Our lease contracts do not provide readily determinable implicit rates, as such, we used the estimated incremental borrowing rate based on the information available at the adoption, commencement, or remeasurement date. As of September 30, 2024, weighted-average remaining lease terms and discount rates are as follows:
Finance Lease
Operating Leases
Weighted-average remaining lease term (years)
0.3
7.7
Weighted-average discount rate
10.0
%
10.0
%
Supplemental cash flow information related to the leases was as follows:
Nine Months Ended September 30,
(in thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
7,851
$
6,264
Operating cash flows from finance lease
$
532
$
1,280
Financing cash flows from finance lease
$
12,572
$
15,513
Right-of-use assets obtained in exchange for lease liabilities
Finance lease
$
21,600
$
23,781
Operating leases
$
—
$
22,694
Lease Not Yet Commenced
PCI Supply Agreement
In April 2021, we entered into the PCI Supply Agreement pursuant to which PCI would serve as a non-exclusive manufacturer and supplier of DAXXIFY®. The initial term of the PCI Supply Agreement is dependent upon the date of regulatory submission for the manufacturing of DAXXIFY® and may be terminated by either party in accordance with the terms of the PCI Supply Agreement. The term of the PCI Supply Agreement may also be extended for one additional three-year term upon mutual agreement of the parties.
The PCI Supply Agreement contains a lease related to a dedicated fill-and-finish line and closely related assets for manufacturing of productsbecause it has identified assets that are physically distinct for which we will have the right of control as defined under ASC 842. The right of control is conveyed because the embedded lease will provide us with both (i)
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
the right to obtain substantially all of the economic benefit from the fill-and-finish line resulting from the exclusivity implied from the dedicated manufacturing capacity and (ii) the right to direct the use of the fill-and-finish line.
The embedded lease had not yet commenced as of September 30, 2024. The accounting commencement and recognition of the right-of-use lease assets and lease liabilities related to the embedded lease will take place when we have substantively obtained the right of control. The embedded lease is preliminarily classified as a finance lease.
Pursuant to the PCI Supply Agreement, we are responsible for certain costs associated with the design, equipment procurement and validation, and facilities-related costs, monthly payments and minimum purchase obligations throughout the initial term of the PCI Supply Agreement. As of September 30, 2024, we have made prepayments of $41.5 million to PCI which is recorded within “Finance lease prepaid expense” in the condensed consolidated balance sheets. Based on our best estimate as of September 30, 2024, our remaining minimum commitment under the PCI Supply Agreement is $10.0 million for 2024, $14.4 million for 2025, $19.2 million for 2026, $25.8 million for 2027, $29.5 million for 2028, and $134.5 million for 2029 and thereafter in aggregate.
10. Debt
The following table provides information regarding our debt:
September 30,
December 31,
(in thousands)
2024
2023
2027 Notes, non-current
$
287,500
$
287,500
Less: Unamortized debt issuance costs
(3,279)
(4,279)
Carrying amount of the 2027 Notes
284,221
283,221
Notes payable principal and exit fee, current
10,150
2,500
Notes payable principal and exit fee, non-current
140,831
147,500
Less: Unamortized debt discount and exit fee
(3,000)
(2,700)
Less: Unamortized debt issuance costs
(1,011)
(1,426)
Carrying amount of Notes Payable
146,970
145,874
Total debt
$
431,191
$
429,095
Interest expense relating to our debt in the condensed consolidated statements of operations and comprehensive loss are summarized as follows:
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Convertible Senior Notes
In February 2020, we issued the 2027 Notes, in the aggregate principal amount of $287.5 million, pursuant to the Indenture. The 2027 Notes are senior unsecured obligations and bear interest at a rate of 1.75% per year, payable semiannually in arrears on February 15 and August 15 of each year, began on August 15, 2020. The 2027 Notes will mature on February 15, 2027, unless earlier converted, redeemed or repurchased. In connection with issuing the 2027 Notes, we received $278.3 million in net proceeds, after deducting the initial purchasers’ discount, commissions, and other issuance costs.
The 2027 Notes may be converted at any time by the holders prior to the close of business on the business day immediately preceding November 15, 2026 only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2020 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) if we call any or all of the 2027 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after November 15, 2026 until the close of business on the second scheduled trading day immediately preceding the Maturity Date, holders may convert all or any portion of their 2027 Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
The conversion rate will initially be 30.8804 shares of our common stock per $1,000 principal amount of the 2027 Notes (equivalent to an initial conversion price of approximately $32.38 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the Maturity Date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event or notice of redemption, as the case may be.
We may redeem for cash all or any portion of the 2027 Notes, at our option, on or after February 20, 2024 if the last reported sale price of our common stock has been at least 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 (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. The threshold to redeem has not been met as of September 30, 2024. No sinking fund is provided for the 2027 Notes.
If we undergo a fundamental change (as defined in the Indenture), holders may require us to repurchase for cash all or any portion of their 2027 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Capped Call Transactions
Concurrently with the 2027 Notes, we entered into capped call transactions with the option counterparties and used $28.9 million of the net proceeds from the 2027 Notes to pay the cost of the capped call transactions. The capped call transactions are expected generally to reduce the potential dilutive effect upon conversion of the 2027 Notesand/or offset any cash payments we are required to make in excess of the principal amount of converted 2027 Notes, as the case may be, with such reduction and/or offset subject to a price cap of $48.88 of our common stock per share, which represents a premium of 100% over the last reported sale price of our common stock on February 10, 2020. The capped calls have an initial strike price of $32.38 per share, subject to certain adjustments, which corresponds to the conversion option strike price in the 2027
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Notes. The capped call transactions cover, subject to anti-dilution adjustments, approximately 8.9 million shares of our common stock.
The capped call transactions are separate transactions that we entered into with the option counterparties and are not part of the terms of the 2027 Notes. As the capped call transactions meet certain accounting criteria, the premium paid of $28.9 million was recorded as a reduction in additional paid-in capital in the condensed consolidated balance sheets, and will not be remeasured to fair value as long as the accounting criteria continue to be met. As of September 30, 2024 and December 31, 2023, we had not purchased any shares under the capped call transactions.
Note Purchase Agreement
In March 2022, we entered into the Note Purchase Agreement and issued the First Tranche in an aggregate principal amount for all such Notes of $100 million. In August 2023, we entered into the First Amendment to reduce the Second Tranche from $100 million to $50 million, and we subsequently issued $50 million to the Purchasers. Additionally, the First Amendment increased the uncommitted Third Tranche from $100 million to $150 million. The uncommitted Third Tranche was available until March 31, 2024, subject to the satisfaction of certain conditions set forth in the Note Purchase Agreement, including the achievement of greater than or equal to $50 million in trailing twelve months revenue for DAXXIFY® preceding the date of the draw request for the Third Tranche, and approval by Athyrium, which we did not draw on.
Our obligations under the Note Purchase Agreement are secured by substantially all of our assets and the assets of our wholly owned domestic subsidiaries, including their respective intellectual property.
The notes issued pursuant to the First Tranche and Second Tranche bear interest at an annual fixed interest rate equal to 8.50%. We are required to make quarterly interest payments on each Notes Payable commencing on the last business day of the calendar month following the funding date thereof, and continuing until the Maturity Date. Pursuant to the First Amendment, the Company is required to repay Athyrium the outstanding principal amount of the Second Tranche notes in installments on the last business day of each March, June, September and December (commencing in September 2024), in each case, based on the following principal amortization payment schedule: 2.5% in September and December 2024; 5.0% in March and June 2025; 7.5% in September and December 2025; and 10.0% in March and June 2026; followed by repayment of the Second Tranche in full on September 18, 2026. The Maturity Date may be extended to March 18, 2028 if, as of September 18, 2026, less than $90 million principal amount of our existing 2027 Notes remain outstanding and with the consent of the Purchasers. Initially, all principal for each tranche is due and payable on the Maturity Date. At our option, we may prepay the outstanding principal balance of all or any portion of the principal amount of the Notes Payable, subject to a prepayment fee equal to (i) a make-whole amount if the prepayment occurs on or prior to the first anniversary of the NPA Effective Date and (ii) 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the NPA Effective Date but on or prior to the second anniversary of the NPA Effective Date. Upon prepayment or repayment of all or any portion of the principal amount of the Notes Payable (whether on the Maturity Date or otherwise), we are also required to pay an exit fee to the Purchasers.
The Note Purchase Agreement includes affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. We must also (i) maintain at least $30.0 million of unrestricted cash and cash equivalents in accounts subject to a control agreement in favor of Athyrium at all times (the Minimum Cash Covenant) and (ii) upon the occurrence of certain specified events set forth in the Note Purchase Agreement, achieve at least $70.0 million of Consolidated Teoxane Distribution Net Product Sales on a trailing twelve-months basis. The negative covenants include, among others, restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and undergoing a change in control, in each case subject to certain exceptions.
If we do not comply with the affirmative and negative covenants, such non-compliance may be an event of default under the Note Purchase Agreement. The Note Purchase Agreement also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 2.0% and would provide
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Athyrium, as administrative agent, with the right to exercise remedies against us and the collateral, including foreclosure against our property securing the obligations under the Note Purchase Agreement, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the Note Purchase Agreement, a breach of certain covenants under the Note Purchase Agreement, our insolvency, the occurrence of a circumstance which could have a material adverse effect and the occurrence of any default under certain other indebtedness.
11. Stockholders’ Deficit and Stock-Based Compensation
2014 EIP
On January 1, 2024, the number of shares of common stock reserved for issuance under the 2014 EIP increased by 3.5 million shares. For the nine months ended September 30, 2024, 3.3 million shares of stock awards were granted under the 2014 EIP. As of September 30, 2024, 5.7 million shares were available for issuance under the 2014 EIP.
2014 IN
In 2024, 0.3 million shares of stock awards were granted under the 2014 IN before the plan's expiration date of August 25, 2024. No shares were available for issuance as of September 30, 2024.
HintMD Plan
For the nine months ended September 30, 2024, no stock options or awards were granted under the HintMD Plan. As of September 30, 2024, 0.1 million shares were available for issuance under the HintMD Plan.
2014 ESPP
On January 1, 2024, the number of shares of common stock reserved for issuance under the 2014 ESPP increased by 0.3 million shares. As of September 30, 2024, 1.7 million shares were available for issuance under the 2014 ESPP.
Net Loss per Share
Our basic net loss per share from continuing operations is calculated by dividing the net loss from continuing operations by the weighted average number of shares of common stock outstanding for the period. Our basic net loss per share from discontinued operations is calculated by dividing the net loss from discontinued operations by the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share from both continuing and discontinued operations are calculated by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, shares of common stock underlying the 2027 Notes at the initial conversion price, outstanding stock options, unvested stock awards, and shares of common stock expected to be purchased under the 2014 ESPP, are considered common stock equivalents, which were excluded from the computation of diluted net loss per share because including them would have been antidilutive.
Common stock equivalents that were excluded from the computation of diluted net loss per share for both continuing and discontinued operations are presented below:
September 30,
2024
2023
Convertible senior notes
8,878,938
8,878,938
Unvested RSUs and PSUs
5,269,902
3,266,886
Outstanding stock options
3,540,819
3,886,868
Unvested RSAs and PSAs
588,152
949,059
Shares of common stock expected to be purchased under the 2014 ESPP
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Follow-On Offering
In March 2024, we completed a follow-on offering, pursuant to which we issued 16.0 million shares of common stock at a price to the public of $6.25 per share (except with respect to 30,000 shares sold and issued to Mark Foley, our president, chief executive officer, and director, at $6.98 per share), for net proceeds of $97.1 million, after underwriting discounts and offering costs.
ATM Offering Programs
On May 10, 2022, we entered into the 2022 ATM Agreement with Cowen. Under the 2022 ATM Agreement, we may sell up to $150.0 million of our common stock. We are not obligated to sell any shares under the 2022 ATM Agreement. Subject to the terms and conditions of the 2022 ATM Agreement, Cowen will use commercially reasonable efforts, consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Global Market, to sell shares from time to time based upon our instructions, including any price, time or size limits specified by us. We pay Cowen a commission of up to 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cowen with customary indemnification and contribution rights.
In 2023, we sold 3.2 million shares of common stock under the 2022 ATM Agreement at a weighted average price of $31.90 per share, resulting in net proceeds of $100.0 million after sales agent commissions and offering costs. No shares of common stock were sold during the nine months ended September 30, 2024 from the 2022 ATM Agreement.
Stock-based Compensation Expense
The following table summarizes our stock-based compensation expense by line item in our condensed consolidated statements of operations and comprehensive loss:
(in thousands)
Three Months Ended September 30, 2024
Nine Months Ended September 30, 2024
Stock-based Compensation before Discontinued Operation Adjustments(1)
Classified as Discontinued Operations (2)
Classified as Continuing Operations
Stock-based Compensation before Discontinued Operation Adjustments(1)
Classified as Discontinued Operations (2)
Classified as Continuing Operations
Selling, general and administrative
$
3,491
$
—
$
3,491
$
15,631
$
(73)
$
15,558
Research and development
1,091
—
1,091
3,736
83
3,819
Total stock-based compensation expense (exclusive of capitalized stock-based compensation expense)
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
(in thousands)
Three Months Ended September 30, 2023
Nine Months Ended September 30, 2023
Stock-based Compensation before Discontinued Operation Adjustments(1)
Classified as Discontinued Operations (2)
Classified as Continuing Operations
Stock-based Compensation before Discontinued Operation Adjustments(1)
Classified as Discontinued Operations (2)
Classified as Continuing Operations
Selling, general and administrative
$
8,599
$
(730)
$
7,869
$
31,042
$
(2,204)
$
28,838
Research and development
1,688
(647)
1,041
7,926
(3,416)
4,510
Total stock-based compensation expense (exclusive of capitalized stock-based compensation expense)
10,287
(1,377)
8,910
38,968
(5,620)
33,348
Capitalized stock-based compensation expense
1,570
—
1,570
4,207
—
4,207
Total stock-based compensation expense
$
11,857
$
(1,377)
$
10,480
$
43,175
$
(5,620)
$
37,555
(1)Amount represents the stock-based compensation expense before the impact of reclassification for the discontinued operation presentation in the condensed consolidated statements of operations and comprehensive loss.
(2)Amount represents the reclassification for the current and prior periods for the discontinued operation presentation in the condensed consolidated statements of operations and comprehensive loss.
12. Fair Value Measurements
The following table summarizes, for assets and liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy:
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
For Level 1 investments, we use quoted prices in active markets for identical assets to determine the fair value. For Level 2 investments, we use quoted prices for similar assets sourced from certain third-party pricing services. The third-party pricing services generally utilize industry standard valuation models for which all significant inputs are observable, either directly or indirectly, to estimate the price or fair value of the securities. The primary input generally includes reported trades of or quotes on the same or similar securities. We do not make additional judgments or assumptions made to the pricing data sourced from the third-party pricing services.
The fair value of the 2027 Notes and the Notes Payable (Note 10) was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. We present the fair value of the 2027 Notes and the Notes payable for disclosure purposes only. As of September 30, 2024, and December 31, 2023, the fair value of the 2027 Notes was $246.1 million and $219.2 million, respectively. As of September 30, 2024 the fair value of the Notes Payable was approximately the same as its unamortized carrying value.
13. Commitments and Contingencies
Teoxane Agreement
In January 2020, we entered into the Teoxane Agreement, as amended, pursuant to which Teoxane granted us the exclusive right to import, market, promote, sell and distribute Teoxane’s line of Resilient Hyaluronic Acid® dermal fillers, which include: (i) RHA® Collection of dermal fillers, and (ii) the RHA® Pipeline Products in the U.S. and U.S. territories and possessions, in exchange for 2,500,000 shares of our common stock and certain other commitments by us. The Teoxane Agreement continues to be effective for a term of 10 years. The term ends on December 31, 2029 and may be extended for a two-year period ending December 31, 2031 upon the mutual agreement of the parties. We are required to meet certain minimum purchase obligations during each year of the term. Our minimum purchase obligation for the year ending December 31, 2024 is $52 million. We are also required to meet certain minimum expenditure requirements in connection with commercialization and promotion of RHA® Collection of dermal fillers and RHA® Pipeline Products, which is $36 million for the year ending December 31, 2024. Minimum expenditures related to the commercialization and promotion of the RHA® Collection of dermal fillers and RHA® Pipeline Products after December 31, 2024 will be determined at a later date.
On October 24, 2024, we entered the Sixth Amendment, under which our minimum purchase commitments are as follows: (i) $60 million for 2025; (ii) $67.8 million for 2026; (iii) $76.7 million for 2027; (iv) $86.6 million for 2028; and (v) $97.8 million for 2029. Additionally, the Sixth Amendment (a) updates and clarifies certain branding guidelines, (b) establishes a marketing task force to review promotional materials, (c) establishes a medical education task force to promote the exchange of best practices, (d) deems the breach of certain provisions under the Teoxane Agreement to be material breaches for purposes of early termination, including the failure to adhere to branding guidelines and timely deliver certain reports and (e) increases our minimum and maximum buffer stock requirements to align with our new purchase commitments.
Either party may terminate the Teoxane Agreement in the event of the insolvency of, or a material breach by, the other party, including certain specified breaches that provide Teoxane the right to terminate the Teoxane Agreement for our failure to meet the minimum purchase requirements or commercialization expenditure during specified periods, our failure to adhere to the branding guidelines or timely deliver certain reports or for our breach of the exclusivity obligations under the Teoxane Agreement.
Other Contingencies
As of September 30, 2024, we are obligated to pay BTRX up to a remaining $15.5 million upon the satisfaction of certain milestones relating to our product revenue, intellectual property, and clinical and regulatory events.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Indemnification
We have standard indemnification agreements in the ordinary course of business. Under these indemnification agreements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to our technology. The term of these indemnification agreements is generally perpetual after the execution of the agreements. The maximum potential amount of future payments we are obligated to pay under other indemnification agreements is not determinable because it involves claims for indemnification that may be made against us in the future but have not been made. We have not yet incurred material costs to defend lawsuits or settle claims related to indemnification agreements.
We have indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
For the nine months ended September 30, 2024 and 2023, no material amounts associated with the indemnification agreements have been recorded.
Litigation
In October 2021, Allergan filed a complaint against us and ABPS, one of our manufacturing sources of DAXXIFY®, in the U.S. District Court for the District of Delaware, alleging infringement of the following patents assigned and/or licensed to Allergan: U.S. Patent Nos. 11,033,625; 7,354,740; 8,409,828; 11,124,786; and 7,332,567. Allergan claims that our formulation for DAXXIFY® and ABPS’s manufacturing process used to produce DAXXIFY® infringes its patents. Allergan also asserted a patent with claims related to a substrate for use in a botulinum toxin detection assay. On November 3, 2021, we filed a motion to dismiss. On November 24, 2021, Allergan filed an amended complaint against us and ABPS, alleging infringement of an additional patent assigned and/or licensed to Allergan: U.S. Patent No. 11,147,878. On December 17, 2021, we filed a second motion to dismiss, and on January 14, 2022, Allergan filed an opposition to that motion. We filed a reply to Allergan’s opposition on January 21, 2022, and on August 19, 2022, the court denied our second motion to dismiss. On September 2, 2022, we filed an answer and counterclaims to Allergan's amended complaint. On December 30, 2022, Allergan filed a second amended complaint against us and ABPS, alleging infringement of three additional patents assigned and/or licensed to Allergan: U.S. Patent Nos. 11,203,748; 11,326,155; and 11,285,216. On January 20, 2023, we filed an answer and counterclaims to Allergan's second amended complaint. On March 3, 2023, we filed invalidity contentions, which challenge Allergan’s asserted patents. A Markman hearing was held on June 28, 2023, and a decision was issued on August 29, 2023. On September 15, 2023, U.S. Patent No. 7,332,567 was dismissed from the case with prejudice. Allergan reduced the asserted claims to claim 8 of U.S. Patent No. 7,354,740, claims 5 and 8 of U.S. Patent No. 11,203,748, claim 10 of U.S. Patent No. 11,033,625, claims 1, 4, 6, and 20 of U.S. Patent No. 11,147,878, and claim 1 of U.S. Patent No. 11,285,216 via a Stipulation and Order dated June 21, 2024. The jury trial is scheduled to begin in December 2024.
On December 10, 2021, a putative securities class action complaint was filed against the Company and certain of its officers on behalf of a class of stockholders who acquired the Company’s securities from November 25, 2019 to October 11, 2021, in the U.S. District Court for the Northern District of California.The complaint alleges that the Company and certain of its officers violated Sections 10(b) and 20(a) of Exchange Act by making false and misleading statements regarding the manufacturing of DAXXIFY® and the timing and likelihood of regulatory approval and seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees. The court appointed the lead plaintiff and lead counsel on September 7, 2022. The lead plaintiff filed an amended complaint on November 7, 2022. On January 23, 2023, we filed a motion to dismiss, and on March 30, 2024, the Court granted the motion with leave for the plaintiff to amend the complaint. On May 1, 2024, the plaintiff filed an amended complaint, which asserted similar claims to those in the prior complaint. On June 25, 2024, the Company filed a motion to dismiss the amended complaint.
We dispute the claims in these lawsuits and intend to defend these matters vigorously. These lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcomes of the lawsuits are necessarily uncertain. We could be forced to expend significant resources in the defense of either lawsuit, and we may not prevail. In addition, we may incur substantial legal fees and costs in connection with each lawsuit.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
We record a provision for a liability when we believe that it is both probable that a liability has incurred, and the amount can be reasonably estimated. As of both September 30, 2024 and December 31, 2023, no such provision for liabilities related to the above litigation matters were recorded on the condensed consolidated balance sheets.
14. Subsequent Event
Sixth Amendment & ANZ Distribution Agreement
On October 24, 2024, the Company and Teoxane entered into (i) the Sixth Amendment which, among other things, (a) establishes minimum purchase commitments through 2029, (b) updates and clarifies certain branding guidelines, (c) establishes a marketing task force to review product promotional materials, (d) establishes a medical education task force to promote the exchange of best practices, (e) deems breach of certain provisions under the Teoxane Agreement material breaches for purposes of early termination, including the failure to adhere to branding guidelines and timely deliver certain reports and (f) amends our minimum and maximum buffer stock requirements to align with our new purchase commitments (as discussed in Note 13); and (ii) the ANZ Distribution Agreement, pursuant to which Teoxane will act as the Company’s and Revance Australia’s, exclusive distributor and licensee in Australia and New Zealand of certain products containing DaxibotulinumtoxinA-lanm, including DAXXIFY®, for the treatment of (a) temporary improvements in the appearance of glabellar lines and other indications related to altering cosmetic appearance and (b) cervical dystonia. The ANZ Distribution Agreement will continue in full force and effect until December 31, 2040. Pursuant to the ANZ Distribution Agreement, Teoxane will make certain payments to the Company, including an upfront payment, certain regulatory and commercial milestone payments and high single-digit to mid-teen royalty payments for the sale of products in Australia and New Zealand. Teoxane will be required to purchase a minimum volume of products per year beginning in 2030. We are evaluating the accounting impact of the Sixth Amendment and ANZ Distribution Agreement.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes appearing elsewhere in this Report and in conjunction with our other SEC filings, including our FY2023 Form 10-K.
This Report, including the documents incorporated by reference herein, contains forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements other than statements of historical facts contained in this Report and the documents incorporated by reference herein, including statements regarding our future financial condition, regulatory approvals, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. In addition, any statements that refer to our financial outlook or projected performance, profitability expectations, amortization expectations, anticipated growth, milestone expectations, future expenses and cash flows, anticipated working capital requirements, market forecasts, capital expenditures, cash preservation plans, liquidity and financing requirements; our ability to fund our operations, including our ability to alleviate any substantial doubt regarding the same; expectations with respect to the Offer and the Merger, including the timing thereof and the likelihood of the Offer being commenced on the same terms as previously announced, or at all; our and Crown's ability to successfully complete the Merger; the impact to the Company if the Merger is not completed; our ability to comply with our debt obligations, including with respect to the Minimum Cash Covenant; repayment of our indebtedness under the Note Purchase Agreement upon the closing of the Merger; our future financing plans and strategies; our ability to raise additional capital; our ability to develop and commercialize innovative aesthetic and therapeutic offerings; our ability to obtain, and the timing relating to, regulatory submissions and approvals with respect to our drug product candidates and third-party manufacturers, including with respect to the PAS for the PCI manufacturing facility; our opportunity in therapeutics; development of an onabotulinumtoxinA biosimilar; the process and our ability to effectively and reliably manufacture supplies of DAXXIFY®; our ability to manufacture or receive sufficient supply of our Products in order to meet commercial demand; expectations regarding DAXXIFY® Zero-cost Inventory; our ability to maintain and seek out new strategic third-party collaborations to support our goals; research and development expenses and expectations; patent defensive measures; timing and expenses related to our ongoing litigation matters; the possibility of stockholder litigation in connection with the Offer and Merger, and the impacts thereof; our ability to defend ourselves in ongoing litigation; international expansion, including with respect to the approval of DAXXIFY® for cervical dystonia and glabellar lines by the TGA and other regulatory bodies; and our ability to comply with applicable laws and regulations; are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in Item 1A. “Risk Factors” and elsewhere in this Report and our FY2023 Form 10-K.
You should not rely upon forward-looking statements as predictions of future events. These forward-looking statements represent our estimates and assumptions only as of the date of this Report. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations. You should read this Report, together with the information incorporated herein by reference, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Summary of Risk Factors
Investing in our common stock involves risks. See Item 1A. “Risk Factors” in this Report and in our FY2023 Form 10-K for a discussion of the following principal risks and other risks that make an investment in Revance speculative or risky.
•There are significant risks and uncertainties associated with the pending Offer and Merger, including the risk that the Offer or the Merger may not be completed in a timely manner or at all, or may be completed on modified terms. The
Offer has not yet commenced. If the Offer does commence, closing of the Merger will remain subject to certain closing conditions that could adversely affect us or cause the Merger to be abandoned.
•Management has concluded there is substantial doubt about our ability to continue as a going concern. In order to mitigate the substantial doubt to continue as a going concern, we may be required to refinance our debt, conduct additional financings, restructure operations, sell assets or reduce our operating expenses. We have incurred significant losses since our inception and we anticipate that we will continue to incur operating losses for the foreseeable future and may not achieve or maintain profitability in the future. Our prior losses, combined with expected future losses, may adversely affect the market price of our common stock, our ability to raise capital and our ability to maintain compliance with our debt covenants.
•Our success as a company, including our ability to finance our business and generate revenue, and our future growth is substantially dependent on the clinical and commercial success of our Products. If we are unable to successfully commercialize our Products, complete the development and regulatory approval process of our product candidates, and maintain regulatory approval of our Products we may not be able to generate sufficient revenue to continue our business.
•We use third-party collaborators, including Teoxane, Viatris, Fosun, ABPS and PCI to help us develop, validate, manufacture and/or commercialize our products. Our ability to commercialize our products could be impaired or delayed if these collaborations are unsuccessful.
•DAXXIFY® and any future product candidates, if approved, may not achieve market acceptance among injectors, HCPs, healthcare organizations and administrators, others in the healthcare community and consumers and patients, and may not be commercially successful, which would adversely affect our operating results and financial condition.
•DAXXIFY®, the RHA® Collection of dermal fillers and any future product candidates will face significant competition, including from companies that enjoy significant competitive advantages, such as substantially greater financial, research and development, regulatory, manufacturing, marketing resources and expertise, greater brand recognition and more established relationships. Our failure to effectively compete may prevent us from achieving significant market penetration and expansion.
•If we are not able to effectively and reliably manufacture DAXXIFY® or any future product candidates at sufficient scale and appropriate cost, including through any third-party manufacturers, as well as acquire supplies of the RHA® Collection of dermal fillers from Teoxane, our product development, regulatory approval, commercialization and sales efforts and our ability to generate revenue may be adversely affected.
•Servicing our debt, including the 2027 Notes and Notes Payable, requires a significant amount of cash to pay our substantial debt. If we are unable to generate sufficient cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.
•Macroeconomic and geopolitical factors and a public health crisis, such as the COVID-19 pandemic, have and may continue to adversely affect our business, as well as those of third-parties on which we rely for significant manufacturing, clinical or other business operations. They may also impact disposable income levels, which could reduce consumer spending and lower demand for our Products.
•We are subject to uncertainty relating to pricing and reimbursement. Failure to obtain or maintain adequate coverage, pricing and reimbursement for DAXXIFY® for therapeutics uses, or our other future approved products, if any, could have a material adverse impact on our ability to commercialize such products.
•Reports of adverse events or safety concerns involving our Products could delay or prevent the Company or Teoxane from maintaining regulatory approval for such Products, or obtaining additional regulatory approval for additional indications or future product candidates. The denial, delay or withdrawal of any such approval would
negatively impact commercialization and could have a material adverse effect on our ability to generate revenue, business prospects, and results of operations.
•Unfavorable publicity relating to one or more of our Products, whether related to aesthetic or therapeutic indications, may affect the public perception of our entire portfolio of Products.
•Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results or actual consumer outcomes.
•If our efforts to protect our intellectual property related to DAXXIFY®, the RHA® Collection of dermal fillers or any future product candidates are not adequate, we may not be able to compete effectively. Additionally, we are currently and in the future may become involved in lawsuits or administrative proceedings to defend against claims that we infringe the intellectual property of others and to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming and would have a material adverse effect on our ability to generate revenue if we are unsuccessful.
•We are currently, and in the future may be, subject to securities class action and stockholder derivative actions. If other stockholder derivative actions, additional securities class actions or other lawsuits are brought against us, including product liability actions, and we cannot successfully defend ourselves, we may incur substantial liabilities or be required to limit commercialization of our products. Even a successful defense would require significant financial and management resources.
•As our business and operations continue to grow, we may need to expand our development, manufacturing, regulatory, sales, marketing and distribution capabilities. If and when we expand such capabilities, we may encounter difficulties in managing our growth, which could disrupt our operations.
•We have undertaken, and may in the future undertake, restructuring plans to adjust our investment priorities and manage our operating expenses, which plans may not result in the savings or operational efficiencies anticipated and could result in total costs and expenses that are greater than expected.
•If we are not successful in discovering, developing, acquiring and commercializing additional product candidates other than our current Products, our ability to expand our business and achieve our strategic objectives may be impaired.
•We have experienced and may experience in the future compromises or failures of our information technology systems or data, or those of third-parties upon which we rely, which could adversely affect our business. Despite significant efforts to secure against such threats, it is impossible to entirely mitigate these risks.
•Changes in and failures to comply with applicable laws, regulations and standards may adversely affect our business, operations and financial performance.
•If we fail to attract and retain qualified personnel at all levels and functions, we may be unable to successfully execute our objectives.
Revance is a biotechnology company focused on developing and commercializing innovative aesthetic and therapeutic offerings. Revance’s portfolio includes DAXXIFY® (DaxibotulinumtoxinA-lanm) for injection and the RHA® Collection of dermal fillers in the U.S. Revance has also partnered with Viatris to develop a biosimilar to onabotulinumtoxinA for injection and Fosun to commercialize DAXXIFY® in China.
Recent Developments
Pending Merger
On August 11, 2024, the Company and the Buyer Parties entered into the Merger Agreement, pursuant to which Crown will cause Merger Sub to commence the Offer as promptly as practicable, but in no event later than fifteen business days after the date of the Merger Agreement or such other date as may be agreed to between the Company and Crown, to purchase all of our outstanding Shares of common stock, par value $0.001 per Share, of the Company at a price of $6.66 per Share, in cash, without interest and less any required tax withholding. As a result of discussions between the Company and Teoxane regarding an alleged breach of the Teoxane Agreement, the Buyer Parties extended the date by which Merger Sub was obligated to commence the tender offer for all of the Shares pursuant to the Merger Agreement. The Company and Crown agreed to extend the Offer commencement date to November 12, 2024. The Merger Agreement contemplates that, as soon as practicable following the consummation of the Offer, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Crown. The Offer has not commenced. If the Offer commences, consummation of the Offer and closing of the Merger will remain subject to customary closing conditions, including (i) the Minimum Condition; (ii) the absence of any order, injunction or law prohibiting the Offer or the closing of the Merger; (iii) obtaining applicable approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which approval has already been received; and (iv) the accuracy of the representations and warranties contained in the Merger Agreement, subject to customary materiality qualifications, and compliance with the covenants and agreements contained in the Merger Agreement as of the closing of the Merger. If the Merger is completed, it is expected that our common stock will thereafter be removed from listing on the Nasdaq Global Market and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended.
Both parties have termination rights under certain circumstances. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a $28.8 million termination fee to Crown, including if the Company accepts a Superior Proposal.
The description of the Merger Agreement throughout this Report does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed on August 12, 2024 and incorporated by reference as Exhibit 2.1 hereto. In addition, refer to “Item 1A. Risk Factors" in this Report for a discussion of the relevant risks regarding the pending Merger with Crown.
On August 16, 2024, the Company received a notice to remedy alleged material breaches, including breaches of the maximum levels of buffer stock and required efforts to promote and sell the RHA® Collection of dermal fillers, under the Teoxane Agreement. Following discussions between the Company and Teoxane, the parties entered into the Settlement Agreement, pursuant to which Teoxane (i) waived any right to terminate the Teoxane Agreement with respect to any breaches that may have occurred, existed or arose on or prior to the date of the Settlement Agreement; and (ii) expressly acknowledged that there are no items currently in dispute between Teoxane and the Company.
On October 24, 2024, the Company and Teoxane entered into the Sixth Amendment which, among other things, (a) establishes minimum purchase commitments through 2029, (b) updates and clarifies certain branding guidelines, (c) establishes a marketing task force to review promotional materials, (d) establishes a medical education task force to promote the exchange of best practices, (e) deems breach of certain provisions under the Teoxane Agreement material breaches for purposes of early termination, including the failure to adhere to branding guidelines and timely deliver certain reports and (f) amends our minimum and maximum buffer stock requirements to align with our new purchase commitments (as discussed in Note 13). Either party may terminate the Teoxane Agreement in the event of the insolvency of, or a material breach by, the other party, including certain specified breaches that include the right for Teoxane to terminate the Teoxane Agreement for our failure to meet the minimum purchase requirements or commercialization expenditure during specified periods, our failure to adhere to the branding guidelines or timely deliver certain reports or for our breach of the exclusivity obligations under the Teoxane Agreement.
On October 24, 2024, the Company and Teoxane also entered into the ANZ Distribution Agreement, pursuant to which Teoxane will act as the Company's and Revance Australia's, exclusive distributor and licensee in Australia and New Zealand of certain products containing DaxibotulinumtoxinA-lanm, including DAXXIFY®, for the treatment of (a) temporary improvements in appearance of glabellar lines and other indications related to altering cosmetic appearance and (b) cervical dystonia. The ANZ Distribution Agreement will continue in full force and effect until December 31, 2040. Pursuant to the ANZ Distribution Agreement, Teoxane will make certain payments to the Company, including an upfront payment, certain regulatory and commercial milestone payments and high single-digit to mid-teen royalty payments. Teoxane will be required to purchase a minimum volume of products per year beginning in 2030.
The Company is currently seeking the approval of its DaxibotulinumtoxinA for Injection Category 1 registration application with the TGA for the temporary improvement of glabellar lines and treatment of cervical dystonia in adult patients, which was filed on November 2, 2023.
Revance Aesthetics
For the three and nine months ended September 30, 2024, we generated $58.8 million and $175.9 million in revenue from the sale of our Products. For the three and nine months ended September 30, 2023, we generated $54.1 million and $154.2 million, respectively, in revenue from the sale of our Products.
DAXXIFY®
For the three and nine months ended September 30, 2024, we recognized $28.3 million and $79.2 million in net product revenue from the sale of DAXXIFY®, respectively. For the three and nine months ended September 30, 2023, we recognized $22.0 million and $60.0 million in product revenue from the sale of DAXXIFY®, respectively.
RHA® Collection of Dermal Fillers
For the three and nine months ended September 30, 2024, we recognized $30.5 million and $96.7 million in product revenue from the sale of the RHA® Collection of dermal fillers, respectively. For the three and nine months ended September 30, 2023, we recognized $32.1 million and $94.2 million in product revenue from the sale of the RHA® Collection of dermal fillers, respectively.
In April 2024, the Company launched RHA® 3 for injection into the vermillion body, vermillion border and oral commissure for lip augmentation and lip fullness in adults aged 22 years and older.
On September 9, 2024, we announced that China’s NMPA approved Fosun’s biologics license application for DaxinbotulinumtoxinA for Injection for the improvement of glabellar lines. In October 2024, we received the milestone payment of $13.5 million, net of $1.5 million of foreign withholding taxes.
Revance Therapeutics
In May 2024, the Company expanded into the U.S. therapeutics market with the commercial launch of DAXXIFY® for the treatment of cervical dystonia. As of September 30, 2024, DAXXIFY for the treatment of cervical dystonia had coverage for over 80% of commercial lives.
Follow-On Offering
In March 2024, we completed a follow-on offering, pursuant to which we issued 16.0 million shares of common stock at a price to the public of $6.25 per share (except with respect to 30,000 shares which were sold and issued to Mark Foley, our chief executive officer and director, at $6.98 per share), for net proceeds of $97.1 million, after underwriting discounts and estimated offering costs.
Exit of the Fintech Platform Business
In September 2023, we commenced a plan to exit the Fintech Platform business as the costs and resources required to support the Fintech Platform no longer aligned with the Company’s capital allocation priorities. The exit and restructuring activities included elimination of Fintech Platform personnel, the termination of Fintech Platform research and development activities and an elimination of outside services expenses related to the Fintech Platform. Based on such plan, substantially all payment processing activities for Fintech Platform customers ended on January 31, 2024 and we substantially completed the activities related to winding down the remaining Fintech Platform operations as of March 31, 2024. Beginning as of March 31, 2024, the Service Segment is presented as a discontinued operation in our condensed consolidated financial statements with certain prior period amounts retrospectively revised to reflect this change. Although we discontinued the Service Segment, we do not expect the discontinuation of the Service Segment to have a material effect on our liquidity going forward. See Part I, Item 1, “Financial Information—Notes to Condensed Consolidated Financial Statements (Unaudited)—Note 3 — Exit of the Fintech Platform Business” in this Report for additional information.
Results of Operations
In connection with the completion of the exit of the Fintech Platform business discussed above, the results of our Fintech Platform business have been reflected as discontinued operations in our condensed consolidated financial statements as of and for the period ended September 30, 2024. Certain prior year figures were reclassified to conform to the current period presentation. Additionally, we began operating under a single reportable segment as of March 31, 2024. See Part I, Item 1, “Financial Information—Notes to Condensed Consolidated Financial Statements (Unaudited)—Note 3 — Exit of the Fintech Platform Business” in this Report for additional information. Accordingly, the results of operations discussed below no longer include a discussion of the Service Segment and the effect of the Service Segment on prior period amounts have been retrospectively revised for comparative purposes to more accurately reflect the period over period changes in our continuing operations.
Revenue
We generate product revenue from the sale of our Products. We generate collaboration revenue from an onabotulinumtoxinA biosimilar program with Viatris as well as the collaboration with Fosun for the development and commercialization of DaxibotulinumtoxinA for Injection. The service revenue generated from the Fintech Platform is classified as discontinued operations as discussed in Part I, Item 1. “Condensed Consolidated Financial Statements (Unaudited)—Notes to Condensed Consolidated Financial Statements (Unaudited) —Note 3—Exit of the Fintech Platform Business”.
Our breakdown of revenue by Product is summarized below:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except percentages)
2024
2023
Change
% Change
2024
2023
Change
% Change
Product:
RHA® Collection of dermal fillers
$
30,503
$
32,133
$
(1,630)
(5)
%
$
96,704
$
94,180
$
2,524
3
%
DAXXIFY®
28,324
21,976
$
6,348
29
%
79,170
59,980
$
19,190
32
%
Total product revenue, net
$
58,827
$
54,109
$
4,718
9
%
$
175,874
$
154,160
$
21,714
14
%
For both the three and nine months ended September 30, 2024, our net total product revenue increased compared to the same periods in 2023 primarily due to an increase in sales volume across both product lines, and partially offset by an overall reduction in average selling prices for both product lines.
Collaboration Revenue
We are actively developing an onabotulinumtoxinA biosimilar in collaboration with Viatris. As described in Part I, Item 1. “Condensed Consolidated Financial Statements (Unaudited)—Notes to Condensed Consolidated Financial Statements (Unaudited) —Note 4—Revenue,” we generally recognize collaboration revenue for the onabotulinumtoxinA biosimilar program based on the determined transactions price of the contract multiplied by the quotient of the cost of development services incurred over the total estimated cost of development services for the expected duration of our performance obligations. For the three and nine months ended September 30, 2024, we recognized revenue related to development services under the Viatris Agreement of $1.0 million and $1.3 million, respectively. For the three and nine months ended September 30, 2023, we recognized no revenue related to development services under the Viatris Agreement.
We are also working with Fosun to develop and commercialize DaxibotulinumtoxinA for Injection in the Fosun Territory under the Fosun License Agreement. As described in Part I, Item 1. “Condensed Consolidated Financial Statements (Unaudited)—Notes to Condensed Consolidated Financial Statements (Unaudited) —Note 4—Revenue,” we evaluated all of the variable payments to be received during the duration of the contract, which included payments from specified milestones, royalties, and estimated supplies to be delivered. Upon China’s NMPA approval of DAXXIFY® for the improvement of glabellar lines in September 2024, Fosun was obligated to pay us a milestone payment of $13.5 million, net of $1.5 million foreign withholding taxes, which we received in October 2024. The milestone payment was included as “Deferred revenue” on the condensed consolidated balance sheets. For the three and nine months ended September 30, 2024, no collaboration revenue is recognized from the Fosun License Agreement. For the three and nine months ended September 30, 2023, revenue of less than $0.1 million and $0.1 million, respectively, was recognized from the Fosun License Agreement, respectively.
Operating Expenses
Operating expenses associated with the Fintech Platform business were classified as discontinued operations as discussed in Part I, Item 1. “Condensed Consolidated Financial Statements (Unaudited)—Notes to Condensed Consolidated Financial Statements (Unaudited) —Note 3—Exit of the Fintech Platform Business”.
Cost of product revenue (exclusive of amortization)
$
17,633
$
16,821
$
812
5
%
$
50,179
$
46,915
$
3,264
7
%
Selling, general and administrative
62,578
65,791
$
(3,213)
(5)
%
197,314
202,523
$
(5,209)
(3)
%
Research and development
11,379
8,688
$
2,691
31
%
41,674
43,844
$
(2,170)
(5)
%
Amortization
545
374
$
171
46
%
1,636
1,636
$
—
—
%
Total operating expenses
$
92,135
$
91,674
$
461
1
%
$
290,803
$
294,918
$
(4,115)
(1)
%
Cost of product revenue (exclusive of amortization)
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except percentages)
2024
2023
Change
% Change
2024
2023
Change
% Change
Cost of product revenue (exclusive of amortization)
Purchasing and manufacturing costs
$
15,835
$
15,413
$
422
3
%
$
45,044
$
41,974
$
3,070
7
%
Distribution, royalty and other fulfillment charges
1,798
1,408
$
390
28
%
5,135
4,941
$
194
4
%
Total cost of product revenue (exclusive of amortization)
$
17,633
$
16,821
$
812
5
%
$
50,179
$
46,915
$
3,264
7
%
Cost of product revenue (exclusive of amortization) is generally incurred when our Products are delivered and primarily consists of the purchasing cost of the RHA® Collection of dermal fillers and manufacturing costs of DAXXIFY® and distribution expenses, royalty, other fulfillment costs related to the RHA® Collection of dermal fillers and DAXXIFY®. Substantially all of DAXXIFY® manufacturing expenses incurred prior to DAXXIFY® GL Approval were classified as research and development expenses, resulting in Zero-cost Inventory.
Our cost of product revenue (exclusive of amortization) for the three and nine months ended September 30, 2024 increased compared to the same periods in 2023, primarily due to higher sales volume of our Products. When Zero-cost Inventory, which is further discussed below, is depleted, we expect our cost of product revenue (exclusive of amortization) associated with DAXXIFY® to increase. We also anticipate that our cost of product revenue (exclusive of amortization) associated with the RHA® Collection of dermal fillers to increase as sales volume increases.
Purchasing and manufacturing costs
For the three and nine months ended September 30, 2024, purchasing and manufacturing costs increased compared to the same periods in 2023, primarily due to the higher sales volume of our Products.
Distribution, royalty and other fulfillment charges
For the three and nine months ended September 30, 2024, distribution, royalty, and other fulfillment costs increased compared to the same periods in 2023, primarily due to higher sales volume of our Products.
For the three and nine months ended September 30, 2024, the cost of product revenue (exclusive of amortization) would have increased by approximately $5 million and $18 million, respectively, if cost of product revenue (exclusive of amortization) included previously expensed inventories. For the three and nine months ended September 30, 2023, the cost of product revenue (exclusive of amortization) would have increased by approximately $3 million and $11 million, respectively, if cost of product revenue (exclusive of amortization) included previously expensed inventories. We expect to utilize existing Zero-cost Inventory until depleted in the near-term. Once depleted, we expect our cost of product revenue (exclusive of amortization) associated with DAXXIFY® to increase.
Selling, General and Administrative Expenses
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except percentages)
2024
2023
Change
% Change
2024
2023
Change
% Change
Selling, general and administrative
$
58,727
$
59,862
$
(1,135)
(2)
%
$
181,709
$
177,632
$
4,077
2
%
Stock-based compensation
3,491
8,599
$
(5,108)
(59)
%
15,631
31,042
$
(15,411)
(50)
%
Depreciation and amortization
360
633
$
(273)
(43)
%
1,924
3,815
$
(1,891)
(50)
%
Less: selling, general, and administrative expenses classified as discontinued operations
—
(3,303)
$
3,303
(100)
%
(1,950)
(9,966)
$
8,016
(80)
%
Total selling, general and administrative expenses
$
62,578
$
65,791
$
(3,213)
(5)
%
$
197,314
$
202,523
$
(5,209)
(3)
%
Selling, general and administrative expenses (before stock-based compensation and depreciation and amortization)
Selling, general and administrative expenses (before stock-based compensation and depreciation and amortization) consist primarily of the following:
•Costs of sales and marketing activities and sales force compensation related to our Products; and
•Personnel and professional service costs in our finance, information technology, investor relations, legal, human resources, and other administrative departments;
For the three months ended September 30, 2024, selling, general and administrative expenses decreased compared to the same period in 2023, primarily due to the implementation of cost efficiency measures during the current year, partially offset by increased sales and marketing expense for therapeutics, increased legal costs, and transaction costs related to the pending Merger. For the nine months ended September 30, 2024, selling, general and administrative expenses increased compared to the same period in 2023, primarily due to $7.3 million of transaction costs related to the pending Merger, an increase in sales and marketing activities in preparation for our DAXXIFY® therapeutics launch, and certain litigation matters, partially offset by cost efficiency measures realized during the period.
For the three and nine months ended September 30, 2024, stock-based compensation included in selling, general and administrative expenses decreased $5.1 million and $15.4 million, respectively, compared to the same periods in 2023, primarily due to the (i) stock-based compensation expense recognized for the vesting of the DAXXIFY® GL Approval PSU in March 2023, (ii) the impact of the exit of the Fintech Platform business, (iii) the stock-based compensation expense recognized for the vesting of certain market-based PSUs in May 2023, and (iv) lower grant-date fair value of stock awards granted in 2024 compared to 2023, partially offset by expenses associated with certain equity award modifications in selling, general and administrative functions.
Research and Development Expenses
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except percentages)
2024
2023
Change
% Change
2024
2023
Change
% Change
Research and development
$
9,953
$
11,200
$
(1,247)
(11)
%
$
38,605
$
48,118
$
(9,513)
(20)
%
Stock-based compensation
1,091
1,688
$
(597)
(35)
%
3,736
7,926
$
(4,190)
(53)
%
Depreciation and amortization
335
172
$
163
95
%
1,090
3,000
$
(1,910)
(64)
%
Less: research and development expenses classified as discontinued operations
—
(4,372)
$
4,372
(100)
%
(1,757)
(15,200)
$
13,443
(88)
%
Total research and development expenses
$
11,379
$
8,688
$
2,691
31
%
$
41,674
$
43,844
$
(2,170)
(5)
%
Research and development expenses (before stock-based compensation and depreciation and amortization)
We generally do not allocate costs by product candidates unless contractually required by our business partners. Research and development expenses (before stock-based compensation and depreciation and amortization) consist primarily of:
•Personnel costs in our research and development functions;
•expenses related to the initiation and completion of clinical trials and studies for the RHA® Pipeline Products and an onabotulinumtoxinA biosimilar, including expenses related to the production of clinical supplies;
•expenses related to the manufacturing of supplies for clinical activities, regulatory approvals, and pre-commercial inventory;
•certain expenses related to the establishment and maintenance of our manufacturing facilities;
•expenses related to medical affairs, medical information, publications and pharmacovigilance oversight;
•expenses related to license fees, milestone payments, and development efforts under in-licensing agreements;
•expenses related to compliance with drug development regulatory requirements in the U.S. and other foreign jurisdictions;
•fees paid to clinical consultants, CROs and other vendors, including all related fees for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis; and
For the three and nine months ended September 30, 2024, research and development expenses (before stock-based compensation and depreciation and amortization) decreased compared to the same periods in 2023, primarily due to the FDA approval of our PAS submission for the ABPS manufacturing facility in late March 2023 which allowed manufacturing related expenses for DAXXIFY® to be capitalized on the condensed consolidated balance sheet. Prior to the approval, such manufacturing related expenses were classified as research and development expense in the condensed consolidated statements of operations and comprehensive loss.
Our research and development expenses (before stock-based compensation and depreciation and amortization) are subject to numerous uncertainties, primarily related to the timing and cost needed to complete our respective projects. The development timelines, probability of success and development expenses can differ materially from expectations, and the completion of clinical trials may take several years or more depending on the type, complexity, novelty and intended use of a product candidate. Accordingly, the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development. We expect our research and development expenses (before stock-based compensation and depreciation and amortization) to be relatively consistent in the near term, primarily due to deferring the Phase 3 clinical program for upper limb spasticity and other therapeutics pipeline activities. However, we will continue sharing certain development costs with Teoxane related to the RHA® Pipeline Products, and other activities related to the pursuit of approval for the PCI manufacturing facility.
When we conduct additional clinical trials, such as for our biosimilar program or additional DAXXIFY® therapeutic indications, we expect our research and development expenses (before stock-based compensation and depreciation and amortization) to increase. Depending on the stage of completion and level of effort related to each development phase undertaken, we may reflect variations in our research and development expenses. We expense both internal and external research and development expenses as they are incurred.
Stock-based compensation
For the three and nine months ended September 30, 2024, stock-based compensation included in research and development expenses decreased compared to the same periods in 2023, primarily due to the (i) stock-based compensation expense recognized from the vesting of the DAXXIFY® GL Approval PSU in March 2023, (ii) impact of the exit of the Fintech Platform business, (iii) the stock-based compensation expense recognized for the vesting of certain market-based PSUs in May 2023; and (iv) lower grant-date fair value from stock awards granted in 2024 in comparison to 2023, offset by lower capitalized stock-based compensation in 2024.
Amortization
Amortization presented separately on the condensed consolidated statements of operations and comprehensive loss represents the amortization for the distribution rights, which is within the functional area of cost of product revenue. Refer to Part I, Item 1. “Condensed Consolidated Financial Statements (Unaudited)—Notes to Condensed Consolidated Financial Statements (Unaudited) —Note 3—Exit of the Fintech Platform Business” for the amortization expense classified as discontinued operations.
Interest income primarily consists of interest income earned on our deposit, money market fund, and investment balances. We expect interest income to vary each reporting period depending on our average deposit, money market fund, and investment balances during the period and market interest rates.
Interest Expense
Interest expense includes cash and non-cash components. The cash component of the interest expense primarily consists of the contractual interest charges for our 2027 Notes and Notes Payable, as well as our finance lease liability interest expense. The non-cash component of the interest expense primarily consists of the amortization of debt issuance costs for our 2027 Notes and the amortization of debt insurance cost, debt discount, and exit fee for the Notes Payable.
For the three and nine months ended September 30, 2024, interest expense increased compared to the same periods in 2023 due to interest associated with the issuance of the Second Tranche of the Notes payable in August 2023, and partially offset by a decrease in interest expense for our finance lease liability.
Other Expense, net
Other expense, net primarily consists of miscellaneous tax and other expense items partially offset by office lease sublease income.
Liquidity and Capital Resources
Our financial condition is summarized as follows:
(in thousands)
September 30,
December 31, 2023
Increase/(Decrease)
Cash, cash equivalents, and short-term investments
$
184,076
$
253,915
$
(69,839)
Working capital
$
249,638
$
249,641
$
(3)
Stockholders’ deficit
$
(163,030)
$
(151,604)
$
11,426
Sources and Uses of Cash
We hold our cash, cash equivalents, and short-term investments in bank accounts and interest-bearing instruments subject to investment guidelines for high credit quality. Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs.
As of September 30, 2024 and December 31, 2023, we had cash, cash equivalents and short-term investments of $184.1 million and $253.9 million, respectively, which reflected a decrease between these periods of $69.8 million. The decrease was primarily due to cash used in operating activities of $148.2 million, principal payments on a finance lease of $12.6 million, finance lease prepayment of $9.1 million, purchases of property and equipment of $2.2 million, and payment
of debt principal and an exit fee of $1.3 million. The decrease was primarily offset by proceeds from a follow-on public offering, net of underwriting discount of $97.6 million and other cash inflows of $6.0 million.
We derived the following summary of our condensed consolidated cash flows for the periods indicated from Part I, Item 1, “Financial Information—Condensed Consolidated Financial Statements (Unaudited)” in this Report:
Nine Months Ended September 30,
(in thousands)
2024
2023
Net cash provided by (used in):
Operating activities
$
(148,157)
$
(173,844)
Investing activities
$
(15,305)
$
107,370
Financing activities
$
83,327
$
138,196
Cash Flows from Operating Activities
Our cash used in operating activities is primarily driven by personnel costs, manufacturing and facility costs, sales and marketing activities, and general and administrative support, offset by revenue generated from the sale of our Products. Our cash flows from operating activities will continue to be affected principally by the revenue generated from our Products and our working capital requirements, with a primary focus on commercial operations.
Cash used in operating activities for nine months ended September 30, 2024 consisted of approximately $314 million in expenditures related to overall operations, partially offset by approximately $166 million in cash receipts from our revenue. The increase in net cash used in operating activities for the nine months ended September 30, 2024, compared to 2023 is primarily driven by expenditures related to supporting the Company’s commercial growth, and partially offset by an increase in cash receipt from Product sales.
Cash used in operating activities for the nine months ended September 30, 2023 consisted of approximately $326 million in expenditures related to overall operations, partially offset by approximately $152 million in cash receipts from our revenue.
Cash Flows from Investing Activities
For the nine months ended September 30, 2024 and 2023, net cash provided by or used in investing activities was primarily due to fluctuations in the timing of purchases and maturities of investments, prepayment on a finance lease, and purchases of property and equipment.
Cash Flows from Financing Activities
For the nine months ended September 30, 2024, net cash provided by financing activities was driven by proceeds from follow-on public offering, net of underwriting discount, and proceeds from the exercise of stock options and employee stock purchase plan, which was offset by the principal payments on finance lease obligations, payment of debt principal and exit fee, net settlement of stock awards for employee taxes, and payments of offering costs.
For the nine months ended September 30, 2023, net cash provided by financing activities was driven by the proceeds from the ATM, net of commissions, the issuance of the Notes Payable pursuant to the Note Purchase Agreement, net of debt discount and the exercise of stock options and purchases of our common stock through the 2014 ESPP. The inflows were offset by the net settlement of stock awards for employee taxes, and principal payments on finance lease obligations.
Convertible Senior Notes
In February 2020, we issued the 2027 Notes, in the aggregate principal amount of $287.5 million, pursuant to the Indenture. The 2027 Notes are senior unsecured obligations and bear interest at a rate of 1.75% per year, payable semiannually in arrears on February 15 and August 15 of each year, began on August 15, 2020. The 2027 Notes will mature
on February 15, 2027, unless earlier converted, redeemed or repurchased. In connection with issuing the 2027 Notes, we received $278.3 million in net proceeds, after deducting the initial purchasers’ discount, commissions, and other issuance costs.
The 2027 Notes may be converted at any time by the holders prior to the close of business on the business day immediately preceding November 15, 2026 only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2020 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the measurement period in which the trading price (as defined in the Indenture) per $1,000 principal amount of the 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) if we call any or all of the 2027 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after November 15, 2026 until the close of business on the second scheduled trading day immediately preceding the Maturity Date, holders may convert all or any portion of their 2027 Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
The conversion rate will initially be 30.8804 shares of our common stock per $1,000 principal amount of the 2027 Notes (equivalent to an initial conversion price of approximately $32.38 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the Maturity Date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event or notice of redemption, as the case may be.
We may redeem for cash all or any portion of the 2027 Notes, at our option, on or after February 20, 2024 if the last reported sale price of our common stock has been at least 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 (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. The threshold to redeem has not been met as of September 30, 2024. No sinking fund is provided for the 2027 Notes.
If we undergo a fundamental change (as defined in the Indenture), holders may require us to repurchase for cash all or any portion of their 2027 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Within the time periods required by the terms of the Indenture, we have agreed to deliver any notices (including with respect to holders’ rights to require repurchase or conversion of the convertible notes), certificates, supplemental indentures and other documents that might be required under the convertible notes indenture and take all other actions that are required under the terms of the 2027 Notes, the Indenture or under applicable law, including as a result of the transactions contemplated by the Merger Agreement, to the extent constituting a “Fundamental Change” or “Make-Whole Fundamental Change” (as such terms are defined in the Indenture).
We used $28.9 million of the net proceeds from the 2027 Notes to pay the cost of the capped call transactions. The capped call transactions are expected generally to reduce the potential dilutive effect upon conversion of the 2027 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2027 Notes, as the case may be, with such reduction and/or offset subject to a price cap of $48.88 of our common stock per share, which represents a premium of 100% over the last reported sale price of our common stock on February 10, 2020. The capped calls have an initial strike price of $32.38 per share, subject to certain adjustments, which corresponds to the conversion option strike price in the 2027 Notes. The capped call transactions cover, subject to anti-dilution adjustments, approximately 8.9 million shares of our common stock.
In March 2022, we entered into the Note Purchase Agreement and issued the First Tranche in an aggregate principal amount for all such Notes of $100 million. In August 2023, we entered into the First Amendment to reduce the Second Tranche from $100 million to $50 million, and we subsequently issued $50 million to the Purchasers. Additionally, the First Amendment increased the uncommitted Third Tranche from $100 million to $150 million. The uncommitted Third Tranche was available until March 31, 2024, subject to the satisfaction of certain conditions set forth in the Note Purchase Agreement, including the achievement of greater than or equal to $50 million in trailing twelve months revenue for DAXXIFY® preceding the date of the draw request for the Third Tranche, and approval by Athyrium, which we did not draw on.
Our obligations under the Note Purchase Agreement are secured by substantially all of our assets and the assets of our wholly owned domestic subsidiaries, including their respective intellectual property.
The notes issued pursuant to the First Tranche and Second Tranche bear interest at an annual fixed interest rate equal to 8.50%. We are required to make quarterly interest payments on each Notes Payable commencing on the last business day of the calendar month following the funding date thereof, and continuing until the Maturity Date. Pursuant to the First Amendment, the Company is required to repay Athyrium the outstanding principal amount of the Second Tranche notes in installments on the last business day of each March, June, September and December (commencing in September 2024), in each case, based on the following principal amortization payment schedule: 2.5% in September and December 2024; 5.0% in March and June 2025; 7.5% in September and December 2025; and 10.0% in March and June 2026; followed by repayment of the Second Tranche in full on September 18, 2026. The Maturity Date may be extended to March 18, 2028 if, as of September 18, 2026, less than $90 million principal amount of our existing 2027 Notes remain outstanding and with the consent of the Purchasers. Initially, all principal for each tranche is due and payable on the Maturity Date. At our option, we may prepay the outstanding principal balance of all or any portion of the principal amount of the Notes Payable, subject to a prepayment fee equal to (i) a make-whole amount if the prepayment occurs on or prior to the first anniversary of the NPA Effective Date and (ii) 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the NPA Effective Date but on or prior to the second anniversary of the NPA Effective Date. Upon prepayment or repayment of all or any portion of the principal amount of the Notes Payable (whether on the Maturity Date or otherwise), we are also required to pay an exit fee to the Purchasers.
The Note Purchase Agreement includes affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. We must also (i) maintain at least $30.0 million of unrestricted cash and cash equivalents in accounts subject to a control agreement in favor of Athyrium at all times (the Minimum Cash Covenant) and (ii) upon the occurrence of certain specified events set forth in the Note Purchase Agreement, achieve at least $70.0 million of Consolidated Teoxane Distribution Net Product Sales on a trailing twelve-months basis. The negative covenants include, among others, restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and undergoing a change in control, in each case subject to certain exceptions.
If we do not comply with the affirmative and negative covenants, such non-compliance may be an event of default under the Note Purchase Agreement. The Note Purchase Agreement also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 2.0% and would provide Athyrium, as administrative agent, with the right to exercise remedies against us and the collateral, including foreclosure against our property securing the obligations under the Note Purchase Agreement, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the Note Purchase Agreement, a breach of certain covenants under the Note Purchase Agreement, our insolvency, the occurrence of a circumstance which could have a material adverse effect and the occurrence of any default under certain other indebtedness.
In March 2024, we completed a follow-on offering, pursuant to which we issued 16.0 million shares of common stock at a price to the public of $6.25 per share (except with respect to 30,000 shares to be sold and issued to Mark Foley, our president, chief executive officer, and director, at $6.98 per share), for net proceeds of $97.1 million, after underwriting discounts and offering costs.
ATM Offering Program
In 2023, we sold 3.2 million shares of common stock under the 2022 ATM Agreement at a weighted average price of $31.90 per share, resulting in net proceeds of $100.0 million after sales agent commissions and offering costs. No shares of common stock were sold during the three and nine months ended September 30, 2024 from the 2022 ATM Agreement.
Common Stock and Common Stock Equivalents
As of October 31, 2024, outstanding shares of common stock were 104.9 million, unvested RSUs and PSUs were 5.1 million, outstanding stock options were 3.5 million, unvested RSAs and PSAs were 0.6 million, shares expected to be purchased under the 2014 ESPP were 0.1 million and shares of common stock underlying the 2027 Notes was 8.9 million, based upon the initial conversion price.
Operating and Capital Expenditure Requirements - Going Concern
We expect to continue to incur operating losses for the foreseeable future as we continue to devote resources to the commercialization, research and development, manufacturing development and regulatory approval of our products. However, there are numerous risks and uncertainties regarding our planned activities, and as a result our funding requirements.
Disciplined capital allocation continues to be a priority; however, we have spent and expect to continue to spend significant resources towards the costs of completing the pending Merger, including legal and financial advisory fees and other transaction costs, certain of which are payable by the Company whether or not the Merger is completed. Also, in addition to quarterly interest payments and exit fees, beginning in September 2024, the Company started repaying to Athyrium the outstanding principal amount of the Second Tranche Notes, based on the following principal amortization payment schedule: 2.5% in September and December 2024; 5.0% in March and June 2025; 7.5% in September and December 2025; and 10.0% in March and June 2026.
In addition, we expect that we will continue to expend substantial resources for the foreseeable future and in the long-term to support the growth of the aesthetics portfolio of Products and DAXXIFY® for the treatment of cervical dystonia and to support our ongoing operations. In particular, we anticipate that we will continue to invest substantial resources in our commercialization efforts and the manufacturing and supply of DAXXIFY® for commercialization. In addition, in connection with the Teoxane Agreement, we must continue to make specified annual minimum purchases of the RHA® Collection of dermal fillers, which amounts have increased following our entry into the Sixth Amendment (see Note 13 for additional information), and meet annual minimum investments in connection with the commercialization of the RHA® Collection of dermal fillers. In addition, we have dedicated manufacturing capacity, buyback obligations, cost sharing arrangements and related minimum purchase obligations under our manufacturing and supply agreements in connection with the manufacture and supply of DAXXIFY® and any product candidate. We also anticipate expending resources to continue to support the onabotulinumtoxinA biosimilar and Fosun partnerships. In the long term, in addition to the aforementioned expenditures, we anticipate our expenditures will include clinical programs for DAXXIFY® in other potential indications and international regulatory investments.
As of September 30, 2024, we had capital resources of $184.1 million consisting of cash, cash equivalents, and short-term investments. To date, we have funded our operations primarily through the sale of common stock, convertible senior notes, sales of Products, proceeds from notes issued pursuant to the Note Purchase Agreement and payments received from collaboration arrangements. We also have remaining capacity to sell up to $47.2 million of our common stock under the 2022 ATM Agreement as of September 30, 2024. Our forecasted liquidity is based on our current operating plan and
excludes any impact from the pending consummation of the Merger. Based on that plan and excluding any impact of the pending consummation of the Merger, our existing cash, cash equivalents, and short-term investments will not allow us to fund our operations for at least 12 months following the filing of this Report. Also, we are required to maintain compliance with the Minimum Cash Covenant in accordance with the terms of the Note Purchase Agreement (see Note 10). As a result, management has concluded that there is substantial doubt about our ability to continue as a going concern. In order to mitigate the substantial doubt to continue as a going concern, we may be required to refinance our debt, conduct additional financings, restructure operations, sell assets or reduce our operating expenses. If we are unable to generate sufficient revenue to fulfill our operating plan, secure additional capital when needed or sufficiently reduce our operating expenses, we may be unable to comply with the Minimum Cash Covenant or continue to operate our business.
See “Part II. Item 1A. Risk Factors—Management has concluded there is substantial doubt about our ability to continue as a going concern" in this Report and “Part I. Item 1A. Risk Factors—We have incurred significant losses since our inception and we anticipate that we will continue to incur operating losses for the foreseeable future and may not achieve or maintain profitability in the future” in our FY2023 Form 10-K for additional information.
Critical Accounting Policies and Estimates
For the nine months ended September 30, 2024, there have been no material changes in our critical accounting policies compared to those disclosed in Item 7 in our FY2023 Form 10-K.
Contractual Obligations
Except for the minimum purchase obligation under the Sixth Amendment discussed in Part I, Item 1, “Financial Information—Notes to Condensed Consolidated Financial Statements (Unaudited)—Note 13—Commitments and Contingencies”, there were no material changes outside of the ordinary course of business in our contractual obligations as of September 30, 2024, from those as of December 31, 2023 as reported in our FY2023 Form 10-K.
Recent Accounting Pronouncements
Refer to “Recent Accounting Pronouncements” in Part I, Item 1, “Financial Information—Notes to Condensed Consolidated Financial Statements (Unaudited)—Note 1—The Company and Summary of Significant Accounting Policies” in this Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for trading purposes. For the nine months ended September 30, 2024, our exposure to market risk did not change materially from what was disclosed in Item 7A in our FY2023 Form 10-K.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Report, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
For the three months ended September 30, 2024, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are currently involved in litigation relating to claims arising out of our operations and may be involved in such litigation in the future. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.
In October 2021, Allergan filed a complaint against us and ABPS, one of our manufacturing sources of DAXXIFY®, in the U.S. District Court for the District of Delaware, alleging infringement of the following patents assigned and/or licensed to Allergan: U.S. Patent Nos. 11,033,625; 7,354,740; 8,409,828; 11,124,786; and 7,332,567. Allergan claims that our formulation for DAXXIFY® and ABPS’s manufacturing process used to produce DAXXIFY® infringes its patents. Allergan also asserted a patent with claims related to a substrate for use in a botulinum toxin detection assay. On November 3, 2021, we filed a motion to dismiss. On November 24, 2021, Allergan filed an amended complaint against us and ABPS, alleging infringement of an additional patent assigned and/or licensed to Allergan: U.S. Patent No. 11,147,878. On December 17, 2021, we filed a second motion to dismiss, and on January 14, 2022, Allergan filed an opposition to that motion. We filed a reply to Allergan’s opposition on January 21, 2022, and on August 19, 2022, the court denied our second motion to dismiss. On September 2, 2022, we filed an answer and counterclaims to Allergan's amended complaint. On December 30, 2022, Allergan filed a second amended complaint against us and ABPS, alleging infringement of three additional patents assigned and/or licensed to Allergan: U.S. Patent Nos. 11,203,748; 11,326,155; and 11,285,216. On January 20, 2023, we filed an answer and counterclaims to Allergan's second amended complaint. On March 3, 2023, we filed invalidity contentions, which challenge Allergan’s asserted patents. A Markman hearing was held on June 28, 2023, and a decision was issued on August 29, 2023. On September 15, 2023, U.S. Patent No. 7,332,567 was dismissed from the case with prejudice. Allergan reduced the asserted claims to claim 8 of U.S. Patent No. 7,354,740, claims 5 and 8 of U.S. Patent No. 11,203,748, claim 10 of U.S. Patent No. 11,033,625, claims 1, 4, 6, and 20 of U.S. Patent No. 11,147,878, and claim 1 of U.S. Patent No. 11,285,216 via a Stipulation and Order dated June 21, 2024. The jury trial is scheduled to begin in December 2024.
On December 10, 2021, a putative securities class action complaint was filed against the Company and certain of its officers on behalf of a class of stockholders who acquired the Company’s securities from November 25, 2019 to October 11, 2021, in the U.S. District Court for the Northern District of California.The complaint alleges that the Company and certain of its officers violated Sections 10(b) and 20(a) of Exchange Act by making false and misleading statements regarding the manufacturing of DAXXIFY® and the timing and likelihood of regulatory approval and seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees. The court appointed the lead plaintiff and lead counsel on September 7, 2022. The lead plaintiff filed an amended complaint on November 7, 2022. On January 23, 2023, we filed a motion to dismiss, and on March 30, 2024, the Court granted the motion with leave for the plaintiff to amend the complaint. On May 1, 2024, the plaintiff filed an amended complaint, which asserted similar claims to those in the prior complaint. On June 25, 2024, the Company filed a motion to dismiss the amended complaint.
We dispute the claims in these lawsuits and intend to defend these matters vigorously. These lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcomes of the lawsuits are necessarily uncertain. We could be forced to expend significant resources in the defense of either lawsuit, and we may not prevail. In addition, we may incur substantial legal fees and costs in connection with each lawsuit.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as all other information included in this Report, including our consolidated financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part I, Item IA of our FY2023 10-K before you decide to purchase shares of our common stock. If any of those risks actually occurs, our business, prospects, financial condition and operating results could be materially harmed. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and stock price.
Below we are providing, in supplemental form, new risk factors as well as material changes to our risk factors from those previously disclosed in Part I, Item 1A in our FY2023 10-K. Our risk factors disclosed in Part I, Item 1A of the FY2023 10-K provide additional discussion about these supplemental risks.
There are uncertainties as to the timing of the Offer and the Merger, including the risk that the Offer or the Merger may not be completed in a timely manner or at all, or may be completed on modified terms that are less favorable.
On August 11, 2024, we entered into the Merger Agreement with Crown and Merger Sub, pursuant to which Crown will cause Merger Sub to commence a tender offer as promptly as practicable for all of our outstanding common stock. The commencement date for the tender offer was extended via mutual waiver to November 12, 2024, or such other date as may be mutually agreed to among the Buyer Parties and the Company. There can be no assurance that the Offer and the Merger will be completed in the currently contemplated timeframe, or at all, or on the same terms as originally contemplated by the parties, including at the original Offer Price. While the parties previously contemplated closing the Offer and the Merger during the fourth quarter of 2024, there can be no assurance that all closing conditions will be satisfied (or waived, if applicable) by year-end. The obligation of Merger Sub to accept for payment Shares validly tendered pursuant to the Offer is subject to customary closing conditions, including: (i) the Minimum Condition; (ii) the absence of any order, injunction or law prohibiting the Offer or the closing of the Merger; (iii) obtaining applicable approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which approval has already been received; and (iv) the accuracy of the representations and warranties contained in the Merger Agreement, subject to customary materiality qualifications, and compliance with the covenants and agreements contained in the Merger Agreement as of the closing of the Merger.
The Merger Agreement contains certain termination rights for both the Company and Crown, which could prevent the consummation of the Offer and the Merger. Due to the ongoing discussions between the Company and Crown, in light of the Company’s entry into the Teoxane Agreements, the Buyer Parties agreed to further extend the date by which Merger Sub is obligated to commence the tender offer to November 12, 2024 or such other date as may be mutually agreed to between the Company and the Buyer Parties. Crown has expressed dissatisfaction with our entry into the Teoxane Agreements and the terms of such agreements. While the parties continue their discussions, Crown may assert claims related to the Merger Agreement or take other action in connection with the Company’s entry into the Teoxane Agreements, including by seeking to unilaterally terminate the Merger Agreement or to otherwise reach a settlement. For these and other reasons, termination of the Merger Agreement could materially and adversely affect our business operations and financial condition, which in turn would materially and adversely affect the price of our common stock. There could also be further delays to the commencement or consummation of the Offer, or in the Company or the Buyer Parties seeking remedies in accordance with, and modifications to, the terms of the Merger Agreement, including Offer Price.
If the Offer and the Merger are not completed within the expected timeframe or at all, or on modified terms, we will be subject to a number of material risks that could adversely impact our business, financial conditions and results of operations, including the following:
•the trading price of our Shares may significantly decline to the extent that the market price of the Shares reflect positive market assumptions that the Offer and the Merger will be completed at the current Offer Price, and the related benefits will be realized;
•if the Merger Agreement is terminated under certain specified circumstances, including by Revance to accept a Superior Proposal, we may be required to pay Crown a termination fee of $28.8 million;
•the obligation to pay significant transaction costs, such as legal, accounting and financial advisory costs that are not contingent on closing of the Offer and the Merger;
•the diversion of management’s attention from our ongoing business operations towards the Offer and the Merger, for which we will have received little or no benefit if completion of the Offer and the Merger does not occur;
•negative reactions from employees, resulting in low productivity, employees leaving the Company or possible layoffs; and
•reputational harm including to relationships with customers, service providers, investors, lenders and business partners due to the adverse perception of any failure to successfully complete the Offer and the Merger.
Failure to timely complete the Offer and the Merger could adversely impact our business, financial condition and results of operations and the trading price of our Shares could significantly decline.
The announcement and pendency of the Offer and the Merger has resulted and may continue to result in disruptions to our business, divert management’s attention and/or disrupt our relationships with third parties and employees, any of which could negatively impact our operating results and ongoing business.
The Merger Agreement generally requires us to conduct our business in the ordinary course, subject to certain exceptions, including as required by applicable law, pending consummation of the Merger, and subjects us to interim operating covenants that restrict us, without Crown’s approval from taking certain specified actions until the Offer and Merger are consummated or the Merger Agreement is terminated in accordance with its terms. These restrictions could prevent us from pursuing certain business opportunities that may arise prior to the consummation of the Offer and the Merger and may affect our ability to execute our business strategies and attain financial and other goals and may impact our financial condition, results of operations and cash flows.
Our current and prospective employees may experience uncertainty about their future roles with us following the consummation of the Merger, which may materially adversely affect our ability to retain and hire key personnel and other employees while the Offer and Merger are pending. The pending Offer and Merger could cause disruptions to our business or business relationships with our existing and potential customers, service providers, investors, lenders and others with whom we do business, and this could have an adverse impact on our operating results and business generally. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties, or seek to negotiate changes or alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.
The pursuit of the Offer and Merger has placed and may continue to place a significant burden on management and internal resources, which may have a negative impact on our ongoing business operations. It has also diverted management’s time and attention from the day-to-day operation of our businesses and the execution of our other strategic initiatives. This could adversely affect our business, financial condition and results of operations, despite management's efforts to continue to operate in the ordinary course.
The adverse consequence of the pendency of the Merger could be exacerbated by any delays in completion of the Merger or termination of the Merger Agreement. In addition, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger, for which we will have received little or no benefit if the Merger is not completed. Many of these fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger, which could materially and adversely affect our business, financial condition, results of operations and cash flows.
Stockholder litigation in connection with the Offer and Merger may result in significant costs of defense, indemnification and liability, and could impact the timing of or our ability to complete the Merger.
The Company may be subject to stockholder lawsuits challenging the Offer and Merger. No assurance can be made as to the outcome of these and other similar lawsuits, including the amount of costs associated with defending such claims or any other liabilities that may be incurred in connection with the litigation of such claims. If plaintiffs are successful in obtaining an injunction prohibiting completion of the Offer and Merger on the agreed-upon terms, such an injunction may delay the completion of the Offer and Merger in the expected timeframe or may prevent the Offer and Merger from being completed altogether. Whether or not any plaintiff’s claim is successful, such litigation may result in significant costs of defense, indemnification and liability, and diverts management’s attention and resources, which could adversely affect our business, financial condition and results of operations.
在我们需要时，可能无法获得额外资本，或者无法以对我们可接受的条件获得。如果我们无法及时获得足够的资金，或者根本无法获得资金，我们可能需要采取资本保全措施，包括减少营业费用和延迟、缩减、停止或修改我们的销售和营销能力；研究和开发活动；或者继续推广我们的产品和业务计划中其他必要的活动。如果我们无法产生足够的营业收入来完成我们的营运计划，获得所需的额外资本或充分减少我们的营业费用，我们可能无法遵守最低现金协议，或继续经营我们的业务。有关《票据购买协议》下的后果更多信息，请参阅我们的FY2023 Form 10-k，项目1A - “我们可能没有足够的现金可供我们按期支付债务利息或本金。”