In the opinion of the
management of Flamel Technologies S.A. (the “Company”), the accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
statements. Accordingly, these Financial Statements do not include all of the information and footnotes required for complete annual
financial statements, since certain footnotes and other financial information required by generally accepted accounting principles
in the United States (or US GAAP) can be condensed or omitted for interim reporting requirements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of our financial position
and operating results have been included.
The preparation of
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Operating results for
the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ending
December 31, 2014. These condensed consolidated interim financial statements should be read in conjunction with the Company's audited
annual financial statements.
The reporting currency
of the Company and its wholly-owned subsidiaries is the U.S. dollar as permitted by the SEC for a foreign private issuer (S-X Rule
3-20(a)). All assets and liabilities in the balance sheets of the Company, whose functional currency is the Euro, except those
of the U.S. subsidiaries whose functional currency is the U.S. dollar, are translated into U.S. dollar equivalents at exchange
rates as follows: (1) asset and liability accounts at period-end rates, (2) income statement accounts at weighted average exchange
rates for the period, and (3) shareholders' equity accounts at historical rates. Corresponding translation gains or losses are
recorded in shareholders' equity as Currency Translation Adjustments.
The Company recognized
license and research revenues of $1,433,000 for the first three months of 2014 compared to $1,273,000 for the three month period
ended March 31, 2013. Total research and development revenues amounted to $1,389,000 compared to $640,000 for the three month period
ended March 31, 2013 and licensing fees were recognized for a total of $44,000 for the first three months of 2014 compared to $633,000
for the three month period ended March 31, 2013.
The license and research
revenues amounting to $1,433,000 relate to agreements with undisclosed partners.
The Company recognized
product sales of $5,940,000 for the first three months of 2014.
A total of $2,201,000
of revenue on shipments to wholesalers has been deferred as of March 31, 2014.
A total of $1,979,000
was recognised in connection with the supply agreement for the manufacture of Coreg CR microparticles with GSK for the three month
period ended March31, 2014 compared to $2,107,000 for the three month period ended March 31, 2013.
The Company recognized
other revenues of $1,802,000 for the three month period ended March 31, 2014 compared to $1,760,000 for the three month period
ended March 31, 2013, which includes royalties from the License Agreement with GSK with respect to Coreg CR.
The French government
provides tax credits to companies for spending on innovative research and development. The research tax credit is considered as
a grant and is deducted from operational expenses.
For the three month
period ended March 31, 2014, the credit amounted to $1,438,000 compared to $1,290,000 for the three month period ended March 31,
2013.
During the three month
period ended March 31, 2014, the Company issued 12,400,000 shares a result of an underwritten public offering in March 2014. The
offering price to the public was $9.75 per ADS and included payment of a commission of $0.585 per ADS. Total net proceeds amounted
to $113,646,000. Additional fees related to the capital raise amounted to $ 810,000 decrease the net proceeds to $112,836,000.
A further 255,000
shares were issued during the three month period ended March 31, 2014 as a result of the exercise of stock options and warrants.
The total amount of
shares outstanding as of March 31, 2014 amounted to 38,267,550.
During the three month
period ending March 31, 2014, no stock options, free share awards or warrants were granted by the Company
.
Net income (loss) before
and after stock-based compensation is as follows:
6. INTANGIBLE
ASSETS
|
|
December
31,
|
|
|
March
31,
|
|
|
|
2013
|
|
|
2014
|
|
(In thousands of U.S. dollars)
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Impairment
|
|
|
Intangible
assets, net
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Impairment
|
|
|
Intangible
assets, net
|
|
In-progess R&D
|
|
|
12,061
|
|
|
|
-
|
|
|
|
(7,170
|
)
|
|
|
4,891
|
|
|
|
4,891
|
|
|
|
-
|
|
|
|
|
|
|
|
4,891
|
|
Intangible asset corresponding
to acquired IPR&D of Bloxiverz
|
|
|
35,248
|
|
|
|
|
|
|
|
|
|
|
|
35,248
|
|
|
|
35,248
|
|
|
|
(2,937
|
)
|
|
|
|
|
|
|
32,311
|
|
Total Intangible assets
|
|
$
|
47,309
|
|
|
$
|
-
|
|
|
$
|
(7,170
|
)
|
|
$
|
40,139
|
|
|
$
|
40,139
|
|
|
$
|
(2,937
|
)
|
|
$
|
-
|
|
|
$
|
37,202
|
|
Intangible asset
corresponding to acquired IPR&D of Bloxiverz® has been amortized for the first time in the three month period ended March
31, 2014. The asset is amortized straight-line over a 3 years period.
7. INVENTORY
The components of
inventories were as follows:
(In thousands of U.S. dollars)
|
|
December
31,
2013
|
|
|
March 31,
2014
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
1,715
|
|
|
|
2,221
|
|
Finished goods
|
|
|
2,047
|
|
|
|
2,911
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
|
3,762
|
|
|
|
5,132
|
|
Inventories consist
of raw materials and finished products, which are stated at cost determined under the first-in, first-out ("FIFO") method.
Raw materials used in the production of pre-clinical and clinical products are expensed as research and development costs when
consumed. The Company establishes reserves for inventory estimated to be obsolete, unmarketable or slow-moving on a case by case
basis.
8. LONG-TERM
DEBT
Long-term debt comprises:
(In thousands of U.S. dollars)
|
|
December
31, 2013
|
|
|
March 31,
2014
|
|
|
|
|
|
|
|
|
Government loans for R&D projects (a)
|
|
|
4,586
|
|
|
|
4,585
|
|
Acquisition liability contingent consideration (b)
|
|
|
37,991
|
|
|
|
38,868
|
|
Acquisition liability note (b)
|
|
|
10,405
|
|
|
|
-
|
|
Acquisition liability warrant consideration (b)
|
|
|
10,497
|
|
|
|
24,274
|
|
Deerfield Facility agreement (c)
|
|
|
12,492
|
|
|
|
-
|
|
Deerfield Royalty agreement (c)
|
|
|
4,590
|
|
|
|
4,695
|
|
Broadfin Facility agreement (d)
|
|
|
2,767
|
|
|
|
-
|
|
Broadfin Royalty agreement (d)
|
|
|
2,187
|
|
|
|
2,238
|
|
Total
|
|
|
85,515
|
|
|
|
74,660
|
|
Current portion
|
|
|
19,194
|
|
|
|
18,090
|
|
Long-term portion
|
|
|
66,321
|
|
|
|
56,570
|
|
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
(a) French government
agencies provide financing to French companies for research and development. At December 31, 2013 and March 31, 2014, the Company
had outstanding loans of $4,586,000 and $4,585,000, respectively for various programs. These loans do not bear interest and are
repayable only in the event the research project is technically or commercially successful. Potential repayment is scheduled to
occur from 2014 through 2019.
(b) The Acquisition
liability relates to the acquisition by the Company on March 13, 2012, through its wholly owned subsidiary Flamel US Holdings,
Inc., or Flamel US, all of the membership interests of Éclat Pharmaceuticals, LLC. In exchange for all of the issued and
outstanding membership interests of Éclat Pharmaceuticals, Flamel US provided consideration consisting of:
|
·
|
a
$12 million senior, secured six-year note guaranteed by the Company and its subsidiaries
and secured by the equity interests and assets of Éclat. The note was repaid on
March 24, 2014 in its entirety; The accelerated reimbursement of this note resulted in
operating expenses of $3.0 million
|
|
·
|
two
warrants to purchase a total of 3,300,000 American Depositary Shares, each representing
one ordinary share of Flamel (“ADSs”); and
|
|
·
|
a
commitment to make earn out payments of 20% of any gross profit generated by certain
Éclat Pharmaceuticals launch products The Purchase Agreement also contains certain
representations and warranties, covenants, indemnification and other customary provisions.
|
As of March, 2014,
the fair value of the warrants was determined by using a Black-Scholes option pricing model with the following assumptions:
|
|
Three months ended
March 31, 2013
|
|
|
Three months ended
March 31, 2014
|
|
Share price
|
|
$
|
4.30
|
|
|
$
|
13.40
|
|
Risk-free interest rate
|
|
|
0.77
|
%
|
|
|
1.32
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
56
|
%
|
|
|
51.79
|
%
|
Expected term
|
|
|
5 years
|
|
|
|
4 years
|
|
Pursuant to guidance
of ASC 815-40-15-7(i), the Company determined that the Warrants issued in March 2012 as consideration for the acquisition of Éclat
could not be considered as being indexed to the Company’s own stock, on the basis that the exercise price for the warrants
is determined in U.S. dollars, although the functional currency of the Company is the Euro. The Company determined that these
warrants should be accounted as a debt instrument.
As of March 31, 2014,
the deferred consideration fair value was estimated by using a discounted cash flow model based on probability adjusted annual
gross profit of each of the Éclat Pharmaceuticals products. A discount rate of 20% has been used.
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
(c) On February 4, 2013
the Company concluded a $15 million debt financing transaction (Facility Agreement) with Deerfield Management a current shareholder.
The consideration received was as follows:
|
·
|
$12.4
million for a facility agreement of a nominal value of $15 million, including a premium
on reimbursement of $2.6 million. The indebtedness was repaid on March 24, 2014 in its
entirety; The accelerated reimbursement of this note resulted in interest expenses of
$ 2.5 million
|
|
·
|
$2.6
million for a Royalty Agreement whereby, the Company’s wholly owned subsidiary
Éclat subject to required regulatory approvals and launch of product, is to pay
a 1.75% Royalty of the net sales of certain products sold by Éclat and any of
its affiliates until December 31, 2024.
|
The fair value of
the Royalty was estimated using a probability-weighted discounted cash flow model based on probability adjusted projected annual
net sales of each of the products which may be approved and sold by Éclat Pharmaceuticals. This fair value measurement
is based on significant inputs not observable in the market and thus represents a level 3 measurement as defined in ASC 820. The
discount rate used is 20%.
(d) On December 3, 2013
the Company concluded with Broadfin Healthcare Master Fund, a current shareholder, a $15 million debt financing transaction (Facility
Agreement) divided in 3 tranche of $5 million each, Under the terms of the Facility, upon closing Broadfin made an initial loan
of $5.0 million. Consideration received was as follows:
|
·
|
$2.8
million for a Facility agreement of a nominal value of $5.0 million. Loans under the
Facility were scheduled to mature upon the earlier to occur of (i) January 31, 2017 and
(ii) the repayment in full of all outstanding amounts under the Deerfield Facility, but
in no event prior to November 15, 2015. The indebtedness was repaid on March 24, 2014
in its entirety; the accelerated reimbursement of this note resulted in interest expenses
of $ 2.2 million.
|
|
·
|
$2.2
million for a Royalty agreement whereby, the Company’s wholly owned subsidiary
Éclat subject to required regulatory approvals and launch of product, is to pay
a 0.834% Royalty of the net sales of certain products sold by Éclat and any of
its affiliates until December 31, 2024.
|
The fair value of
the Royalty was estimated using a probability-weighted discounted cash flow model based on probability adjusted projected annual
net sales of each of the products which may be approved and sold by Éclat Pharmaceuticals. This fair value measurement
is based on significant inputs not observable in the market and thus represents a level 3 measurement as defined in ASC 820. The
discount rate used is 20%.
Total future payments
on long-term debt for the next five years ending March 31 (assuming the underlying projects are commercially or technically
successful for governmental research loans) are as follows:
(In thousands of U.S. dollars)
|
|
March
31, 2014
|
|
|
|
|
|
2014
|
|
|
15,041
|
|
2015
|
|
|
19,745
|
|
2016
|
|
|
15,697
|
|
2017
|
|
|
6,887
|
|
2018
|
|
|
4,253
|
|
|
|
|
|
|
|
|
|
61,623
|
|
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
9.
RELATED
PARTY TRANSACTIONS
In March 2012, we
acquired, through our wholly owned subsidiary Flamel US, all of the membership interests of Éclat from Éclat Holdings,
an affiliate of our largest shareholder Deerfield Capital L.P., for consideration primarily consisting of a $12 million senior,
secured six-year note that is guaranteed by us and our subsidiaries and secured by the equity interests and assets of Éclat,
two warrants to purchase a total of 3,300,000 ADSs of Flamel and commitments to make earn out payments of 20% of any gross profit
generated by certain Éclat launch products and 100% of the gross profit generated by our former product Hycet®, which
we sold in 2013, up to a maximum of $1 million. Upon closing of the acquisition, Mr. Anderson, the Chief Executive Officer of
Éclat, was appointed Chief Executive Officer of Flamel. Mr. Anderson retains a minority interest in Éclat Holdings,
renamed Breaking Stick, and does not have the ability to control this entity by virtue of his minority interest. The senior secured
note was repaid in full in March 2014 using the net proceeds from our public sale of ADSs.
On February 4, 2013,
we entered into a Facility Agreement (the “Deerfield Facility”), through Flamel US with Deerfield Private Design Fund
II, L.P. and Deerfield Private Design International II, L.P. (together, the “Deerfield Entities”) providing for debt
financing of $15 million by the Deerfield Entities (the “Loan”). The Loan was repaid in full in March 2014 using the
net proceeds from our public sale of ADSs.
The Deerfield Facility
was subject to certain limitations, and allowed us to use the funds for working capital, including continued investment in our
research and development projects. Interest accrued at 12.5% per annum to be paid quarterly in arrears, commencing on April 1,
2013, and on the first business day of each July, October, January and April thereafter Pursuant to the Deerfield Facility, we
were required to pay the Deerfield Entities a fee of $112,500 for entering into the transaction and to reimburse the Deerfield
Entities for legal costs and expenses incurred in effecting the transaction.
In conjunction with
our entry in the Deerfield Facility, Éclat entered into a Royalty Agreement with Horizon Santé FLML, Sarl and Deerfield
Private Design Fund II, L.P., both affiliates of the Deerfield Entities (together, “Deerfield PDF/Horizon”). The Royalty
Agreement provides for Éclat to pay Deerfield PDF/Horizon 1.75% of the net sales price of the products sold by us and any
of our affiliates until December 31, 2024, with royalty payments accruing daily and paid in arrears for each calendar quarter
during the term of the Royalty Agreement. The Royalty Agreement requires Éclat to take all commercially reasonable efforts
to obtain the necessary regulatory approvals to sell the products in the United States and to market the Products after receiving
such approvals.
We also entered into
a Security Agreement dated February 4, 2013 with Deerfield PDF/Horizon, whereby Deerfield PDF/Horizon was granted a security interest
in the intellectual property and regulatory rights related to the products to secure the obligations of Éclat and Flamel
US, including the full and prompt payment of royalties to Deerfield PDF/Horizon under the Royalty Agreement.
We also entered into
two pledge agreements on certain receivables and equipment we own. These agreements were required to be recorded under French
law and on request of Deerfield. No request has been made and the receivable pledge was released in full in June 2014.
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
As of December 3,
2013, we and certain of our U.S. subsidiaries entered into a Facility Agreement (the “Broadfin Facility”) with Broadfin
Healthcare Master Fund, Ltd. (“Broadfin”) providing for loans by Broadfin in an aggregate amount not to exceed $15.0
million. The loans under the Broadfin Facility were secured by a first priority security interest in intellectual property associated
with our Medusa technology and a junior lien on substantially all of the assets of the borrowers, which were previously pledged
in connection with the Deerfield Facility, the Royalty Agreement and the notes issued in connection with the Éclat acquisition.
In addition, we have agreed to grant a junior lien on certain equipment located in France, if such previously pledged equipment
under the Deerfield Facility and/or the Éclat note is recorded.
Under the terms of
the Broadfin Facility, upon closing Broadfin made an initial loan of $5.0 million and we had the ability to request, at any time
prior to August 15, 2014, up to two additional loans in the amount of $5.0 million each, with funding subject to certain specified
conditions. Loans under the Broadfin Facility were scheduled to mature upon the earlier to occur of (i) January 31, 2017 and (ii)
the repayment in full of all outstanding amounts under the Deerfield Facility, but in no event prior to November 15, 2015. We
had the ability to prepay the outstanding loans under the Broadfin Facility at any time, without prepayment penalty and the full
$5.0 million outstanding was subsequently repaid using a portion of the net proceeds from our public sale of ADSs in March 2014.
Prior to repayment, interest accrued on the loan under the Broadfin Facility at a rate of 12.5% per annum, payable quarterly in
arrears, commencing on January 1, 2014.
In connection with
entering into the Broadfin Facility, we also entered into a Royalty Agreement with Broadfin, dated as of December 3, 2013 (the
“Broadfin Royalty Agreement”). Pursuant to the Broadfin Royalty Agreement, we are required to pay a royalty of 0.834%
on the net sales of certain products sold by Éclat Pharmaceuticals, LLC and any of its affiliates until December 31, 2024.
Concurrent with entering
into the Broadfin Facility, we also amended the terms of the Deerfield Facility and the agreement governing the Éclat notes
to, among other things, permit the indebtedness and liens under the Broadfin Facility and to grant a junior lien to the respective
lenders on the Medusa Technology.
10.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2013
and March 31, 2014, the carrying values of financial instruments such as cash and cash equivalents, trade receivables and payables,
other receivables and accrued liabilities and the current portion of long-term debt approximated their market values, based on
the short-term maturities of these instruments.
The company calculates
fair value for its marketable securities based on quoted market prices for identical assets and liabilities which represents Level
1 of ASC 820-10 fair value hierarchy.
At December 31, 2013
and March 31, 2014 the fair value of long-term debt and long term receivables was comparable with their carrying values.
The following table
presents information about the Company securities based on quoted market prices for identical assets and liabilities for March
31, 2014 and indicates the fair value hierarchy of the valuation technics utilized to determine such fair value.
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March,31 2014
|
|
|
March,31 2013
|
|
(in thousands)
|
|
Net Carrying
Value as of
December 31,
|
|
|
Net Carrying
Value as of
March 31,
|
|
|
Fair Value
Measured and Recorded Using
|
|
|
Operational
Gain
(losses)
recognized in
|
|
|
Financial
Gain
(losses)
recognized in
|
|
|
|
|
|
Operational
Gain
(losses)
recognized in
|
|
|
Financial
Gain
(losses)
recognized in
|
|
|
|
|
|
|
2013
|
|
|
2014
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
earnings
|
|
|
earnings
|
|
|
Total
|
|
|
earnings
|
|
|
earnings
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
|
6,636
|
|
|
|
55,505
|
|
|
|
55,505
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Marketable securities
|
|
|
401
|
|
|
|
28,018
|
|
|
|
28,018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition liability contingent consideration
(a)
|
|
|
37,991
|
|
|
|
38,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,868
|
|
|
|
(849
|
)
|
|
|
-
|
|
|
|
(849
|
)
|
|
|
(531
|
)
|
|
|
-
|
|
|
|
(531
|
)
|
Acquisition liability note (b)
|
|
|
10,405
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,013
|
)
|
|
|
|
|
|
|
(3,013
|
)
|
|
|
(266
|
)
|
|
|
|
|
|
|
(266
|
)
|
Acquisition liability warrant consideration (c)
|
|
|
10,497
|
|
|
|
24,274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,274
|
|
|
|
(13,777
|
)
|
|
|
-
|
|
|
|
(13,777
|
)
|
|
|
(2,169
|
)
|
|
|
-
|
|
|
|
(2,169
|
)
|
Deerfield Royalty Agreement (d)
|
|
|
4,590
|
|
|
|
4,696
|
|
|
|
|
|
|
|
|
|
|
|
4,696
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
(105
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Broadfin Royalty Agreement
(e)
|
|
|
2,187
|
|
|
|
2,238
|
|
|
|
|
|
|
|
|
|
|
|
2,239
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,639
|
)
|
|
|
(157
|
)
|
|
|
(17,796
|
)
|
|
|
(2,966
|
)
|
|
|
(52
|
)
|
|
|
(3,018
|
)
|
The fair value of
the financial instruments in connection with the acquisition of Éclat (
see note 8 Long-Term Debt
) are estimated
as follows:
(a) Acquisition liability
contingent consideration: the fair value is estimated using a discounted cash flow model based on probability adjusted projected
annual gross profit of each of the products which formed the project portfolio at the time of acquisition of Éclat Pharmaceuticals
(
Note 8
Long Term Debt).
The fair value of
the contingent consideration will change over time in accordance with the changes in market conditions and thus business plan
projections as the relate to market size, market share, product pricing, competitive landscape, gross profit margins expected
for each of the products.
(b) Acquisition liability
Note: the Company uses a probability-weighted discounted cash flow model (
see note 8 Long Term Debt
). The note was repaid
on March 24, 2014.
(c) Acquisition liability
warrant consideration: the Company uses a Black-Scholes option pricing model. The fair value of the warrant consideration will
change over time depending on the volatility and share price at balance sheet date (
see note 8 Long Term Debt
).
(d) Royalty Agreement:
the fair value is estimated using a discounted cash flow model based on probability adjusted projected annual net sales of each
of the products which may be approved and sold by Éclat Pharmaceuticals (
Note 8
Long Term Debt). The discount rate
is 20%.
The following tables provide
a reconciliation of fair value for which the Company used Level 3 inputs:
|
|
Acquisition
|
|
|
|
Liabilities
|
|
Liability recorded upon acquisition
|
|
$
|
(50,927
|
)
|
Operational gain (loss) recognized in earnings for fiscal year 2012
|
|
$
|
18,993
|
|
Operational gain (loss) recognized in earnings for fiscal year 2013
|
|
$
|
(26,959
|
)
|
Net carrying value at January 1, 2014
|
|
$
|
(58,893
|
)
|
Operational gain (loss) recognized in earnings for three months to March 31, 2014
|
|
$
|
(17,639
|
)
|
Payment of interest on acquisition liability note
|
|
$
|
1,390
|
|
Reimbursment of acquisition liability note
|
|
$
|
12,000
|
|
Net carrying value at March 31, 2014
|
|
$
|
(63,142
|
)
|
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
|
|
Deerfield Royalty
|
|
|
Broadfin
Royalty
|
|
|
|
Agreement
|
|
|
Agreement
|
|
|
|
|
|
|
|
|
Liability recorded upon execution of Agreeement
|
|
$
|
(2,600
|
)
|
|
$
|
(2,187
|
)
|
Interest expense recognized in earnings for 2013
|
|
$
|
(1,990
|
)
|
|
|
|
|
interest expense recognized in earnings for three months to March 31, 2014
|
|
$
|
(105
|
)
|
|
$
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying value at March 31, 2014
|
|
$
|
(4,695
|
)
|
|
$
|
(2,239
|
)
|
The acquisition
liabilities, consisting of the note, warrants and deferred consideration, and Royalty agreement all of which are classified as
long-term debt, are measured at fair value and the income or expense may change significantly as assumptions regarding the valuations
and probability of successful development and approval of products in development vary.
FLAMEL TECHNOLOGIES
S.A.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
11.
Post
Balance Sheet Events
On
April 29, 2014 the Company announced the receipt of a complete response letter (CRL) from the Food and Drug Administration (FDA)
for VAZCULEP™, the second product from the portfolio of Éclat products acquired in March 2012. In the CRL, the FDA
noted that during a recent inspection of the manufacturing facility of the active pharmaceutical ingredient’s (API) supplier,
deficiencies were found. Satisfactory resolution of these facility deficiencies is required before this application may be approved.
There were no other deficiencies in the CRL. Final agreement on the draft product labeling is also pending.
On
June 5, 2014, the Company announced that it has been informed by the API supplier for its second NDA that the FDA has now classified
its facility as acceptable. As a result, the Company resubmitted the NDA for VAZCULEP™ to the FDA.
On
June 30, 2014, the Company announced that the U.S. FDA approved the NDA for VAZCULEP™. Flamel expects to launch VAZCULEP™ in the
next few months in 1 mL single use vials, and 5 mL and 10 mL pharmacy bulk package vials. The drug strength is the same in all
vials at 10 mg/mL. Phenylephrine hydrochloride is used in operating rooms and is injected intravenously either as a bolus or in
a dilute solution as a continuous infusion.
VAZCULEP™
is the only FDA-approved version of phenylephrine hydrochloride to be available in all three vial sizes, which will be of great
convenience to hospitals and physicians. One other company has an FDA-approved version of the 1 mL single use vials. Based on our
knowledge, there is another company that offers unapproved versions of phenylephrine hydrochloride, but only in the 5 mL and 10
mL pharmacy bulk package vials. These unapproved versions have been on the market as grandfathered products under the Food, Drug
and Cosmetic Act of 1938.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking
Statements
This report on Form
6-K contains forward-looking statements. We may make additional written or oral forward-looking statements from time to time in
filings with the Securities and Exchange Commission or otherwise. The words ‘believe,’ ‘expect,’ ‘anticipate,’
‘project,’ ‘will,’ ‘continue’ and similar expressions identify forward-looking statements,
which speak only as of the date the statement is made. Such forward-looking statements are within the meaning of that term in Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that our expectations
are based on reasonable assumptions within the bounds of our knowledge of our business and operations, our business is subject
to significant risks and there can be no assurance that actual results of our development and manufacturing activities and our
results of operations will not differ materially from our expectations.
Forward-looking statements
are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results
could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. We undertake no
obligation to update these forward-looking statements as a result of new information, future events or otherwise. You should not
place undue reliance on these forward looking statements. Factors that could cause actual results to differ from expectations include,
among others, those listed in Part II, Item 1A, Risk Factors of this Form 6-K and set forth in more detail in “Risk Factors”
in our Form 20-F for the fiscal year ended December 31, 2013.
RESULTS OF OPERATIONS
For the three months
ended March 31, 2014, Flamel reported total revenues of $9.2 million compared to $5.1 million of revenues reported for the first
three months of 2013, which reflects initial recognition of sales of Bloxiverz®.
License and research
revenues for the three months ended March 31, 2014 were $1.4 million compared to $1.3 million for the first three months of 2013.
Product sales and services,
totaled $5.9 million for the three months ended March 31, 2014, compared to $3.4 million
for the three months ended March 31, 2013
Other revenues were
$1.8 million for the three months ended March 31, 2014 compared to $1.8 million for the first three months of 2013. These revenues
are derived primarily from the royalty on sales of Coreg CR.
Operating expenses
increased to $33.2 million during the three months March 31, 2014 from $15 million for the three months March 31, 2013, and
includes a $14.6 million non-cash expense based on fair-value measurement of certain liabilities associated with the acquisition
of Éclat Pharmaceuticals as of March 31, 2014 compared with a $3 million for the three months March 31, 2013, amortization
of intangible assets associated with the development of Bloxiverz® for a total of $2.9 million and $3.0 million non-cash expense
associated with the accelerated reimbursement of the acquisition note.
Costs of goods and
services sold were $2.0 million in the three months ended March 31, 2014 compared to $1.0 million for the
three
months March 31,
2013.
Research
and development expenditures were $7.1 million in the three months ended March 31, 2014 compared to $8.5 million in the three months
ended March 31, 2013. Research and development expenditures in the prior year period included $2.0 million associated with an NDA
filing fee for the VAZCULEP
™ NDA
filed with the FDA that
did not recur in the current year period.
Selling, general and
administrative expenses increased from $2.5 million in the three months March 31, 2013 to $3.5 million in the three
months ended March 31, 2014. This increase resulted from additional selling and marketing costs to support the launch of Bloxiverz®,
the cost of post-marketing studies requested by the FDA and increased legal costs.
Net loss for the three
months ended March 31, 2014 was $26.6 million, compared to a net loss of $8.8 million in the three months March 31,
2013. Net loss per share (basic) for the three months ended March 31, 2014 was $(0.94), compared to a net loss per share in the
year-ago period of $(0.35). Net loss and loss per share (basic and diluted) for the first three months of 2014 include impact
of non-cash expenses net of tax effect amounting to $(23.1) million and $(0.82), respectively, related to fair value remeasurements,
amortization of intangible assets and effects of accelerated reimbursement of certain debt instructions, compared with a $(2.9)
million and $(0.12) impact, respectively for the three months March 31, 2013.
LIQUIDITY AND CAPITAL
RESOURCES
On March 31, 2014,
the Company had $84 million in cash, cash equivalents and marketable securities, compared to $7 million on December 31, 2013.
This increase was due to the $113 million of net proceeds received on the sale of 12.4 million ADSs in March, 2014 and the subsequent
reimbursement of outstanding debt and credit lines for a total of $32 million. As of March 31, 2014 the Company has no debt outstanding
on the $12 million note relative to the acquisition of Éclat Pharmaceuticals LLC in March 2012, the $15 million Facility
agreement signed with Deerfield in February 2013 and the $5 million Facility agreement signed with Broadfin in December 2013.
The remaining proceeds from the capital increase will be used to continue the development of the Company’s product pipeline,
including possible clinical trials and for general corporate purposes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
While we may be engaged
in various claims and legal proceedings in the ordinary course of business, we are not involved (whether as a defendant or otherwise)
in and we have no knowledge of any threat of, any litigation, arbitration or administrative or other proceeding which management
believes will have a material adverse effect on our consolidated financial position or results of operations.
Item 1A. Risk Factors
Item 3, “Key
Information - Risk Factors,” of our Annual Report on Form 20-F for the year ended December 31, 2013 describes some of the
risks and uncertainties associated with our business. The risk factors set forth below highlight some of these risk disclosures.
Other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information
that is currently available. In addition to the other information in our SEC filings, you should consider carefully the following
risk factors. The occurrence of any one or more of the risks or uncertainties described below or in our Form 20-F could have a
material adverse effect on our business, financial condition and results of operations, cash flows and future results:
|
·
|
we currently depend on a small number of customers for the majority of our revenues related to
our drug delivery platforms and drug products (e.g. Coreg CR
®
microparticles and Éclat products), and the
loss of any one of these customers could reduce our revenues significantly.
|
|
·
|
our focus on (i) the development and licensing of versatile, proprietary drug delivery platforms,
(ii) the development of novel, high-value products based on our drug delivery platforms and (iii) as a result of our acquisition
of Éclat Pharmaceuticals, LLC, or Éclat, the development, approval, and commercialization of niche branded and generic
pharmaceutical products in the U.S., rather than primarily on collaborative agreements with pharmaceutical and biotechnology companies,
may not be successful.
|
|
·
|
our current revenues from our drug delivery business primarily depend on third party pharmaceutical
and biotechnology companies successfully developing products that incorporate our drug delivery platforms.
|
|
·
|
we must invest substantial sums in research and development in order to remain competitive, and
we may not fully recover these investments.
|
|
·
|
we currently depend upon a single site to manufacture some of our drug products and our drug delivery
product, Coreg CR
®
microparticles, and any interruption of operations could have a material adverse effect on our
business.
|
|
·
|
we depend upon a limited number of suppliers for certain raw materials used in our drug delivery
technologies and for the manufacture of certain drug products in development, and any failure to deliver sufficient quantities
of supplies of these raw materials or product could interrupt our production process and could have a material adverse effect on
our business.
|
|
·
|
if our competitors develop and market technologies or products that are more effective or safer
than ours, or obtain regulatory approval and market such technologies or products before we do, our commercial opportunity will
be diminished or eliminated.
|
|
·
|
we may fail to realize the anticipated benefits expected from the acquisition of Éclat and
its portfolio of late-stage products pipeline products, and any new and complementary businesses, products and technologies we
may acquire in the future.
|
|
·
|
if we cannot keep pace with the rapid technological change in our industry, we may lose business,
and our drug delivery platforms and products could become obsolete or noncompetitive.
|
|
·
|
if we cannot adequately protect our drug delivery platforms and proprietary information, we may
be unable to sustain a competitive advantage.
|
|
·
|
even if we and our partners obtain necessary regulatory approvals, our products and drug delivery
platforms, or our partners’ products (incorporating our platforms) may not gain market acceptance.
|
|
·
|
our collaborative arrangements may give rise to disputes over commercial terms, contract interpretation
and ownership of intellectual property and may adversely affect the commercial success of the products developed under those partnerships.
|
|
·
|
third parties may claim, that our drug delivery platforms, or the products in which they are used,
or our other products infringe on their rights and we may incur significant costs resolving these claims or may not be able to
resolve.
|
|
·
|
if we or our third party collaborative partners are required to obtain licenses from third parties,
our revenues and royalties on any commercialized products could be reduced.
|
|
·
|
if our third party collaborative partners face generic competition for their products, our revenues
and royalties from such products may be adversely affected.
|
|
·
|
healthcare reform and restrictions on reimbursements may limit our financial returns.
|
|
·
|
fluctuations in foreign currency exchange rates and the impact of the European sovereign debt crisis
may clause fluctuations in our financial results.
|
|
·
|
products that incorporate our drug delivery platforms and our late-stage development products acquired
from Éclat and other products we may develop are subject to regulatory approval. If we or our pharmaceutical and biotechnology
company partners do not obtain such approvals, or if such approvals are delayed, our revenues may be adversely affected.
|
|
·
|
commercial products are subject to continuing regulation, and we on our own, and in conjunction
with our pharmaceutical and biotechnology companies partners, may be subject to adverse consequences if we or they fail to comply
with applicable regulations.
|
|
·
|
we are subject to U.S. federal and state laws prohibiting “kickbacks” and false claims
that, if violated, could subject us to substantial penalties, and any challenges to or investigation into our practices under these
laws could cause adverse publicity and be costly to respond to, causing harm to our business.
|
|
·
|
regulatory reforms may adversely affect our ability to sell our products or technologies drug delivery
platforms profitably.
|
|
·
|
we and companies to which we have licensed our drug delivery platforms and subcontractors we engage
for services related to our in the development of our products are subject to extensive regulation by the FDA and other regulatory
authorities. Their failure to meet these regulatory requirements could adversely affect our business.
|
|
·
|
we may face product liability claims related to participation in clinical trials or the use or
misuse of our products or third party products that incorporate our drug delivery platforms.
|
|
·
|
if we use hazardous biological and/or chemical materials
in a manner that causes injury, we may be liable for significant damages.
|
INCORPORATION BY REFERENCE
As provided by in the
Company’s Registration Statements on Form F-3, as filed with the Securities and Exchanges Commission on September 18, 2012
and February 12, 2014, each as subsequently amended; this report is being incorporated by reference into such registration statements.