundable initial license fee payment to the Company of $30.0 million in July 2020. The Company is also eligible to receive up to $20.0 million in development and regulatory milestone payments and up to $300.0 million in sales milestone payments, with such payments contingent on the achievement of specified milestones with respect to the licensed products. The Company is also eligible to receive tiered royalties on sales of licensed products at percentages ranging from low to mid-teens, subject to certain reductions. Royalties on net sales will be payable on a product-by-product and country-by-country basis until the latest of the expiration date of the last to expire of the relevant patent rights, the expiration of regulatory exclusivity, or ten years from such first commercial sale.
The License Agreement will continue on a licensed product-by-licensed product and country-by-country basis until the last to expire royalty term. Either party may terminate the License Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. The Company may terminate the License Agreement for certain patent challenges or if no development, manufacture or commercialization activity occurs in any given 24-month period. Berlin-Chemie may terminate the License Agreement at its discretion for any reason by delivering 180 days’ prior written notice to the Company; provided that such termination will not be effective prior to the third anniversary of the effective date.
The Company determined that the License Agreement and TSA should be combined and evaluated as a single arrangement as they were executed on the same date and negotiated as a package. The arrangement with Berlin-Chemie provides for the transfer of the following goods or services: (i) license, (ii) know-how, (iii) regulatory filings, (iv) inventory, (v) transition services, including certain clinical, manufacturing, regulatory and other services associated with the Phase 3 EMERALD monotherapy study, and (vi) participation in various joint committees.
Management applied the guidance in ASC 606 to identify all distinct goods and services within the arrangement to assess whether there is a unit of account that should be accounted for under ASC 606. Management evaluated all of the promised goods or services within the contract and determined which of those were separate performance obligations. The Company determined that the license granted, at arrangement inception, should be combined with the know-how and regulatory filings as they are not capable of being distinct (the “License”). The Company also concluded that the license rights, know-how, and regulatory filings are capable of being distinct from the supply of inventory, as Berlin-Chemie would be able to benefit from the inventory on its own or with other resources that are readily available, and capable of being distinct from the transition services and participation in joint committees as these are research and development services that can typically be performed by other third parties.
The License is an element of the arrangement that is subject to the revenue recognition accounting guidance, as the performance obligation is an output of the Company’s ordinary activities in exchange for consideration. Conversely, the transition services, the participation on joint committees, and transfer of inventory are elements of the arrangements that are outside the scope of the revenue recognition guidance, as the Company is providing goods and services that are not an output of the Company’s ordinary activities.
The transaction price at inception is comprised of fixed consideration of $30.0 million. The $30.0 million upfront fee, which represents the fixed consideration in the transaction price, was allocated to the License and the supply of inventory, on a relative standalone selling price basis. The Company estimated the standalone selling price for the license by applying a risk adjusted, net present value, estimate of future potential cash flows approach and determined the standalone selling price for the inventory
using a cost approach. Accordingly, the Company has allocated $27.4 million to the license and $2.6 million to the inventory. The Company concluded that the reimbursements for the research and development transition services and participation in the joint steering committees was commensurate with the standalone selling prices of the services, and as such, will be attributed to those services. The reimbursements for these services will be recorded as a reduction of the related research and development expenses as the expenses are incurred.
Under the Berlin-Chemie agreements, the Company is eligible to receive various development and regulatory, and sales milestones. There is uncertainty that the events to obtain the development and regulatory milestones will be achieved. The Company has thus determined that all such milestones will be constrained until it is deemed probable that a significant revenue reversal will not occur. Additional transaction price recognized in future periods related to milestone payments and royalties will be allocated solely to the License.
Sales milestones and sales-based royalties were also excluded from the transaction price as the license is deemed to be the predominant item to which the sales milestones and sales-based royalties relate. The Company will recognize such revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
During the three and nine months ended September 30, 2020, the Company recognized $27.4 million of license revenue, as it had satisfied its promises under the performance obligation for the license, including the transfer of know-how and regulatory filings, by transferring them at a point in time during the quarter. During the three and nine months ended September 30, 2020, the Company recorded $15.4 million as a reduction of research and development expenses for reimbursement of transition services performed under the TSA.
11. Commitments and Contingencies
Litigation
From time to time, the Company may become subject to legal proceedings and claims which arise in the ordinary course of its business. The Company records a liability in its condensed consolidated financial statements for these matters when a loss is known or considered probable and the amount 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 a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the condensed consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.
As of September 30, 2020, the Company was not party to any significant litigation.
Manufacturing Agreements
In June 2016, the Company entered into a Supply Agreement with Ypsomed AG (“Ypsomed”), as amended, pursuant to which Ypsomed agreed to supply commercial and clinical supplies of a disposable pen injection device customized for subcutaneous injection of abaloparatide. The Company has agreed to purchase a minimum number of devices at prices per device that decrease with an increase in quantity supplied. In addition, the Company has agreed to make milestone payments for Ypsomed’s capital developments in connection with the initiation of the commercial supply of the device and to pay a one-time capacity fee. All costs and payments under the agreement are delineated in Swiss Francs. The agreement had an initial term of three years, which began on June 1, 2017, after which it automatically renewed for a two-year term. Following its current term, the agreement automatically renews for additional two-year terms unless either party terminates the agreement upon 18 months’ notice prior to the end of the then-current term. For the two-year term beginning May 2020, the Company is required to purchase a minimum number of batches for CHF 1.9 million (approximately $2.1 million).
In June 2016, the Company entered into a Commercial Supply Agreement with Vetter Pharma International GmbH (“Vetter”), as amended, pursuant to which Vetter agreed to formulate the finished abaloparatide-SC drug product containing abaloparatide active pharmaceutical ingredient fill cartridges with the drug product, assemble the pen delivery device, and package the pen for commercial distribution. The Company agreed to purchase the cartridges and pens in specified batch sizes at a price per unit. For labeling and packaging services, the Company agreed to pay a per unit price dependent upon the number of pens loaded with cartridges that are labeled and packaged. These prices are subject to an annual price adjustment. The agreement has an initial term of five years, which began on January 1, 2016, after which, it automatically renews for two-year terms unless either party notifies the other party two years before the end of the then-current term that it does not intend to renew.
In July 2016, the Company entered into a Manufacturing Services Agreement with Polypeptide Laboratories Holding AB (“PPL”), as amended, as successor-in-interest to Lonza Group Ltd., pursuant to which PPL agreed to manufacture the commercial and clinical supplies of abaloparatide API. The Company agreed to purchase the API in batches at a price per gram
in euros, subject to an annual increase by PPL. The agreement has an initial term of six years, which began on June 28, 2016, after which, it automatically renews for three-year terms unless either party provides notice of non-renewal 24 months before the end of the then-current term. The Company was required to purchase a minimum number of batches annually, equal to approximately €2.9 million (approximately $3.4 million) per year, subject to any annual price adjustments, during the initial term, except in calendar years 2019 and 2020. The Company was not subject to the minimum purchase requirement in 2019 and is not in 2020.
Related Party Transactions
Since December 2019, an immediate family member of Jessica Hopfield (a member of the Company’s Board of Directors) has been an executive officer of one of the Company’s customers, AmerisourceBergen Corporation (“ABC”). The activities with ABC and its affiliates are in the ordinary course of business and were primarily for commercial distribution of TYMLOS and service fees. As of September 30, 2020, the Company recognized net revenues of approximately $23.7 million in connection with product sales of TYMLOS and paid ABC and its affiliates approximately $2.0 million for services under various commercial and services agreements. In addition, no accounts receivable were recorded within the Company’s consolidated balance sheets as of September 30, 2020.
12. Income Taxes
The Company did not record a federal or state income tax provision or benefit for each of the nine months ended September 30, 2020 and 2019 due to the expected loss before income taxes to be incurred for the years ended December 31, 2020 and 2019, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
This Quarterly Report on Form 10-Q, including in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and including the information incorporated by reference herein, contains, in addition to historical information, forward-looking statements. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “continue,” “should,” “would,” “could,” “potentially,” “will,” “may” or similar words and expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may include, among other things, statements about:
•our expectations regarding commercialization of TYMLOS in the U.S., including our market access coverage expectations, and our ability to successfully commercialize TYMLOS in the U.S.;
•the therapeutic benefits and effectiveness of TYMLOS and our investigational product candidates and the potential indications and market opportunities therefor;
•our ability to obtain U.S. and foreign regulatory approval for our investigational product candidates, including supplemental regulatory approvals for TYMLOS, and the timing thereof;
•our ability to compete with other companies that are or may be developing or selling products that are competitive with TYMLOS or our investigational product candidates;
•anticipated trends and challenges in the U.S. and other markets in which TYMLOS may compete and in other potential markets in which we may compete;
•the direct and indirect impact of the COVID-19 pandemic on our business and operations, including sales, expenses, supply chain, manufacturing, research and development costs, clinical trials and employees;
•the impact of the COVID-19 pandemic and related downturn of the U.S. and global economies;
•our plans with respect to collaborations and licenses related to the development, manufacture or sale of TYMLOS and our investigational product candidates, including our out-license of elacestrant and our sale of RAD140;
•our expectations and the performance of RAD140 following the sale to Ellipses Pharma, including the percentage of sales that we may be entitled to;
•the performance and experience of our licensee, Berlin-Chemie AG, a company of the Menarini Group, to successfully develop and, if approved, commercialize elacestrant worldwide under the terms and conditions of our license agreement;
•our plans with respect to expanding our product portfolio;
•our expectations regarding the timing of our regulatory submissions;
•our expectations for our Phase 3 studies of abaloparatide-SC for men, and abaloparatide transdermal patch (abaloparatide-patch) or our other clinical trials, as well as the Phase 3 study of elacestrant, including projected costs, study designs or the timing for initiation, recruitment, completion, or reporting top-line data;
•the progress of, timing of and amount of expenses associated with our research, development and commercialization activities;
•the safety profile and related adverse events of TYMLOS and our investigational product candidates;
•the ability of our investigational product candidates to meet existing or future regulatory standards;
•our expectations regarding federal, state and foreign regulatory requirements;
•the success of our clinical studies for our investigational product candidates;
•our expectations as to future financial performance, expense levels, future payment obligations and liquidity sources;
•our ability to attract, motivate, and retain key personnel; and
•other factors discussed elsewhere in this Quarterly Report on Form 10-Q.
The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include our financial performance, the uncertainties inherent in the early stages of commercializing any new pharmaceutical product or the initiation, execution and completion of clinical trials, uncertainties surrounding the timing of availability of data from our clinical trials, ongoing discussions with and actions by regulatory authorities, our ability to attract and retain customers, our development activities and those other factors we discuss under the caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. You should read these factors and the other cautionary statements made in this Quarterly Report on Form 10-Q as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10-Q. These important factors are not exhaustive and other sections of this Quarterly Report on Form 10-Q may include additional factors which could adversely impact our business and financial performance.
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes set forth in this report. Unless the context otherwise requires, “we,” “our,” “us,” “Radius,” “Company,” and similar expressions used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section refer to Radius Health, Inc. and our consolidated entities.
Executive Overview
We are a science-driven fully integrated biopharmaceutical company that is committed to developing and commercializing innovative endocrine therapeutics.
In April 2017, our first commercial product, TYMLOS (abaloparatide) injection, was approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. In May 2017, we commenced U.S. commercial sales of TYMLOS and as of October 1, 2020, TYMLOS was available and covered for approximately 279 million U.S. insured lives, representing approximately 99% of U.S. commercial and 83% of Medicare Part D insured lives. In July 2017, we entered into a license and development agreement with Teijin Limited (“Teijin”) for abaloparatide for subcutaneous injection (“abaloparatide-SC”) in Japan. Under this agreement, we received an upfront payment and are entitled to receive milestone payments upon the achievement of certain regulatory and sales milestones, and a fixed low double-digit royalty based on net sales of abaloparatide-SC in Japan during the royalty term. In March 2018, we initiated our Phase 3 ATOM study of abaloparatide-SC in men with osteoporosis which, if successful, will form the basis of a supplemental New Drug Application (“NDA”) seeking to expand the use of TYMLOS to treat men with osteoporosis at high risk for fracture. We completed patient enrollment in September 2020 and expect to report top-line data from the study in the second half of 2021. In October 2018, the FDA approved a labeling supplement for TYMLOS in connection with the results from our ACTIVExtend trial to reflect that after 24 months of open-label alendronate therapy, the vertebral fracture risk reduction achieved with TYMLOS therapy was maintained. In January 2019, the European Commission adopted a decision refusing approval of our European Marketing Authorization Application (“MAA”) for abaloparatide-SC. In May 2020, we announced that our bone histomorphometry study, which evaluated the early effects of TYMLOS on tissue-based indices of bone formation and resorption in postmenopausal women, met its primary endpoint of change from baseline to three months in mineralizing surface in the cancellous bone envelope (one of the dynamic indicators of bone formation). Data from this study was presented in September 2020. On July 30, 2020 the United States Patent Office extended the term of US patent 7,803,770 (Method of Treating Osteoporosis Comprising Administration of PTHRP Analog) 1,303 days to April 28, 2031. US Patent 7,803,770 is listed in the FDA Orange book and covers TYMLOS.
We are developing an abaloparatide transdermal patch (“abaloparatide-patch”), for potential use in the treatment of postmenopausal women with osteoporosis. In May 2019, we received a special protocol assessment agreement from the FDA for our Phase 3 study of abaloparatide-patch. We initiated our Phase 3 wearABLe study of abaloparatide-patch in August 2019 and completed enrollment in September 2020. The wearABLe study is a single, pivotal, randomized, open label, active-controlled, bone mineral density (“BMD”) non-inferiority bridging study with an enrollment of approximately 500 patients with postmenopausal osteoporosis at high risk of fracture, which if successful, will support an NDA submission. The primary endpoint of the study is percentage change in lumbar spine BMD at 12 months. Non-inferiority of abaloparatide-patch to abaloparatide-SC will be concluded if the lower bound of the 2-sided 95% confidence interval for the estimated treatment
difference (abaloparatide-patch minus abaloparatide-SC) in the percentage change from baseline in lumbar spine BMD at 12 months is above -2.0%. In February 2018, we entered into a Scale-Up and Commercial Supply Agreement with 3M Company (“3M”) pursuant to which 3M agreed to exclusively manufacture Phase 3 and global commercial supplies of abaloparatide-patch. In May 2020, 3M announced that it completed its sale of its drug delivery business, which manufactures clinical trial supplies of abaloparatide-patch, to Kindeva Drug Delivery (“Kindeva”), an affiliate of Altaris Capital Partners, LLC (“Altaris”). In partnership with 3M, we selected Patheon N.V., now known as Thermo Fisher Scientific (“Thermo Fisher”), to conduct the abaloparatide-patch coating process and packaging operations. We have successfully completed development activities associated with the scale up of manufacturing to supply our ongoing abaloparatide-patch Phase 3 wearABLe study. In October 2018, we committed to fund 3M’s purchase of capital equipment totaling approximately $9.6 million in preparation for manufacturing Phase 3 and potential commercial supplies of abaloparatide-patch. Milestone payments for the equipment commenced in the fourth quarter of 2018 and are expected to be paid in full in the second quarter of 2021. In addition, there are cancellable purchase commitments in place to fund the facility build out and future purchases of capital equipment. In December 2019, we aligned with the FDA on requirements for NDA filing. In preparation for potential FDA approval of the abaloparatide-patch, our commercial manufacturing facility build out is complete, and equipment is on site to manufacture sterile drug product at our partner’s commercial manufacturing site.
In connection with our strategic plan to focus on bone health and targeted endocrine diseases, we entered into a license agreement with Berlin-Chemie AG, a company of the Menarini Group (“Berlin-Chemie”), on July 23, 2020 under which we granted Berlin-Chemie an exclusive license to develop and commercialize products containing elacestrant (RAD1901), a selective estrogen receptor degrader (“SERD”), worldwide. Elacestrant is being developed for potential use in the treatment of hormone receptor-positive breast cancer. We simultaneously entered into a transition services agreement (the “TSA”) with Berlin-Chemie, pursuant to which we will perform certain services for Berlin-Chemie related to the EMERALD Phase 3 monotherapy study of elacestrant, which we initiated in late November 2018, until the earlier of the completion of the contemplated services or the filing with the FDA of an NDA for elacestrant. Pursuant to the terms of the Berlin-Chemie Agreement, Berlin-Chemie is required to make an initial license fee payment to us of $30.0 million.
Pursuant to the TSA, we remain responsible for conducting the EMERALD Phase 3 monotherapy study of elacestrant. Target enrollment was reached in September 2020. The Phase 3 study is a single, randomized, open label, active-controlled Phase 3 trial of elacestrant as a second or third-line monotherapy in 478 patients with estrogen receptor-positive (“ER+”) and human epidermal growth factor receptor 2-negative (“HER2-”) advanced or metastatic breast cancer who have received prior treatment with one or two endocrine therapies, including a cyclin-dependent kinase (“CDK”) 4/6 inhibitor. Patients in the study will be randomized to receive either elacestrant or the investigator’s choice of an approved hormonal agent. The primary endpoint of the study will be progression-free survival (“PFS”), which we will analyze in the overall patient population and in patients with estrogen receptor 1 gene (“ESR1”) mutations. Secondary endpoints will include evaluation of overall survival (“OS”), objective response rate (“ORR”), and duration of response (“DOR”). We believe that, depending on results, this single trial could support applications for marketing approvals for elacestrant as a second- and third-line monotherapy in the U.S., European Union (“EU”), and other markets. In November 2018, the FDA granted Fast Track Designation for elacestrant for the population included in the Phase 3 study.
Completing the divestment of our oncology program, in September 2020 we sold RAD140, our internally discovered non-steroidal selective androgen receptor modulator (“SARM”) to Ellipses Pharma. Pursuant to the Asset Purchase Agreement (“APA”), Ellipses Pharma will be responsible for the clinical development and commercialization of the asset. We will be entitled to receive royalties under the APA.
Abaloparatide
In April 2017, the FDA approved TYMLOS (abaloparatide-SC) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. We are developing two formulations of abaloparatide: abaloparatide-SC and abaloparatide-patch.
Abaloparatide-SC
TYMLOS was approved in the United States in April 2017 for the treatment of postmenopausal women with osteoporosis at high risk for fracture. The first commercial sales of TYMLOS in the United States occurred in May 2017 and as of October 1, 2020, TYMLOS was available and covered for approximately 279 million U.S. insured lives, representing approximately 99% of U.S. commercial and 83% of Medicare Part D insured lives.
We are commercializing TYMLOS in the United States through our commercial organization. In the first quarter of 2020, we executed a transition of our external distribution model from full-line wholesalers to specialty distributors and specialty
pharmacies. Under this distribution model, both the specialty distributors and specialty pharmacies take physical delivery of TYMLOS and pharmacies dispense TYMLOS directly to patients.
We hold worldwide commercialization rights to abaloparatide-SC, except for Japan, where we are entitled to receive milestones and royalties based on the development and commercialization of abaloparatide-SC in Japan under our license and development agreement with Teijin. In January 2019, the European Commission adopted a decision refusing approval of our MAA for abaloparatide-SC.
In July 2017, we entered into a license and development agreement with Teijin for abaloparatide-SC in Japan. Pursuant to the agreement, we received an upfront payment and may receive additional milestone payments upon the achievement of certain regulatory and sales milestones, and a fixed low double-digit royalty based on net sales of abaloparatide-SC in Japan during the royalty term. In February 2020, we elected not to exercise our option to negotiate for a co-promotion agreement with Teijin for abaloparatide-SC in Japan. In May 2020, we announced that Teijin submitted an NDA for abaloparatide-SC in Japan for the treatment of osteoporosis in patients who are at high risk for fracture. The application is based on the positive results of the Phase 3 clinical trial of abaloparatide-SC in Japan in women and men with osteoporosis, which achieved its primary efficacy endpoint.
In March 2018, we initiated a clinical trial in men with osteoporosis which, if successful, will form the basis of a supplemental NDA seeking to expand the use of TYMLOS to increase bone mass in men with osteoporosis at high risk for fracture. We completed patient enrollment in September 2020 and expect to report top-line data from the study in the second half of 2021. The study is a randomized, double-blind, placebo-controlled trial that has enrolled 228 men with osteoporosis. The primary endpoint is change in lumbar spine BMD at 12 months compared with placebo. In previous clinical trials, TYMLOS has demonstrated increases in BMD in postmenopausal women. The study includes specialized high-resolution imaging to examine the effect of abaloparatide on bone structure, such as the hip, in a subset of the study participants.
In June 2018, the FDA approved a labeling supplement for TYMLOS to revise the needle length in the Instructions for Use from 8 mm to 5 mm. We believe health care providers, specialty pharmacies, and patients may prefer a shorter needle size for injectable products like TYMLOS.
In October 2018, the FDA approved a labeling supplement for TYMLOS to reflect that after 24 months of open-label alendronate therapy, the vertebral fracture risk reduction achieved with TYMLOS therapy was maintained.
In May 2020, we announced that our bone histomorphometry study, which evaluated the early effects of TYMLOS on tissue-based indices of formation in postmenopausal women, met its primary endpoint of change from baseline to 3 months in mineralizing surface in the cancellous bone envelope (one of the dynamic indicators of bone formation). We presented data from this study in September 2020.
On July 30, 2020 the United States Patent Office extended the term of US patent 7,803,770 (Method of Treating Osteoporosis Comprising Administration of PTHRP Analog) 1,303 days to April 28, 2031. US Patent 7,803,770 is listed in the FDA Orange book and covers TYMLOS.
Abaloparatide-patch
We are also developing abaloparatide-patch, based on 3M’s patented Microstructured Transdermal System technology, for potential use as a short wear-time transdermal patch. We hold worldwide commercialization rights to the abaloparatide-patch technology and are developing abaloparatide-patch toward future global regulatory submissions to build upon the potential success of TYMLOS. Our development strategy for abaloparatide-patch is to bridge to the established efficacy and safety of our approved abaloparatide-SC formulation.
We commenced a human replicative clinical evaluation of the optimized abaloparatide-patch in December 2015, with the goal of achieving comparability to abaloparatide-SC. In September 2016, we presented results from this evaluation of the first and second abaloparatide-patch prototypes, demonstrating that formulation technology can modify the pharmacokinetic profile of abaloparatide, including Tmax, half-life (“T1/2”), and area under the curve (“AUC”). In March 2018, we announced that through further optimization we had achieved comparability to the abaloparatide-SC profile with a third prototype (the “current abaloparatide-patch”). The current abaloparatide-patch optimized the drug-device combination through process improvements, a finalized formulation, selection of a dose (300 µg), and the introduction of a new clinical applicator, which were designed to improve the ease of use and patient experience. In the second half of 2018, we completed further evaluation confirming that a five minute application of the current abaloparatide-patch to the thigh resulted in a pharmacokinetic exposure highly similar (AUC >90%) to abaloparatide-SC.
In May 2019, we received a special protocol assessment (“SPA”) agreement from the FDA for our Phase 3 study of abaloparatide-patch, which means the FDA considers the study design to be adequate and well-controlled to support marketing approval provided the study endpoints are achieved. We initiated our Phase 3 wearABLe study of abaloparatide-patch in
August 2019 and completed enrollment in September 2020. We expect to report top-line data from the study in the second half of 2021. The wearABLe study is a single, pivotal, randomized, open label, active-controlled, BMD non-inferiority bridging study with an enrollment of approximately 500 patients with postmenopausal osteoporosis at high risk of fracture, which if successful, will support an NDA submission. The primary endpoint of the study is percentage change in lumbar spine BMD at 12 months. Non-inferiority of abaloparatide-patch to abaloparatide-SC will be concluded if the lower bound of the 2-sided 95% confidence interval for the estimated treatment difference (abaloparatide-patch minus abaloparatide-SC) in the percentage change from baseline in lumbar spine BMD at 12 months is above -2.0%.
In July 2019, we obtained preliminary results from a patient assessment study which evaluated self-administration of abaloparatide-patch over 29 days in 22 post-menopausal women with low bone density. Study patients were observed at a study site on the first, 15th and 29th day of the study. Top-line results showed that study patients were able to follow the instructions for use (“IFU”) and applied the patches accurately on 99.7% of all applications. The safety data from this study showed that most of the study patients had mild, transient redness at the application site. The mean subject acceptability score on a 5-point scale was 4.5, 4.6 and 4.5 on day 1, 15 and 29, respectively. The laboratory data from this study included an exploratory assessment of PINP, a biomarker that indicates bone formation. At baseline the median PINP level in this study was 50.5 ng/ml, increasing to a median value of 100.1 ng/ml at day 29, while, by comparison, the median PINP values observed with abaloparatide-SC in the ACTIVE study were 50.6 ng/ml at baseline and 100.5 ng/ml at one month.
In February 2018, we entered into the Scale-Up and Commercial Supply Agreement pursuant to which 3M agreed to exclusively manufacture Phase 3 and global commercial supplies of abaloparatide-patch. In partnership with 3M, we selected Thermo Fisher to conduct the abaloparatide-patch coating process and packaging operations. In May 2020, 3M announced that it completed its sale of its drug delivery business, which manufactures clinical trial supplies of abaloparatide-patch, to Kindeva, an affiliate of Altaris. As part of the transaction, 3M retained a minority interest in Kindeva and our Scale-Up and Commercial Supply Agreement with 3M was transferred to Kindeva.
In October 2018, we committed to fund 3M’s purchase of capital equipment totaling approximately $9.6 million in preparation for manufacturing Phase 3 and potential commercial supplies of abaloparatide-patch. Milestone payments for the equipment commenced in the fourth quarter of 2018 and are expected to be paid in full in the second quarter of 2021. In addition, there are cancellable purchase commitments in place to fund the facility build out and future purchases of capital equipment.
In December 2019, we aligned with the FDA on requirements for NDA filing. In preparation for potential FDA approval of the abaloparatide-patch, our commercial manufacturing facility build out is complete, and equipment is on site to manufacture sterile drug product at our partner’s commercial manufacturing site.
Elacestrant (RAD1901)
In July 2020, we entered into a license agreement with Berlin-Chemie under which we granted Berlin-Chemie an exclusive license to develop and commercialize products containing elacestrant (RAD1901), a selective estrogen receptor degrader (“SERD”), worldwide. We simultaneously entered into the TSA with Berlin-Chemie, pursuant to which we will perform certain services for Berlin-Chemie related to the EMERALD Phase 3 monotherapy study of elacestrant, which we initiated in late November 2018, until the earlier of the completion of the contemplated services or the filing with the FDA of an NDA for elacestrant. Elacestrant is being evaluated for potential use as a once daily oral treatment for advanced ER-positive and HER2-negative breast cancer, the most common subtype of the disease. Studies completed to date indicate that the compound has the potential for use as a single agent or in combination with other therapies for the treatment of breast cancer.
Phase 3 - EMERALD Study
Pursuant to the TSA, we remain responsible for conducting the EMERALD Phase 3 monotherapy study of elacestrant, which we initiated in late November 2018. Target enrollment was reached in September 2020. The Phase 3 study is a single, randomized, open label, active-controlled Phase 3 trial of elacestrant as a second- or third-line monotherapy in 478 patients with ER+ and HER2- advanced or metastatic breast cancer who have received prior treatment with one or two endocrine therapies, including a CDK 4/6 inhibitor. Patients in the study are randomized to receive either elacestrant or the investigator’s choice of an approved hormonal agent. The primary endpoint of the study is PFS, which we will analyze in the overall patient population and in patients with ESR1 mutations. Secondary endpoints include evaluation of OS, ORR, and DOR. We believe that, depending on results, this single trial could support applications for marketing approvals for elacestrant as a second- and third-line monotherapy in the U.S., EU and other markets. In November 2018, the FDA granted Fast Track designation for elacestrant consistent with the population to be included in the Phase 3 study.
Phase 1 - Dose-Escalation and Expansion Study
In December 2014, we commenced a Phase 1, multiple-part study of elacestrant in postmenopausal women with ER-positive and HER2-negative advanced breast cancer to determine the recommended Phase 2 dose (RP2D) and to make a preliminary
evaluation of the potential anti-tumor effect of elacestrant. The patients enrolled in this study were heavily pretreated ER-positive, HER2-negative advanced breast cancer patients, and about 50% had ESR1 mutations. Following dose escalation, the RP2D was determined to be 400mg once daily.
In December 2019, we reported final data from this Phase 1 study, which included mature data from 50 patients treated at the 400 mg dose in Parts A through D of this study. In cohorts A through C, patients had to have received prior endocrine therapy but there were no other specifications on the number of lines or type of endocrine therapy. In these cohorts, the elacestrant single agent ORR was 27.3% with six confirmed partial responses in 22 patients with response evaluation criteria in solid tumors (“RECIST”) measurable disease. The median PFS was 5.4 months and clinical benefit rate at 24 weeks was 47.4%. These results showed that elacestrant was well-tolerated with the most commonly reported adverse events being low grade nausea, dyspepsia and vomiting.
We initiated Part D of the Phase 1 dose-escalation and expansion study to evaluate the safety and preliminary efficacy of elacestrant at a 400 mg tablet dose in a population with different eligibility requirements from Parts A, B, and C of this study. In Part D, patients were required to have at least two prior lines of endocrine therapy for advanced/metastatic breast cancer, including fulvestrant, and prior treatment with a CDK 4/6 inhibitor. Ten patients of an originally planned thirty-six were enrolled in Part D. Overall the patients in Part D were more heavily pretreated and more likely to have visceral metastases than patients in Parts A through C of this study. In the nine patients with measurable disease, four had a best response of stable disease, two of them for greater than 24 weeks. Combined data, as of October 24, 2019, from all four study Parts (A through D) at 400 mg showed that the overall elacestrant single agent ORR was 19.4% and the median PFS was 4.5 months.
Phase 1 - FES-PET Study
In December 2015, we commenced a Phase 1 18-F fluoroestradiol positron emission tomography (“FES-PET”) study in patients with metastatic breast cancer in the European Union, which included the use of FES-PET imaging to assess estrogen receptor occupancy in tumor lesions following elacestrant treatment.
In December 2017, we reported data from the Phase 1 FES-PET study showing that elacestrant demonstrated robust reduction in tumor ER availability in patients with advanced ER+ breast cancer who progressed on prior endocrine therapy. Seven out of eight patients dosed in the 400-mg cohort, and four out of seven patients dosed in the 200-mg cohort, had a tumor FES-PET signal intensity reduction equal to, or greater than, 75% at day 14 compared to baseline. The reduction in FES uptake supports flexibility for both 200-mg and 400-mg elacestrant dose selection for further clinical development in combination studies with various targeted agents and was similar in patients harboring mutant or wild-type ESR-1. The most commonly reported adverse events were grade 1 and 2 nausea and dyspepsia.
RAD140
RAD140 is an internally discovered SARM. The androgen receptor, or AR, is highly expressed in many ER-positive, ER-negative, and triple-negative receptor breast cancers. Due to its receptor and tissue selectivity, potent activity, oral bioavailability, and long half-life, we believe RAD140 could have clinical potential in the treatment of breast cancer.
Completing the divestment of our oncology program, in September 2020 we sold RAD140, our internally discovered SARM to Ellipses Pharma.Pursuant to the APA Ellipses Pharma will be responsible for the clinical development and commercialization of the asset.Radius will be entitled to receive royalties under the APA.
Financial Overview
Product Revenue
Product revenue is derived from our sales of our commercial product, TYMLOS, in the United States.
Cost of Product Revenue
Cost of product revenue consist primarily of costs associated with the manufacturing of TYMLOS, royalties owed to our licensor for such sales, and certain period costs.
Research and Development Expenses
Research and development expenses consist primarily of clinical trial costs made to contract research organizations (“CROs”), salaries and related personnel costs, fees paid to consultants and outside service providers for regulatory and quality assurance support, licensing of drug compounds and other expenses relating to the manufacture, development, testing and enhancement of our product candidates. We expense our research and development costs as they are incurred.
None of the research and development expenses, in relation to our investigational product candidates, are currently borne by third parties, with the exception of elacestrant (RAD1901). Abaloparatide represents the largest portion of our research and development expenses for our investigational product candidates since our inception. We began tracking program expenses for TYMLOS (abaloparatide-SC) in 2005, and program expenses from inception to September 30, 2020 were approximately $237.0 million. We began tracking program expenses for abaloparatide-patch in 2007, and program expenses from inception to September 30, 2020 were approximately $131.5 million. We began tracking program expenses for elacestrant (RAD1901) in 2006, and program expenses from inception to September 30, 2020 were approximately $152.8 million. We began tracking program expenses for RAD140 in 2008, and program expenses from inception to September 30, 2020 were approximately $18.2 million. These expenses relate primarily to external costs associated with manufacturing, preclinical studies and clinical trial costs.
Costs related to facilities, depreciation, stock-based compensation, and research and development support services are not directly charged to programs as they benefit multiple research programs that share resources.
The following table sets forth our research and development expenses that are directly attributable to the programs listed below for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Program-specific costs - external:
Abaloparatide-SC
$
1,885
$
1,948
$
6,530
$
6,027
Abaloparatide-patch
18,709
7,170
53,071
16,533
Elacestrant (RAD1901)
21,858
8,670
40,117
18,218
RAD140
477
564
985
2,005
Total program-specific costs - external
$
42,929
$
18,352
$
100,703
$
42,783
Shared-services costs - external:
R&D support costs
3,038
3,527
9,947
9,658
Other operating costs
152
506
543
1,686
Total shared-services costs - external
$
3,190
$
4,033
$
10,490
$
11,344
Shared-services costs - internal
Personnel-related costs
6,544
6,834
21,022
20,266
Stock-based compensation
1,753
1,613
5,228
5,678
Occupancy costs
197
754
745
1,501
Depreciation expense
220
205
534
658
Total shared-services costs - internal
$
8,714
$
9,406
$
27,529
$
28,103
Total research and development costs
$
54,833
$
31,791
$
138,722
$
82,230
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and related expenses for commercial operations, executive, finance and other administrative personnel, professional fees, business insurance, rent, general legal activities, including the cost of maintaining our intellectual property portfolio, and other corporate expenses.
Our results also include stock-based compensation expense as a result of the issuance of stock option, restricted stock unit, and performance unit grants to our employees, directors and consultants. The stock-based compensation expense is included in the respective categories of expense in our condensed consolidated statements of operations and comprehensive loss (i.e., research and development or general and administrative expenses). We expect to record additional non-cash compensation expense in the future, which may be significant.
Interest Income
Interest income reflects interest earned on our cash, cash equivalents and marketable securities.
Interest expense consists of interest expense related to the aggregate $305.0 million principal amount of Convertible Notes the Company issued in a registered underwritten public offering on August 14, 2017 and interest expense related to the aggregate $55.0 million term loan entered into on January 10, 2020 pursuant to the Credit and Security Agreement, as amended, with MidCap Financial Trust, in its capacity as administrative agent and as a lender, and the financial institutions or other entities from time to time parties thereto (the “Term Loan”). A portion of the interest expense on the Convertible Notes is non-cash expense relating to accretion of the debt discount and amortization of issuance costs.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We evaluate our policies and estimates on an ongoing basis, including those related to revenue recognition, accrued clinical expenses, research and development expenses, stock-based compensation and fair value measures, among others, which we discussed in our Annual Report on Form 10-K for the year ended December 31, 2019. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions.
We have reviewed our policies and estimates to determine our critical accounting policies for the three and nine months ended September 30, 2020. There were no changes to significant accounting policies during the nine months ended September 30, 2020, except for the adoption of certain ASUs issued by the FASB, as disclosed above within Note 2, “Basis of Presentation and Significant Accounting Policies,” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Results of Operations
Three Months Ended September 30, 2020 and 2019 (in thousands, except percentages)
Three Months Ended
September 30,
Change
2020
2019
$
%
Revenues:
Product revenue, net
$
50,412
$
46,766
$
3,646
8
%
License revenue
27,414
—
27,414
100
%
Total revenue
77,826
46,766
31,060
66
%
Operating expenses:
Cost of sales - product
3,839
3,971
(132)
(3)
%
Cost of sales - intangible amortization
200
200
—
—
Research and development, net of amounts reimbursable
39,450
31,791
7,659
24
%
Selling, general and administrative
33,692
35,617
(1,925)
(5)
%
Income (Loss) from operations
645
(24,813)
25,458
103
%
Other (expense) income:
Other expense, net
(87)
59
(146)
(247)
%
Interest expense
(7,069)
(6,298)
(771)
(12)
%
Interest income
222
1,008
(786)
(78)
%
Net loss
$
(6,289)
$
(30,044)
$
23,755
79
%
Product revenue— We began U.S. commercial sales of TYMLOS in May 2017, following receipt of FDA marketing approval on April 28, 2017. For the three months ended September 30, 2020 we recorded approximately $50.4 million of net product revenue compared to $46.8 million for the three months ended September 30, 2019. The increase in product revenue was primarily driven by an increase in sales volume as a result of greater market penetration, increased pricing, and a decrease in revenue reserves. Although the potential impact of the COVID-19 pandemic on our product revenue is unclear, we expect net sales of TYMLOS to be negatively impacted by the COVID-19 pandemic into the remainder of 2020, depending on its duration.
License revenue— We entered into the License Agreement with Berlin-Chemie on July 23, 2020. For the three months ended September 30, 2020, we recorded $27.4 million of license revenue in connection with this agreement.
Cost of sales—Cost of sales was $4.0 million for the three months ended September 30, 2020 compared to $4.2 million for the three months ended September 30, 2019. The decrease in cost of sales was driven by the decrease in downstream service fees. Although the potential impact of the COVID-19 pandemic on our cost of sales is unclear, we expect cost of sales to fluctuate in a manner consistent with net sales of TYMLOS during the duration of the COVID-19 pandemic.
Research and development expenses— For the three months ended September 30, 2020, research and development expense was $39.5 million compared to $31.8 million for the three months ended September 30, 2019, an increase of $7.7 million, or 24%. This increase was primarily driven by a $11.5 million increase in abaloparatide-patch program costs. This increase was offset by a decrease of $0.1 million in RAD140 program cost, a decrease of $0.1 million in Abaloparatide-SC program cost, a $0.5 million decrease in occupancy and depreciation, a $0.3 million decrease in travel and entertainment expense, a $0.5 million decrease in professional fees, a $0.2 million decrease in compensation expense, and a $2.2 million decrease in elacestrant program costs, which is comprised of a $13.2 million increase in gross program expenses offset by $15.4 million of billed reimbursable expenses. We will be reimbursed for the costs incurred in connection with the elacestrant project pursuant to the terms of the TSA with Berlin-Chemie, under which the Company will perform certain services for Berlin-Chemie related to the EMERALD Phase 3 monotherapy study until the earlier of the completion of the contemplated services or the filing with the FDA of a NDA for elacestrant.
Selling, general and administrative expenses— For the three months ended September 30, 2020, selling, general and administrative expenses were $33.7 million compared to $35.6 million for the three months ended September 30, 2019, a decrease of $1.9 million, or 5%. This decrease was primarily the result of a $0.8 million decrease in travel and entertainment expenses, a $2.3 million decrease in professional support costs, a $0.5 million decrease in compensation cost, and a $0.1 million decrease in other operating costs. These decreases were partially offset by a $1.8 million increase in occupancy and depreciation costs.
Other expense, net— For the three months ended September 30, 2020, other expense, net of other income, was $87.0 thousand, as compared to other expense, net of other income of $59.0 thousand during the three months ended September 30, 2019. Other expense, net of other income, of $87.0 thousand for the three months ended September 30, 2020 consisted primarily of other taxes and foreign currency revaluation exchange losses. The $59.0 thousand of other expense, net of other income, for the three months ended September 30, 2019 was primarily due to other taxes.
Interest income—For the three months ended September 30, 2020, interest income was approximately $0.2 million compared to $1.0 million for the three months ended September 30, 2019, a decrease of $0.8 million, or 78%. This decrease was primarily due to the decrease in the balance of our investments as a result of investment maturities used to fund operations.
Interest expense—For the three months ended September 30, 2020, interest expense was approximately $7.1 million compared to $6.3 million for the three months ended September 30, 2019, an increase of $0.8 million, or 12%. This increase was the result of continued amortization on the Convertible Notes, as well as addition of the Term Loan and interest expense thereon during the three months ended September 30, 2020.
Results of Operations
Nine Months Ended September 30, 2020 and 2019 (in thousands, except percentages)
Research and development, net of amounts reimbursable
123,340
82,230
41,110
50
%
Selling, general and administrative
108,356
116,918
(8,562)
(7)
%
Loss from operations
(68,204)
(92,904)
24,700
27
%
Other (expense) income:
Other expense, net
(144)
21
(165)
(786)
%
Interest expense
(20,747)
(18,500)
(2,247)
(12)
%
Interest income
1,272
3,105
(1,833)
(59)
%
Net loss
$
(87,823)
$
(108,278)
$
20,455
19
%
Product revenue— We began U.S. commercial sales of TYMLOS in May 2017, following receipt of FDA marketing approval on April 28, 2017. For the nine months ended September 30, 2020 we recorded approximately $148.4 million of net product revenue compared to $117.7 million for the nine months ended September 30, 2019. The increase in product revenue was driven by an increase in sales volume and increased pricing. Although the potential impact of the COVID-19 pandemic on our product revenue is unclear, we expect net sales of TYMLOS to be negatively impacted by the COVID-19 pandemic into the remainder of 2020, depending on its duration.
License revenue— We have entered into the License Agreement with Berlin-Chemie on July 23, 2020. For the nine months ended September 30, 2020 we recorded approximately $27.4 million in connection with this agreement.
Cost of sales— For the nine months ended September 30, 2020, cost of sales was $12.4 million compared to $11.4 million for the nine months ended September 30, 2019. The increase in cost of sales was driven by the increase in product revenue. Although the potential impact of the COVID-19 pandemic on our cost of sales is unclear, we expect cost of sales to fluctuate in a manner consistent with net sales of TYMLOS during the duration of the COVID-19 pandemic.
Research and development expenses— For the nine months ended September 30, 2020, research and development expense was $123.3 million compared to $82.2 million for the nine months ended September 30, 2019, an increase of $41.1 million, or 50%. This increase was primarily driven by a $36.5 million increase in abaloparatide-patch project costs, a $6.4 million increase in project costs for elacestrant, a $0.5 million increase in abaloparatide-SC project costs, a $0.3 million increase in professional fees services, and a $0.3 million increase in compensation expenses. These increases were partially offset by a $1.0 million decrease in RAD140 project costs, a $0.9 million decrease in occupancy and depreciation costs, and a $1.0 million decrease in travel and entertainment expenses. We will be reimbursed for the costs incurred in connection with the elacestrant project pursuant to the terms of the TSA with Berlin-Chemie, under which the Company will perform certain services for Berlin-Chemie related to the EMERALD Phase 3 monotherapy study until the earlier of the completion of the contemplated services or the filing with the FDA of a NDA for elacestrant.
Selling, general and administrative expenses— For the nine months ended September 30, 2020, selling, general and administrative expenses were $108.4 million compared to $116.9 million for the nine months ended September 30, 2019, a decrease of $8.6 million, or 7%. This decrease was primarily the result of a $6.3 million decrease in professional fees, a $3.3 million decrease in travel and entertainment expenses and a $0.3 million decrease in other operating expenses. These decreases were offset by a $0.3 million increase in compensation related expenses and an $1.0 million increase in occupancy and depreciation.
Other expense, net— For the nine months ended September 30, 2020, other expense, net of other income, was $144.0 thousand as compared to other expense, net of income, of $21.0 thousand during the nine months ended September 30, 2019. Other expense, net of other income, of $144.0 thousand for the nine months ended September 30, 2020 consisted primarily of
other tax expenses. The other expense, net of other income, of $21.0 thousand for the nine months ended September 30, 2019 was primarily due to other taxes and foreign currency revaluation losses.
Interest income—For the nine months ended September 30, 2020, interest income was approximately $1.3 million compared to $3.1 million for the nine months ended September 30, 2019, a decrease of $1.8 million, or 59%. This decrease was primarily due to the decrease in the balance of our investments as a result of investment maturities in the nine months ended September 30, 2020.
Interest expense—For the nine months ended September 30, 2020, interest expense was approximately $20.7 million compared to $18.5 million for the nine months ended September 30, 2019, an increase of $2.2 million or 12%. This increase was the result of continued amortization on our Convertible Notes as well as the addition of the Term Loan and interest expense during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.
Liquidity and Capital Resources
From inception to September 30, 2020, we have incurred an accumulated deficit of $1,324.4 million, primarily as a result of expenses incurred through a combination of research and development activities related to our various product candidates and expenses supporting those activities. Our total cash, cash equivalents, marketable securities, and investments balance as of September 30, 2020 was $125.7 million, which included an initial license fee payment of $30.0 million from Berlin-Chemie. We have financed our operations since inception primarily through the public offerings of our common stock, issuance of convertible debt, private sales of preferred stock, and borrowings under credit facilities. Following our U.S. commercial launch of TYMLOS in May 2017, we have begun financing a portion of our operations through product revenue.
Based upon our cash, cash equivalents, marketable securities, and investments balance as of September 30, 2020, we believe that, prior to the consideration of potential proceeds from partnering and/or collaboration activities, including the license agreement with Berlin-Chemie, we have sufficient capital as well as access to other capital discussed in Note 7, “Term Loan and Credit Facility” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, to fund our development plans, U.S. commercial and other operational activities for at least one year from the date of this filing. We expect to finance the future U.S. commercial activities and development costs of our clinical product portfolio with our existing cash, cash equivalents, marketable securities, and investments, as well as through future product sales, or through strategic financing opportunities, that could include, but are not limited to partnering or other collaboration agreements, future offerings of equity, royalty-based financing arrangements, the incurrence of additional debt, or other alternative financing arrangements, which may involve a combination of the foregoing.
There is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. Our future capital requirements will depend on many factors, including the impacts of the COVID-19 pandemic and the scope of and progress in our research and development and commercialization activities, the results of our clinical trials, and the review and potential approval of our products by the FDA or other foreign regulatory authorities. The successful development of our product candidates is subject to numerous risks and uncertainties associated with developing drugs, which could have a significant impact on the cost and timing associated with the development of our product candidates. If we fail to obtain additional future capital, we may be unable to complete our planned commercialization activities or complete preclinical and clinical trials and obtain approval of any of our product candidates from the FDA and foreign regulatory authorities.
TYMLOS is our only approved product and our business currently depends heavily on its successful commercialization. Successful commercialization of an approved product is an expensive and uncertain process. See “Risk Factors - Risks Related to the Commercialization and Development of Our Product Candidates” set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by the Risk Factors set forth in Part II, “Item IA. Risk Factors” in our Form 10-Q for the quarter ended June, 30, 2020, as amended by the Risk Factors set forth in Part II, “Item 1A. Risk Factors” in this Form 10-Q for the quarter ended September, 30, 2020.
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
Net increase in cash, cash equivalents, and restricted cash
$
11,944
$
29,609
$
(17,665)
(60)
%
Cash Flows from Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2020 was $46.6 million, which was primarily the result of a net loss of $87.8 million, partially offset by $36.5 million of net non-cash adjustments to reconcile net loss to net cash used in operations and net changes in working capital of $4.7 million. The $87.8 million net loss was primarily due to abaloparatide-SC program costs, abaloparatide-TD program costs, elacestrant and RAD140 program development expenses along with employee compensation incurred to support the commercialization of TYMLOS in the United States. The $36.5 million net non-cash adjustments to reconcile net loss to net cash used in operations primarily included stock-based compensation expense of $19.8 million, amortization of debt discount of $13.3 million, depreciation of $1.6 million, amortization for premium of market securities of $0.2 million and impairment loss on right of use assets of $1.5 million.
Net cash used in operating activities during the nine months ended September 30, 2019 was $75.0 million, which was primarily the result of a net loss of $108.3 million, partially offset by $30.6 million of net non-cash adjustments to reconcile net loss to net cash used in operations and net changes in working capital of $2.6 million. The $108.3 million net loss was primarily due to abaloparatide-SC program costs, elacestrant and RAD140 program development expenses along with employee compensation incurred to support the commercialization of TYMLOS in the United States. The $30.6 million non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $16.9 million, amortization of debt discount of $11.6 million, impairment charge for the right of use operating lease of $0.3 million, depreciation of $1.8 million and loss on fixed asset disposal of $0.2 million.
Cash Flows from Investing Activities
Net cash provided by investing activities during the nine months ended September 30, 2020 was $47.0 million, which was the result of $86.9 million in sales and maturities of marketable securities, partially offset by $39.9 million in purchases of marketable securities.
Net cash provided by investing activities during the nine months ended September 30, 2019 was $98.9 million, which was primarily the result of $135.5 million in sales and maturities of marketable securities, partially offset by $36.6 million in purchases of marketable securities.
Our investing cash flows will be impacted by the timing of our purchases and sales of our marketable securities. Because our marketable securities are primarily short-term in duration, we would not expect our operational results or cash flows to be significantly affected by a change in market interest rates.
Cash Flows from Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2020 was $11.6 million, which consisted of $9.9 million of net proceeds from issuance of term loan and $1.6 million received upon issuance of common stock under the Radius Health, Inc. 2016 Employee Stock Purchase Plan (“ESPP”).
Net cash provided by financing activities during the nine months ended September 30, 2019 was $5.7 million, which consisted of $3.9 million of proceeds received from exercises of stock options and $1.8 million received upon issuance of common stock under the ESPP.
In August 2017, we issued $300.0 million aggregate principal amount of the Convertible Notes, as discussed in more detail in Note 6, “Convertible Notes Payable,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We received net proceeds of approximately $290.8 million from the sale of the Convertible Notes, after deducting fees and expenses of $9.2 million. In addition, in September 2017, we issued an additional $5.0 million aggregate principal amount of the Convertible Notes pursuant to the exercise of an over-allotment option granted to the underwriters in the offering. We received net proceeds of approximately $4.8 million from the sale of the over-allotment option, after deducting fees and expenses of $0.2 million.
Future minimum payments on our Convertible Notes as of September 30, 2020 are as follows (in thousands):
Years ending December 31,
Future Minimum Payments
2020
$
—
2021
9,150
2022
9,150
2023
9,150
2024
314,150
Total minimum payments
$
341,600
Less: interest
(36,600)
Less: unamortized discount
(96,098)
Less: current portion
—
Long Term Debt
$
208,902
Term Loan and Credit Facility
In January 2020, we entered into the Term Loan, as discussed in more detail in Note 7, “Term Loan and Credit Facility,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Future minimum payments on our Term Loan as of September 30, 2020 are as follows (in thousands):
Years ended December 31,
Future Minimum Payments
2020
$
196
2021
786
2022
786
2023
7,044
2024
3,611
Total minimum payments
$
12,423
Less: interest
(2,423)
Less: unamortized discount
(59)
Less: current portion
—
Long Term Debt
$
9,941
Contractual Obligations
Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment. We enter into contracts in the normal course of business for marketing and promotion, commercial activities, preclinical and clinical research studies, research supplies, and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancellable contracts and not included in the table of contractual obligations and commitments. In addition, we have certain obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones, such as the start of a clinical trial, filing of an NDA, approval by the FDA, or product launch. The disclosed balances exclude the potential payments we may be required to make under our agreements because the timing of payments and actual amounts paid under those agreements may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations, and those agreements are cancellable upon
written notice by us and therefore, not long-term liabilities. Additionally, the expected timing of payment of the obligations presented below is estimated based on current information.
Supply and Manufacturing Agreements
In June 2016, we entered into a Supply Agreement with Ypsomed AG (“Ypsomed”), as amended, pursuant to which Ypsomed agreed to supply commercial and clinical supplies of a disposable pen injection device customized for subcutaneous injection of abaloparatide. We agreed to purchase a minimum number of devices at prices per device that decrease with an increase in quantity supplied. In addition, we made milestone payments for Ypsomed’s capital developments in connection with the initiation of the commercial supply of the device and paid a one-time capacity fee. All costs and payments under the agreement are delineated in Swiss Francs. The agreement had an initial term of three years which began on June 1, 2017, after which, it automatically renewed for a two-year term. Following its current term, the agreement automatically renews for additional two-year terms unless either party terminates the agreement upon 18 months’ notice prior to the end of the then-current term. For the two-year term beginning May 2020, we are required to purchase a minimum number of batches for CHF 1.9 million (approximately $2.1 million).
In June 2016, we entered into a Commercial Supply Agreement with Vetter Pharma International GmbH (“Vetter”), as amended, pursuant to which Vetter agreed to formulate the finished abaloparatide-SC drug product containing abaloparatide active pharmaceutical ingredient fill cartridges with the drug product, assemble the pen delivery device, and to package the pen for commercial distribution. We agreed to purchase the cartridges and pens in specified batch sizes at a price per unit. For labeling and packaging services, we have agreed to pay a per unit price dependent upon the number of pens loaded with cartridges that are labeled and packaged. These prices are subject to an annual price adjustment. The agreement has an initial term of five years, which began on January 1, 2016, after which, it automatically renews for two-year terms unless either party notifies the other party two years before the end of the then-current term that it does not intend to renew.
In July 2016, we entered into a Manufacturing Services Agreement with Polypeptide Laboratories Holding AB (“PPL”), as amended, as successor-in-interest to Lonza Group Ltd., pursuant to which PPL has agreed to manufacture the commercial and clinical supplies of abaloparatide API. We have agreed to purchase the API in batches at a price per gram in euros, subject to an annual increase by PPL. We were required to purchase a minimum number of batches annually, equal to €2.9 million ($3.4 million) per year, subject to any annual price adjustments, during the initial term, except in calendar years 2019 and 2020. We were not subject to the minimum purchase requirement in 2019 and are not in 2020.
License Agreement Obligations
TYMLOS (abaloparatide)
In September 2005, we entered into a license agreement with an affiliate of Ipsen Pharma SAS (“Ipsen”), as amended, or the License Agreement, under which we exclusively licensed certain Ipsen compound technology and related patents covering abaloparatide to research, develop, manufacture and commercialize certain compounds and related products in all countries, except Japan and France (where our commercialization rights were subject to certain co-marketing and co-promotion rights exercisable by Ipsen, provided that certain conditions included in the License Agreement were met). We believe that Ipsen’s co-marketing and co-promotion rights in France have permanently expired. Ipsen also granted us an exclusive right and license under the Ipsen compound technology and related patents to make and have made compounds or product in Japan. Ipsen further granted us an exclusive right and license under certain Ipsen formulation technology and related patents solely for purposes of enabling us to develop, manufacture and commercialize compounds and products covered by the compound technology license in all countries, except Japan and France (as discussed above).
In consideration for these rights, we made nonrefundable, non-creditable payments in the aggregate of $13.0 million to Ipsen, including payment in recognition of certain milestones having been achieved through September 30, 2020. The License Agreement provides for further payments upon the achievement of certain future regulatory and commercial milestones. Total additional milestone payments that could be payable under the agreement are €24.0 million (approximately $28.1 million). In connection with the FDA’s approval of TYMLOS in April 2017, we paid Ipsen a milestone of €8.0 million (approximately $9.4 million) under the License Agreement, which we have recorded as an intangible asset within the consolidated balance sheet and will amortize over the remaining patent life or the estimated useful life of the underlying product. The License Agreement provides that we are obligated to pay to Ipsen a fixed five percent royalty based on net sales of products containing abaloparatide by us or our sublicensees on a country-by-country basis until the later of the last to expire of the licensed patents or for a period of 10 years after the first commercial sale in such country. The royalty expense was approximately $2.5 million and $7.4 million for the three and nine months ended September 30, 2020. The date of the last to expire of the abaloparatide patents licensed from or co-owned with Ipsen, barring any extension thereof, is expected to be March 26, 2028.
If we sublicense abaloparatide to a third party, the agreement provides that we would pay a percentage of certain payments received from such sublicensee (in lieu of milestone payments not achieved at the time of such sublicense). The applicable
percentage is in the low double-digit range. In addition, if we or our sublicensees commercialize a product that includes a compound discovered by us based on or derived from confidential Ipsen know-how, the agreement provides that we would pay to Ipsen a fixed low single-digit royalty on net sales of such product on a country-by-country basis until the later of the last to expire of our patents that cover such product or for a period of 10 years after the first commercial sale of such product in such country.
The License Agreement expires on a country-by-country basis on the later of (1) the date the last remaining valid claim in the licensed patents expires in that country, or (2) a period of 10 years after the first commercial sale of the licensed products in such country, unless it is sooner terminated in accordance with its terms.
Prior to executing the License Agreement for abaloparatide with Radius, Ipsen licensed the Japanese rights for abaloparatide to Teijin. Teijin submitted an NDA for abaloparatide-SC in Japan for the treatment of osteoporosis in patients who are at high risk for fracture. We maintain full global rights to our development program for abaloparatide-patch.
Pursuant to a final decision in arbitration proceedings with Ipsen in connection with the License Agreement, we are obligated to pay Ipsen $5.0 million if abaloparatide receives marketing approval in Japan and a fixed mid single-digit royalty based on net sales of abaloparatide in Japan.
Abaloparatide-patch
In February 2018, we entered into a Scale-Up And Commercial Supply Agreement (the “Supply Agreement”) with 3M Company and 3M Innovative Properties Company (collectively with 3M Company, “3M”), pursuant to which 3M agreed to exclusively manufacture Phase 3 and global commercial supplies of an abaloparatide-coated transdermal patch product (“Product”) and associated applicator devices (“Applicator”). Under the Supply Agreement, 3M agreed to manufacture Product and Applicator for us according to agreed-upon specifications in sufficient quantities to meet our projected supply requirements. 3M agreed to manufacture commercial supplies of Product at unit prices that decrease with an increase in the quantity we order. We are obligated to pay 3M a mid-to-low single-digit royalty on worldwide net sales of Product and reimburse 3M for certain capital expenditures incurred to establish commercial supply of Product. We are responsible for providing, at our expense, supplies of abaloparatide drug substance to be used in manufacturing Product. During the term of the Supply Agreement, 3M and Radius have agreed to work exclusively with each other with respect to the delivery of abaloparatide, parathyroid hormone (“PTH”), and/or PTH related proteins via active transdermal, intradermal, or microneedle technology. In October 2018, the Company committed to fund 3M’s purchase of capital equipment totaling approximately $9.6 million in preparation for manufacturing Phase 3 and potential commercial supplies of Product. Milestone payments for the equipment commenced in the fourth quarter of 2018 and are expected to be paid in full in the second quarter of 2021.
The initial term of the Supply Agreement began on its effective date and will continue for five years after the first commercial sale of Product. The Supply Agreement then automatically renews for successive three-year terms, unless earlier terminated pursuant to its terms or upon either party’s notice of termination to the other 24 months prior to the end of the then-current term. The Supply Agreement may be terminated by either party upon an uncured material breach of its terms by the other party, or due to the other party’s bankruptcy, insolvency, or dissolution. We may terminate the Supply Agreement upon the occurrence of certain events, including for certain clinical, technical, or commercial reasons impacting Product, if we are unable to obtain U.S. regulatory approval for Product within a certain time period, or if we cease development or commercialization of Product. 3M may terminate the Supply Agreement upon the occurrence of certain events, including if there are certain safety issues related to Product, if we are unable to obtain U.S. regulatory approval for Product within a certain time period, or if we fail to order Product for a certain period of time after commercial launch of the Product in the U.S. Upon certain events of termination, 3M is required to transfer the manufacturing processes for Product and Applicator to us or a mutually agreeable third party and continue supplying Product and Applicator for a period of time pursuant to our projected supply requirements.
In May 2020, 3M announced that it completed its sale of its drug delivery business, which manufactures clinical trial supplies of abaloparatide-patch, to Kindeva Drug Delivery (“Kindeva”), an affiliate of Altaris Capital Partners, LLC. As part of the transaction, 3M retained a minority interest in Kindeva and the Supply Agreement with 3M was transferred to Kindeva.
In June 2009, we entered into a Development and Clinical Supplies Agreement with 3M, as amended (the “Development Agreement”), under which Product and Applicator development activities occur and 3M has manufactured phase 1 and 2 clinical trial supplies for us on an exclusive basis. The initial term of the Development Agreement remained in effect until June 2019 and then automatically renews for successive one-year terms, unless earlier terminated, until the earliest of (i) the expiration or termination of the Supply Agreement, (ii) the mutual written agreement of the parties, or (iii) prior written notice by either party to the other party at least ninety days prior to the end of the then-current term of the Development Agreement that such party declines to extend the term. Either party may terminate the agreement in the event of an uncured material breach by the other party. We pay 3M for services delivered pursuant to the agreement on a fee-for-service or a fee-for-deliverable
basis as specified in the agreement. We have paid 3M approximately $30.2 million, in the aggregate, through September 30, 2020 with respect to performance under the Development Agreement.
Elacestrant (Eisai)
In June 2006, we entered into a license agreement (“Eisai Agreement”), with Eisai Co. Ltd. (“Eisai”). Under the Eisai Agreement, Eisai granted to us an exclusive right and license to research, develop, manufacture and commercialize elacestrant (RAD1901) and related products from Eisai in all countries, except Japan. In consideration for the rights to elacestrant, we paid Eisai an initial license fee of $0.5 million, which was expensed during 2006. In March 2015, we entered into an amendment to the Eisai Agreement, or the “Eisai Amendment,” in which Eisai granted to us the exclusive right and license to research, develop, manufacture and commercialize elacestrant in Japan. In consideration for the rights to elacestrant in Japan, we paid Eisai an initial license fee of $0.4 million upon execution of the Eisai Amendment, which was recognized as research and development expense in 2015. The Eisai Agreement, as amended, also provides for additional payments of up to $22.3 million, payable upon the achievement of certain future clinical and regulatory milestones. To date, we have paid Eisai approximately $1.0 million in connection with the achievement of certain milestones.
Under the Eisai Agreement, as amended, should a product covered by the licensed technology be commercialized, we will be obligated to pay to Eisai royalties in a variable mid-single-digit range based on net sales of the product on a country-by-country basis. The royalty rate will be reduced, on a country-by-country basis, at such time as the last remaining valid claim in the licensed patents expires, lapses or is invalidated and the product is not covered by data protection clauses. In addition, the royalty rate will be reduced, on a country-by-country basis, if, in addition to the conditions specified in the previous sentence, sales of lawful generic versions of such product account for more than a specified minimum percentage of the total sales of all products that contain the licensed compound during a calendar quarter. The latest licensed patent is expected to expire, barring any extension thereof, on August 18, 2026.
The Eisai Agreement, as amended, also grants us the right to grant sublicenses with prior written approval from Eisai. If we sublicense the licensed technology to a third party, we will be obligated to pay Eisai, in addition to the milestones referenced above, a fixed low double-digit percentage of certain fees received from such sublicensee and royalties in the low single-digit range based on net sales of the sublicensee. In connection with the Berlin-Chemie exclusive license, we granted to Berlin-Chemie to develop and commercialize products containing elacestrant (RAD1901) worldwide and we are obligated to pay Eisai a fee of $3.0 million in accordance with the Eisai Agreement. The Eisai Agreement expires on a country-by-country basis on the later of (1) the date the last remaining valid claim in the licensed patents expires, lapses or is invalidated in that country, the product is not covered by data protection clauses, and the sales of lawful generic versions of the product account for more than a specified percentage of the total sales of all pharmaceutical products containing the licensed compound in that country; or (2) a period of 10 years after the first commercial sale of the licensed products in such country, unless it is sooner terminated.
Elacestrant (Duke)
In December 2017, we and Duke University (“Duke”) entered into a patent license agreement, as amended, (the “Duke Agreement”) pursuant to which we acquired the exclusive worldwide license to certain Duke patents associated with elacestrant (RAD1901) related to the use of elacestrant in the treatment of breast cancer as a monotherapy and in a combination therapy (collectively “Duke Patents”).
In consideration for these rights, we incurred non-refundable, non-creditable obligations to pay Duke, totaling $1.3 million, which were expensed as research and development during 2017. The Duke Agreement provides for further payments upon the achievement of certain future regulatory and commercial milestones totaling up to $3.8 million. The agreement provides that we would pay Duke a fixed low single-digit royalty based on net sales, on a country-by-country basis, beginning in August 2029 and ending upon expiration of the last patent rights to expire.
If we sublicense the Duke Patents to a third party, the agreement provides that we will pay Duke a percentage of certain payments we received from such sublicensee(s). The applicable percentage is in the high single-digit range on certain payments received in excess of a pre-specified amount. The Duke Agreement may be terminated by either party upon an uncured material breach of the agreement by the other party. We may terminate the agreement upon 60 days written notice to Duke, if we suspend our manufacture, use and sale of the licensed products.
Abaloparatide-SC (Teijin)
In July 2017, we entered into a license and development agreement with Teijin for abaloparatide-SC in Japan (the “Teijin Agreement”). Teijin is developing abaloparatide-SC in Japan under an agreement with Ipsen and has initiated a Phase 3 trial in Japanese patients with osteoporosis. Pursuant to the Teijin Agreement, we granted Teijin (i) an exclusive payment bearing license under certain of our intellectual property to develop and commercialize abaloparatide-SC in Japan, (ii) a non-exclusive payment bearing license under certain of our intellectual property to manufacture abaloparatide-SC for commercial supply in
Japan, (iii) a right of reference to certain of our regulatory data related to abaloparatide-SC for purposes of developing, manufacturing and commercializing abaloparatide-SC in Japan, (iv) a manufacture transfer package, upon Teijin’s request, consisting of information and our know-how that is necessary for the manufacture of active pharmaceutical ingredient and abaloparatide-SC, and (v) a right to request that we use commercially reasonable efforts to manufacture (or arrange for a third party to manufacture) and supply (or arrange for a third party to supply), at Teijin’s expense, the active pharmaceutical ingredient (“API”) for the clinical supply of abaloparatide-SC in sufficient quantities to enable Teijin to conduct its clinical trials in Japan. In addition, we agreed to use commercially reasonable efforts to arrange for Teijin to directly enter into commercial supply agreements with our then existing contract manufacturers of abaloparatide-SC API and drug product.
In consideration for these rights, we received an upfront payment of $10.0 million. The Teijin Agreement also provides for additional payments to us of up to an aggregate of $40.0 million upon the achievement of certain regulatory and sales milestones, and requires Teijin to pay us a fixed low double-digit royalty based on net sales of abaloparatide-SC in Japan during the royalty term, as defined below.
Teijin granted us (i) an exclusive license under certain of Teijin’s intellectual property to develop, manufacture and commercialize abaloparatide-SC outside Japan and (ii) a right of reference to certain of Teijin’s regulatory data related to abaloparatide-SC for purposes of developing, manufacturing and commercializing abaloparatide-SC outside Japan. We maintain full global rights to our development program for abaloparatide-patch, which is not part of the Teijin Agreement. Pursuant to the Teijin Agreement, the parties may further collaborate on new indications for abaloparatide-SC.
Unless earlier terminated, the Teijin Agreement expires on the later of the (i) date on which the use, sale or importation of abaloparatide-SC is no longer covered by a valid claim under our patent rights licensed to Teijin in Japan, (ii) expiration of marketing or data exclusivity for abaloparatide-SC in Japan, or (iii) 10th anniversary of the first commercial sale of abaloparatide-SC in Japan.
Elacestrant (Berlin-Chemie)
In July 2020, we entered into a license agreement (“Berlin-Chemie Agreement”) with Berlin-Chemie AG, a company of the Menarini Group (“Berlin-Chemie”) under which we granted Berlin-Chemie an exclusive license to develop and commercialize products containing elacestrant (RAD1901) worldwide.
We simultaneously entered into a Transition Services Agreement (the “TSA”) with Berlin-Chemie, pursuant to which we will perform certain services for Berlin-Chemie related to the EMERALD Phase 3 monotherapy study until the earlier of the completion of the contemplated services or the filing with the FDA of an NDA for elacestrant. Pursuant to the TSA, Berlin-Chemie will reimburse us for all out-of-pocket and full-time employee costs in performing the services. We will continue to incur research and development expenses in support of scale up costs under the TSA.
Pursuant to the terms of the Berlin-Chemie Agreement, Berlin-Chemie is required to make an initial license fee payment to the Company of $30.0 million. We are also eligible to receive up to $20.0 million in development and regulatory milestone payments and up to $300.0 million in sales milestone payments, with such payments contingent on the achievement of specified milestones with respect to the licensed products. We are also eligible to receive tiered royalties on sales of licensed products at percentages ranging from low to mid-teens, subject to certain reductions. Royalties on net sales will be payable on a product-by-product and country-by-country basis until the latest of the expiration date of the last to expire of the relevant patent rights, the expiration of regulatory exclusivity, or ten years from such first commercial sale.
The Berlin-Chemie Agreement will continue on a licensed product-by-licensed product and country-by-country basis until the last to expire royalty term. Either party may terminate the Berlin-Chemie Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. We may terminate the Berlin-Chemie Agreement for certain patent challenges or if no development, manufacture or commercialization activity occurs in any given 24-month period. Berlin-Chemie may terminate the Berlin-Chemie Agreement at its discretion for any reason by delivering written notice to us with 180 days written notice; provided that such termination will not be effective for a period of time after the effective date.
Net Operating Loss Carryforwards
As of December 31, 2019, we had federal and state net operating loss carryforwards of approximately $974.3 million and $681.8 million, respectively, subject to limitation, as described below. If not utilized, the net operating loss carryforwards will expire at various dates through 2039.
Under Section 382 of the Internal Revenue Code of 1986, or Section 382, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be used annually in the future to offset taxable income. We have completed studies through December 31, 2015, to determine whether any ownership change has occurred since our formation and have determined that transactions have resulted in two ownership changes, as defined under Section 382. There could be additional ownership changes subsequent to December 31, 2015 and/or in the future that could further limit the amount of net
operating loss and tax credit carryforwards that we can utilize. A full valuation allowance has been recorded against our net operating loss carryforwards and other deferred tax assets, as the realization of the deferred tax asset is uncertain.
As a result, we have not recorded any federal or state income tax benefit in our condensed consolidated statements of operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any relationships with unconsolidated entities of financial partnerships, such as entities often referred to as structured finance or special purpose entities.
New Accounting Standards
See Note 2 - Basis of Presentation and Significant Accounting Policies - Accounting Standards Updates in the accompanying unaudited condensed consolidated financial statements in this Quarterly Report for a discussion of new accounting standards.
Item 3.Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk related to changes in the dollar/euro exchange rate because a portion of our development costs are denominated in euros. We do not hedge our foreign currency exchange rate risk. However, an immediate 10 percent adverse change in the dollar/euro exchange rate would not have a material effect on financial results.
We are exposed to market risk related to changes in interest rates. As of September 30, 2020, we had cash, cash equivalents, restricted cash, marketable securities and investments of $126.3 million, consisting of cash, money market funds, domestic corporate debt securities, domestic corporate commercial paper and agency bonds. This exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in marketable securities. Because our marketable securities are short-term in duration, and have a low risk profile, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We generally have the ability to hold our investments until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by a change in market interest rates on our investments. We carry our investments based on publicly available information. As of September 30, 2020, we did not have any hard-to-value investment securities or securities for which a market is not readily available or active.
We are not subject to significant credit risk as this risk does not have the potential to materially impact the value of our assets and liabilities.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of as of September 30, 2020.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the three months ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we are party to litigation arising in the ordinary course of our business. As of September 30, 2020, we were not party to any significant litigation.
Item 1A.Risk Factors.
Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to carefully consider the discussion of risk factors in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition or future results, in addition to other information contained in or incorporated by reference into this Quarterly Report on Form 10-Q and our other public filings with the Securities and Exchange Commission, or the SEC.
The Company reviewed its risk factors as of September 30, 2020 and determined that there were no material changes from the ones set forth in its Annual Report on Form 10-K for the year ended December 31, 2019, other than those included below.
The ongoing COVID-19 pandemic is having and is expected to continue to have an adverse impact on our business, financial condition and results of operations, including our commercial operations and sales, clinical trials, preclinical studies, and employees.
Since December 2019, a novel strain of coronavirus, SARSCoV-2, which causes coronavirus disease 2019 (COVID-19), has spread to multiple countries, including the United States. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures.
In response to the spread of SARS-CoV-2 and COVID-19, in March 2020, we closed our administrative offices and as of September 30, 2020, they remain closed, with our employees continuing their work outside of our offices. We have selectively resumed in-person interactions by our customer-facing personnel in compliance with local and state restrictions. We also continue to engage with customers virtually as we seek to continue to support healthcare professionals and patient care. However, our ability to engage in personal interactions with physicians and customers remains limited, and it is unknown when our offices will reopen and these interactions will be fully resumed.
We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations because of the COVID-19 pandemic, including requiring most office-based employees to work remotely. Notwithstanding these measures, the COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on taking similar measures. If members of our management and other key personnel in critical functions across our organization are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and/or our operations may be negatively impacted. We may also experience limitations in employee resources, including because of sickness of employees or their families or the desire of employees to avoid contact with individuals or large groups of people. In addition, we have experienced and will continue to experience disruptions to our business operations resulting from quarantines, self-isolations and other restrictions on the ability of our employees to perform their jobs.
The current COVID-19 pandemic is adversely impacting our business, and future public health crises such as pandemics or similar outbreaks may have similar adverse impacts on our business in the future. We have experienced disruptions that are impacting the commercialization of our only product, TYMLOS. The rate of new patients starting on TYMLOS therapy has slowed as patients are unable or unwilling to see their doctor for diagnosis and treatment due to illness, quarantine, travel restrictions or financial hardship. As a result, we may not be able to meet our expectations with respect to TYMLOS sales. Business interruptions from the current COVID-19, or a future, pandemic may also adversely impact the third parties we solely rely on to sufficiently manufacture TYMLOS and to produce our product candidates in quantities we require, which may adversely impact the commercialization of TYMLOS and our research and development activities and potential commercialization of our product candidates.
While we have completed enrollment in our Phase 3 trials, we may experience slowdown or disruption to our trials if infection levels surge.
Successful clinical trials are dependent upon global clinical trial sites, many of which are being adversely affected by the current pandemic. We are currently conducting clinical trials for our product candidates in many countries, including the United States, European Union, Canada, United Kingdom, Australia, South Korea, Argentina, and Israel, and may expand to other geographies. Many of the regions in which we operate are currently being, or may in the future be, affected by the COVID-19 pandemic. We are following health authority guidance regarding missed study visits and procedures. Some factors from the
COVID-19 outbreak that may delay or otherwise further adversely affect enrollment in the clinical trials of our product candidates, as well as adversely impact our business generally, include:
•increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits, particularly for older patients with a higher risk of contracting COVID-19;
•delays or difficulties in patient and site adherence to all protocol-specified procedures, potentially jeopardizing data quality and trial integrity;
•diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, diversion of hospitals and medical centers or sites serving as our clinical trial sites and hospital or other staff supporting the conduct of our clinical trials;
•limitations on travel that could interrupt key trial activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that may impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our clinical trials;
•potential interruption or delays in the operations of the U.S. Food and Drug Administration and foreign regulatory authorities, or independent review boards or ethics committees, which may impact review and approval timelines;
•potential interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; or in the clinical trial sites’ ability to maintain continuous supply of product candidates to patients;
•longer payment and reimbursement cycles and uncertainties regarding the collectability of accounts receivable; and
•business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel imitations or mass transit disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.
These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results. In addition, the trading prices for our common stock and other biopharmaceutical companies have been, and will likely continue to be, highly volatile as a result of the COVID-19 pandemic, and may limit our ability to raise additional capital.
Health regulatory agencies globally may experience disruptions in their operations as a result of the COVID-19 pandemic. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced to continue to monitor our clinical trials and, as a result, review, inspection, and other timelines may be materially delayed. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our product candidates. For example, regulatory authorities may require that we not distribute a product candidate lot until the relevant agency authorizes its release. Such release authorization may be delayed as a result of the coronavirus pandemic and could also result in delays to our clinical trials.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the COVID-19 pandemic and generally supporting the United States economy. Due to the recent enactment of the CARES Act, there is a high degree of uncertainty around its implementation. We expect that additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for our commercial product, TYMLOS®, which could result in reduced demand. The current COVID-19 pandemic may introduce temporary or permanent healthcare reform measures for which we cannot predict the financial impact on our business.
The COVID-19 outbreak continues to rapidly evolve. While the impacts of the COVID-19 outbreak are having and will continue to have an adverse effect on our business, financial condition and results of operations, the ultimate extent to which the outbreak impacts our business, including our commercial results, financial condition, liquidity, future results of operations, clinical trials, preclinical studies, and our workforce, will depend on the duration and extent of future developments, which are highly uncertain and cannot be predicted with confidence. These future developments include the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social
distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We have experienced adverse impacts on our business for the quarter ended September 30, 2020 due to the global outbreak of COVID-19. The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, and business operations, as well as the broader U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, and national markets.
We have entered into, and in the future may enter into, license and/or collaborations with third parties for the development and commercialization of our product candidates. If those license and/or collaborations, including, without limitation, our license arrangement with Berlin-Chemie for the development and commercialization of elacestrant worldwide, are not successful, we may not be able to capitalize on the market potential of these product candidates.
We have in the past, currently have, and may in the future, seek third-party licensees and/or collaborators for the development and commercialization of some of our product candidates on a selective basis. Our likely licensees and/or collaborators for any arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. For example, we recently licensed elacestrant for development and commercialization worldwide to Berlin-Chemie AG, a company of the Menarini Group (“Berlin-Chemie”). We will not derive revenue from Berlin-Chemie’s sales of elacestrant, if any, and, in return for the license rights granted, will receive specified payments in the form of an upfront payment, certain milestone payments, if achieved, and royalties on the licensee’s sales of elacestrant, if approved, during a specified period. In addition, we will continue to incur research and development expenses in support of scale up costs, pursuant to a transition services agreement we entered into with Berlin-Chemie in connection with the license agreement.
To the extent we have, and if we do enter into any further such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our licensees and/or collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from our arrangement with Berlin-Chemie or any other arrangements will depend on our licensees’ and/or collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements. Licenses and collaborations involving our product candidates would pose numerous risks to us, including the following:
•licensees and/or collaborators have significant discretion in determining the efforts and resources that they will apply to these arrangements and may not perform their obligations as expected;
•licensees and/or collaborators may de-emphasize or not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus, including as a result of a sale or disposition of a business unit or development function, or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;
•licensees and/or collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
•licensees and/or collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if they believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; license or collaboration arrangements may subject us to exclusivity provisions which could restrict our ability to compete in certain territories, including those licensed to the licensee and/or collaborator;
•a licensee or collaborator with marketing and distribution rights to multiple products may not commit sufficient resources to the marketing and distribution of our product relative to other products;
•licensees or collaborators may not properly obtain, maintain, defend or enforce our intellectual property rights or may use our proprietary information and intellectual property in such a way as to invite litigation or other intellectual property related proceedings that could jeopardize or invalidate our proprietary information and intellectual property or expose us to potential litigation or other intellectual property related proceedings;
•disputes may arise between the licensees and/or collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources;
•licenses and/or collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates;
•license and/or collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all; and
•if a licensee or collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated.
If our license arrangement with Berlin-Chemie, or any future license or collaboration we may enter into, if any, is not successful, our business, financial condition, results of operations, prospects and development and commercialization efforts may be adversely affected. Any termination or expiration of our license agreement with Berlin-Chemie, or any future license or collaboration we may enter into, if any, could adversely affect us financially or harm our business reputation, development and commercialization efforts.
Unless otherwise indicated, all references to previously filed Exhibits refer to the Company’s filings with the Securities and Exchange Commission, under File No. 001-35726.
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RADIUS HEALTH, INC.
By:
/s/ G. Kelly Martin
G. Kelly Martin
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 5, 2020
By:
/s/ Dan Dolan
Dan Dolan
Head of Financial Planning and Analysis, Treasurer
