Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies

v3.21.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.

Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2020, except as described below.

Accounts Receivable, Net

Accounts receivable are reported on the unaudited condensed consolidated balance sheets at outstanding amounts due from customers for product sales net of discounts and chargebacks.  The Company evaluates the collectability of accounts receivable on a regular basis, by reviewing the financial condition and payment history of its customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. An allowance for doubtful accounts is recorded when a receivable is deemed to be uncollectible.  The Company recorded no allowance for doubtful accounts as of September 30, 2021.

Inventory

Inventory is stated at the lower of cost or net realizable value. Costs include amounts related to third party manufacturing.  Prior to the regulatory approval of an investigational drug, the Company recognizes as research and development expense costs related to the manufacture of an investigational drug when incurred.  Upon regulatory approval, the Company begins capitalizing such manufacturing expenses as inventory.  For BREXAFEMME, capitalization of costs as inventory began upon regulatory approval on June 1, 2021.

Revenue Recognition

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of goods and services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods and services. The Company performs the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

Product Revenue, Net

The Company sells BREXAFEMME primarily to wholesalers in the United States and are initially invoiced at contractual list prices. These wholesalers subsequently resell BREXAFEMME to specialty and other retail pharmacies. In addition to agreements with the wholesalers, the Company enters into arrangements with third-party payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts for the purchase of BREXAFEMME.

The Company determined that performance obligations are satisfied and revenue is recognized when a customer takes control of the Company’s product, which occurs at a point in time. This occurs upon delivery of the BREXAFEMME to customers, at which point the Company recognizes revenue. Payment is typically received 70 to 90 days after satisfaction of the Company’s performance obligations.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer (“transaction price”). The transaction price for product sales is reduced by variable consideration related to chargebacks, rebates, discounts, incentives, and returns.  The Company will estimate the amount of variable consideration that should be included in the transaction price using the expected value method. These estimates take into consideration prescription demand from commercial providers, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns, and historical trends. These provisions reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained and is included in net sales only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.  Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.  Sales commissions and other incremental costs of obtaining customer contracts are expensed as incurred as the amortization periods would be less than one year.

 

 

License Agreement Revenue

The Company has entered into arrangements involving the sale or license of intellectual property and the provision of other services.  When entering into any arrangement involving the sale or license of intellectual property rights and other services, the Company determines whether the arrangement is subject to accounting guidance in ASC 606, Revenue from Contracts with Customers, as well as ASC 808, Collaborative Arrangements ("Topic 808"). If the Company determines that an arrangement includes goods or services that are central to the Company’s business operations for consideration, the Company will then identify the performance obligations in the contract using the unit-of-account guidance in Topic 606.  For a distinct unit-of-account that is within the scope of Topic 606, the Company applies all of the accounting requirements in Topic 606 to that unit-of-account, including the recognition, measurement, presentation and disclosure requirements.  For a distinct unit-of-account that is not within the scope of Topic 606, the Company will recognize and measure the distinct unit-of-account based on other authoritative ASC Topics or on a reasonable, rational, and consistently applied policy election.

Analyzing the arrangement to identify performance obligations requires the use of judgment. In arrangements that include the sale or license of intellectual property and other promised services, the Company first identifies if the licenses are distinct from the other promises in the arrangement.  If the license is not distinct, the license is combined with other services into a single performance obligation. Factors that are considered in evaluating whether a license is distinct from other promised services include, for example, whether the counterparty can benefit from the license without the promised service on its own or with other readily available resources and whether the promised service is expected to significantly modify or customize the intellectual property.

The Company classifies non-refundable upfront payments, milestone payments and royalties received for the sale or license of intellectual property as revenues within its statements of operations because the Company views such activities as being central to its business operations. For the sale of intellectual property that is distinct, fixed consideration and variable consideration are included in the transaction price and recognized in revenue immediately to the extent that it is probable that there would not be a significant reversal of cumulative revenue in the future.  For the license of intellectual property that is distinct, fixed and variable consideration (to the extent there will not be a significant reversal in the future) are also recognized immediately in income, except for consideration received in the form of royalty or sales-based milestones, which is recorded when the customer’s subsequent sales or usages occur.  If the sale or license of intellectual property is not distinct, revenue is deferred and recognized over the estimated period of the Company’s combined performance obligation.  For contractual arrangements that meet the definition of a collaborative arrangement under Topic 808, consideration received for any units-of-account that are outside the scope of Topic 606 are recognized in the statements of operations by considering (i) the nature of the arrangement, (ii) the nature of the Company’s business operations, and (iii) the contractual terms of the arrangement. 

Cost of Product Revenues

The cost of product revenues consists primarily of distribution and freight costs and other manufacturing costs. Prior to the regulatory approval of BREXAFEMME on June 1, 2021, the Company expensed as research and development the costs associated with the third-party manufacture of BREXAFEMME.

 

 

Basic and Diluted Net (Loss) Income per Share of Common Stock

The Company calculates net (loss) income per common share in accordance with ASC 260, Earnings Per Share. Basic net (loss) income per common share for the three and nine months ended September 30, 2021 and 2020 was determined by dividing net (loss) income applicable to common stockholders by the weighted average number of common shares outstanding during the period.  Per ASC 260, Earnings Per Share, the weighted average number of common shares outstanding utilized for determining the basic net (loss) income per common share for the three and nine months ended September 30, 2021 includes the pre-funded warrants to purchase 5,260,000 shares of common stock issued in the December 2020 Public Offering.  Diluted net loss per common share for the three and nine months ended September 30, 2021 and 2020 was determined as follows (in thousands, except share and per share amounts):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net (loss) income

$

(605

)

 

$

909

 

 

$

(3,623

)

 

$

(12,474

)

Dilutive effect of convertible debt

 

(988

)

 

 

 

 

 

 

 

 

 

Dilutive effect of warrant liability

 

 

 

 

(4,649

)

 

 

(15,719

)

 

 

(2,917

)

Net loss allocated to common shares

$

(1,593

)

 

$

(3,740

)

 

$

(19,342

)

 

$

(15,391

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

26,616,628

 

 

 

10,627,618

 

 

 

26,147,658

 

 

 

10,129,098

 

Dilutive effect of stock options and restricted stock units

 

 

 

 

1,058

 

 

 

 

 

 

 

Dilutive effect of convertible debt

 

1,138,200

 

 

 

 

 

 

 

 

 

 

Dilutive effect of warrant liability

 

 

 

 

2,760,338

 

 

 

178,348

 

 

 

1,091,704

 

Weighted average common shares outstanding – diluted

 

27,754,828

 

 

 

13,389,014

 

 

 

26,326,006

 

 

 

11,220,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share – diluted

$

(0.06

)

 

$

(0.28

)

 

$

(0.73

)

 

$

(1.37

)

 

The following potentially dilutive shares of common stock have not been included in the computation of diluted net loss per share for the three and nine months ended September 30, 2021 and 2020, as the result would be anti-dilutive:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Outstanding stock options

 

1,643,506

 

 

 

808,855

 

 

 

1,643,506

 

 

 

817,855

 

Outstanding restricted stock units

 

149,134

 

 

 

80,137

 

 

 

149,134

 

 

 

80,137

 

Warrants to purchase common stock associated with June 2016 public offering

 

 

 

 

421,867

 

 

 

 

 

 

421,867

 

Warrants to purchase common stock associated with March 2018 public offering – Series 2

 

798,810

 

 

 

798,810

 

 

 

798,810

 

 

 

798,810

 

Warrants to purchase common stock associated with December 2019 Public Offering

 

4,472,205

 

 

 

4,472,205

 

 

 

4,472,205

 

 

 

4,472,205

 

Warrants to purchase common stock associated with December 2020 Public Offering - Series 1

 

6,439,866

 

 

 

 

 

 

 

 

 

 

Warrants to purchase common stock associated with December 2020 Public Offering - Series 2

 

6,800,000

 

 

 

 

 

 

6,800,000

 

 

 

 

Warrants to purchase common stock associated with Loan Agreement

 

170,410

 

 

 

 

 

 

170,410

 

 

 

 

Warrants to purchase common stock associated with Solar loan agreement

 

 

 

 

12,243

 

 

 

 

 

 

12,243

 

Common stock associated with March 2019 Notes

 

 

 

 

 

 

 

1,138,200

 

 

 

1,138,200

 

Total

 

20,473,931

 

 

 

6,594,117

 

 

 

15,172,265

 

 

 

7,741,317

 

 

 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which revised the effective dates for ASU 2016-13 for public business entities that meet the SEC definition of a smaller reporting company to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.  As a smaller reporting company, the Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements. 

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in and Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 reduce the number of accounting models for convertible debt instruments and revises certain guidance relating to the derivative scope exception and earnings per share.  The amendments in ASU 2020-06 are effective for public business entities that meet the definition of a SEC filer and a smaller reporting company for fiscal years beginning after December 15, 2023, and interim periods within those years.  As a smaller reporting company, the Company is currently evaluating the impact ASU 2020-06 will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This guidance was adopted by the Company in the first quarter of 2021 and it did not have a material impact on its unaudited condensed consolidated financial statements.