Liquidity

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As of December 31, 2023, we had approximately $56.9 million in cash, cash equivalents and short-term investments. Since inception, we have financed our operations primarily through sales of equity securities, debt financing arrangement, contract payments under our collaboration agreements and from product sales. Based on our current operating plan, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our expenses and capital expenditure requirements through at least the next 12 months from the date of issuance of this Annual Report on Form 10-K.

Revenue Recognition

We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606), when a customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine whether arrangements are within the scope of ASC 606, we perform the following five steps: (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) we satisfy our performance obligation. We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of this new guidance, we assess the goods or services promised within each contract and identify, as a performance obligation, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Product Sales

Revenues from product sales are recognized when the specialty distributors, who are our customers, obtain control of our product, which occurs at a point in time, upon delivery to such specialty distributors. These specialty distributors subsequently resell our products to specialty pharmacy providers, health care providers, hospitals and clinics. In addition to distribution agreements with our specialty distributors, we also have arrangements with certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our products.

Under ASC 606, we are required to estimate the transaction price, including variable consideration that is subject to a constraint, in our contracts with our customers. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Revenue from product sales is recorded net of certain variable consideration which includes estimated government-mandated rebates and chargebacks, distribution fees, estimated product returns and other deductions.

Provisions for returns and other adjustments are provided for in the period the related revenue is recorded. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The following are our significant categories of sales discounts and allowances:

Sales Discounts. We provide certain customer a prompt payment discount that is explicitly stated in our contract. The sales discount is recorded as a reduction of revenue in the period the related product revenue is recognized.

Product Returns. We offer our specialty distributors a right to return product purchased directly from us, which is principally based upon the product’s expiration date. Product return allowances are estimated and recorded at the time of sale.

Government and Private Payor Rebates: We are subject to discount obligations under the state Medicaid programs and Medicare prescription drug coverage gap program. We estimate our Medicaid and Medicare prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. We also have rebate program agreements with certain PBMs for certain product, pursuant to which rebates will be paid in accordance with the respective agreements. The rebate reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and related liability is recorded as revenue reserves within other accrued liabilities in the balance sheet. Our liability for these rebates consists primarily of estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

Chargebacks and Discounts: Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to our specialty distributors who directly purchase the product from us. These specialty distributors charge us for the difference between what they pay for the product and our contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue. Actual chargeback amounts are generally determined at the time of resale to the specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities by our specialty distributors. The estimated obligations arising from these chargebacks and discounts are recorded as revenue reserves within other accrued liabilities in the balance sheet.

Co-Payment Assistance: We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue. 

Contract Revenues from Collaborations

In the normal course of business, we conduct research and development programs independently and in connection with our corporate collaborators, pursuant to which we license certain rights to our intellectual property to third parties. The terms of these arrangements typically include payment to us for a combination of one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; product supply services; and royalties on net sales of licensed products.

Upfront License Fees: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue from the up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

For arrangements that require us to share in the development costs but to which we do not participate in the co-development work, the portion of the upfront fee attributed to our share in the future development costs is excluded from the transaction price. If such share in the development costs is payable beyond 12 months from the delivery of the corresponding license, a significant financing component is deemed to exist. If a significant financing component is identified, we adjust the transaction price by reducing the upfront fee by the net present value of our share in future development costs over the expected commitment period. Such discounted amount will be reported as a liability in the balance sheet, with a corresponding interest expense being accreted based on a discount rate applied over the expected commitment period.

Development, Regulatory or Commercial Milestone Payments: At the inception of each arrangement that includes payments based on the achievement of certain development, regulatory and commercial or launch events, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until uncertainty associated with the approvals has been resolved. The transaction price is then allocated to each performance obligation, on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, and recorded as part of contract revenues from collaborations during the period of adjustment.

Product Supply Services: Arrangements that include a promise for future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.

Sales-based Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate to and if such is the case, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Stock-based Compensation

Share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period, which is generally the vesting period of the respective award. We use the straight-line attribution method over the requisite employee service period for the entire award in recognizing stock-based compensation expense. We account for forfeitures as they occur.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The model requires management to make a number of assumptions including expected volatility, expected term, risk-free interest rate and expected dividends. A number of these assumptions are subjective, and their determination generally require judgment. We segregate option awards into the following three homogenous groups for the purposes of determining fair values of options: officers and directors, all other employees, and consultants. We determine the weighted-average valuation assumptions separately for each of these groups as follows:

We grant performance-based stock options to purchase shares of our common stock which will vest upon the achievement of certain corporate performance-based milestones. We determine the fair values of these performance-based stock options using the Black-Scholes option pricing model at the date of grant. For the portion of the performance-based stock options of which the performance condition is considered probable of achievement, we recognize stock-based compensation expense on the related estimated grant date fair values of such options on a straight-line basis from the date of grant up to the date when we expect the performance condition will be achieved. For the performance conditions that are not considered probable of achievement at the grant date or upon re-evaluation at each reporting date, prior to the event actually occurring, we recognize the related stock-based compensation expense when the event occurs or when we can determine that the performance condition is probable of achievement. In those cases, we recognize the change in estimate at the time we determine the condition is probable of achievement (by recognizing stock-based compensation expense as cumulative catch-up adjustment as if we had estimated at the grant date that the performance condition would have been achieved) and recognize the remaining compensation cost up to the date when we expect the performance condition will be achieved, if any.

The fair value of the RSU grant is based on the market price of our common stock on the date of grant.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily cash, investment in debt securities and accounts receivable. All of our cash and investment in debt securities are maintained with financial institutions that management believes are creditworthy. By policy, we limit the concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers. Due to the short-term nature of these investments, we believe we do not have a material exposure to credit risk arising from our investments. We have not historically experienced any significant credit losses related to these financial instruments and do not believe that we are exposed to any significant credit risk related to these instruments.

Concentration of credit risk with respect to our accounts receivable is limited due to our small number of customers. Our accounts receivable consists mostly of outstanding invoices from our sale of our product to our specialty distributors. Accounts receivable may also include outstanding invoices from our collaboration partners with respect to the related sponsored research and license agreements and government contracts. As of December 31, 2023, 87% of our accounts receivable consisted of outstanding invoices from our specialty distributors, and the remaining 13% are outstanding invoices from our collaboration partners, mainly Grifols. As of December 31, 2022, 49% of our accounts receivable are outstanding invoices from our specialty distributors, and the remaining 51% are outstanding invoices from our collaboration partners, mainly Kissei which include a $20.0 million regulatory milestone receivable that was subsequently collected in January 2023.

See “Note 3 - Revenues” for summary of revenues from each of our customers who individually accounted for 10% or more of the total net product sales and revenues from collaborations.

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying value of our loans payable and other long-term debt approximates fair value based on management’s estimation that a current interest rate would not differ materially from the stated rate, or the discount rate applied.

The fair value of our cash equivalents and short-term investments measured at fair value on a recurring basis and are categorized based upon the lowest level of significant input to the valuations.

Assets and liabilities recorded at fair value in our financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

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The fair valued assets we hold that are generally included under this Level 1 are money market securities where fair value is based on publicly quoted prices.

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The fair valued assets we hold that are generally assessed under Level 2 included government-sponsored enterprise securities, US treasury bills and corporate bonds and commercial paper. We utilize third-party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. We use quotes from external pricing service providers and other on-line quotation systems to verify the fair value of investments provided by our third-party pricing service providers.

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Property and Equipment

Property and equipment are stated at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in statements of operations in the period realized.

IPR&D/Intangible Asset

In July 2022, we entered into a license and transition services agreement with Forma. The transaction was accounted for as an acquisition of asset under ASC 730, Research and Development. In accordance with the guidance, in a transaction accounted for as an asset acquisition, any acquired IPR&D that does not have alternative future use is charged to expense at the acquisition date. Further, we account for milestone payment obligations incurred at development stage and prior to a regulatory approval of an indication associated with the acquired licensed asset as research and development expenses when the event requiring payment of the milestone occurs. Milestone payment obligations incurred upon and after a regulatory approval of an indication associated with the acquired licensed asset, and at the commercial stage, is recorded as intangible asset when the event requiring payment of the milestones occurs. The amount recorded as an intangible asset is amortized over the estimated useful life of the acquired licensed asset. See “Note 4 – Sponsored Research and License Agreements and Government Contracts” and “Note 9 – Other Balance Sheet Components – Intangible Asset” for related discussions.

We perform an impairment review of intangible asset whenever events or changes in business circumstances indicate the carrying amount of the asset may not be fully recoverable. If events or changes in circumstances suggest that the carrying amount of the finite-lived intangible assets may not be recoverable, we will estimate the future cash flows expected to be generated by the asset from its use or eventual disposition. If the expected future undiscounted cash flows is less than the carrying amount of the assets, we will recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Leases

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We account for leases in accordance with ASU No. 2016-02, Leases (Topic 842). Topic 842 requires a lessee to determine if an arrangement is a lease or contains a lease at contract inception. Right-of-use lease assets represent the right to use the underlying asset for the lease term and the lease liability represents the obligation to make the lease payments arising from the lease. Right-of-use lease assets and lease liability are recognized at the commencement date based on the present value of future minimum lease payments over the term of the lease. The operating right-of-use lease asset may also include initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we generally use our incremental borrowing rate as our lease agreement do not provide an implicit borrowing rate and we deemed that our incremental borrowing rate would be the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term of the lease payments in a similar economic environment. If a lease includes options to extend the lease term, we do not assume the option will be exercised in the initial lease term assessment unless there is reasonable certainty that we will renew based on an assessment of economic factors present as of the lease commencement date. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for our operating leases is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred.

For our sublease agreement wherein we were the lessor, we recognized sublease income on a straight-line basis over the term of the related sublease agreement.

Income Taxes

We use the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period the change is enacted. A valuation allowance is established to reduce deferred tax assets to an amount whose realization is more likely than not.