This Quarterly Report on Form 10-Q and the information incorporated herein by
reference contain forward-looking statements that involve a number of risks and
uncertainties, as well as assumptions that, if they never materialize or prove
incorrect, could cause our results to differ materially from those expressed or
implied by such forward-looking statements. Forward-looking statements can be
identified by the use of forward-looking words such as "believes," "expects,"
"may," "might," "will," "plans," "intends," "estimates," "could," "should,"
"would," "continue," "seeks," "aims," "projects," "predicts," "pro forma,"
"anticipates," "potential" or other similar words (including their use in the
negative), or by discussions of future matters such as the development of
product candidates or products, technology enhancements, possible changes in
legislation, and other statements that are not historical. Although our
forward-looking statements reflect the good faith judgment of our management,
these statements can only be based on facts and factors currently known by us.
Consequently, forward-looking statements are inherently subject to risks and
uncertainties, and actual results and outcomes may differ materially from
results and outcomes discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those below and elsewhere
in this Quarterly Report on Form 10-Q, particularly in Part II - Item 1A, "Risk
Factors," as well as in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission, or SEC, on March 11, 2020, and in our other filings
with the SEC. Statements made herein are as of the date of the filing of this
Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of
any subsequent date. Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim any obligation to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited financial statements
and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q
and with our audited financial statements and related notes for the year ended
December 31, 2019 appearing in our Annual Report on Form 10-K filed with the SEC
on March 11, 2020.
Overview
Cerecor Inc. (the "Company" or "Cerecor") is a biopharmaceutical company focused
on becoming a leader in development and commercialization of treatments for rare
pediatric and orphan diseases. The Company is advancing an emerging
clinical-stage pipeline of innovative therapies that address unmet patient needs
within rare pediatric and orphan diseases. The Company's pediatric rare disease
pipeline is led by CERC-801, CERC-802 and CERC-803 ("CERC-800 compounds"), which
are therapies for inherited metabolic disorders known as Congenital Disorders of
Glycosylation ("CDGs"). The U.S. Food and Drug Administration ("FDA") granted
Rare Pediatric Disease designation ("RPDD") and Orphan Drug Designation ("ODD")
to all three CERC-800 compounds, thus potentially qualifying the Company to
receive a Priority Review Voucher ("PRV") upon approval of each New Drug
Application ("NDA"). Each PRV may be sold or transferred an unlimited number of
times. The Company plans to leverage the 505(b)(2) NDA pathway for all three
compounds to accelerate development and approval. Additionally, CERC-801 and
CERC-802 were granted Fast Track Designation ("FTD") from the FDA, which can
help facilitate and potentially expedite development of each compound.
The Company is also developing CERC-002, CERC-006 and CERC-007. CERC-007 is an
anti-IL-18 monoclonal antibody being developed for the treatment of autoimmune
inflammatory diseases such as Adult Onset Stills Disease ("AOSD") and Multiple
Myeloma. CERC-006 is a dual mTOR inhibitor being developed for the treatment of
complex Lymphatic Malformations. CERC-002 is an anti-LIGHT (Lymphotoxin-like,
exhibits Inducible expression, and competes with HSV Glycoprotein D for HVEM, a
receptor expressed by T lymphocytes) monoclonal antibody being developed for the
treatment of Pediatric-onset Crohn's Disease.
The Company continues to explore strategic alternatives for its sole
commercialized product, Millipred®, an oral prednisolone indicated across a wide
variety of inflammatory conditions. The Company has been in discussions with
Simon Pedder, a member of its Board of Directors, about potentially transferring
its non-core neurology pipeline assets, CERC-301 and CERC-406, to a new company
to be formed by Dr. Pedder, although it has not agreed to binding terms, and any
such transaction might not happen until the third quarter of 2020, if at all.
Recent Developments
Aevi Merger
On February 3, 2020, the Company consummated its two-step merger (the "Merger")
with Aevi Genomic Medicine, Inc. ("Aevi") in accordance with the terms of the
Agreement and Plan of Merger and Reorganization (the "Merger Agreement") dated
December 5, 2019. The Merger consideration included stock valued at
approximately $15.5 million, resulting in the issuance of
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approximately 3.9 million shares of Cerecor common stock to Aevi stockholders,
forgiveness of a $4.1 million loan that Cerecor loaned Aevi in December 2019
(the "Aevi Loan"), and contingent value rights ("CVRs") for up to an additional
$6.5 million in subsequent payments based on certain development milestones. As
part of the Merger, Cerecor acquired CERC-002, CERC-006 and CERC-007, expanding
Cerecor's pipeline to six clinical stage assets being developed for rare
pediatric and orphan diseases. Effective upon the consummation of the Merger,
Cerecor entered into an employment agreement with Aevi CEO Mike Cola for him to
serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi
CSO Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer, and
appointed Mike Cola and Dr. Sol Barer to the Company's Board of Directors. See
Note 6 of the accompanying condensed consolidated financial statements for more
information.
New Leadership Appointments
In April 2020, the Company appointed Dr. Sol J. Barer to the Chairman of the
Board and Dr. Suzanne Bruhn and Mr. Joseph Miller to the Board. In March 2020,
the Company promoted Dr. Garry Neil to Chief Scientific Officer and Dr. Jeffrey
Wilkins to Chief Medical Officer. The Company believes the additions to the
Board of Directors and Officer promotions will provide valuable insights and
guidance as the Company continues to transform into a leader in development and
commercialization of treatments for rare pediatric orphan diseases.
In April 2020, Dr. Simon Pedder resigned as the Company's Executive Chairman,
however he remains on the Board of Directors. In March 2020, Dr. Pericles
Calias, Ph.D. resigned as Chief Scientific Officer, however will remain an
employee of the Company until June 30, 2020. Finally, in April 2020, Mr. Miller
resigned in his role as Chief Financial Officer, but, as discussed above, joined
the Company's Board of Directors and Mr. Christopher Sullivan was named the
Company's Interim Chief Financial Officer.
Sale of Aytu Shares
In April 2020, the Company converted its shares of Aytu Preferred Stock into
approximately 9.8 million shares of common and sold that common stock for net
proceeds of approximately $12.8 million.
Recent Financings
On March 17, 2020, the Company entered into a securities purchase agreement with
Armistice Capital, LLC ("Armistice"), whose Chief Investment Officer Steve Boyd
is a Cerecor director, pursuant to which the Company sold 1,951,219 shares of
the Company's common stock for a purchase price of $2.05 per share, which
represents the closing stock price the day prior to entering into the agreement.
Net proceeds of the private placement were approximately $3.9 million.
On February 6, 2020, the Company closed on a registered direct offering with
certain institutional investors for the sale by the Company of 1,306,282 shares
of the Company's common stock at a purchase price of $3.98 per share, which
represents the closing stock price the day prior to entering into the agreement.
Armistice participated in the offering by purchasing 1,256,282 shares of common
stock from the Company. The net proceeds of the offering were approximately $5
million.
Research and Development Update
In March 2020, the Company announced that it will explore the role of an
inflammatory cytokine, LIGHT, in patients with COVID-19 induced Acute
Respiratory Distress to determine if CERC-002, anti-LIGHT monoclonal antibody,
can treat patients infected by COVID-19 who develop acute respiratory distress
syndrome ("ARDS") or acute lung injury ("ALI"). The Company subsequently
initiated a biomarker study to evaluate the role of LIGHT in the development of
ARDS and ALI in hospitalized COVID-19 patients.
In March 2020, the Company paused its Phase 1b open-label, multi-center,
dose-escalation proof-of-concept study for CERC-002 for the treatment of
Pediatric-onset Crohn's Disease due to a moratorium placed on endoscopy as a
result of COVID-19. The Company plans to resume the trial when the moratorium on
endoscopy is lifted.
The following chart summarizes key information about our emerging clinical-stage
rare disease pipeline and anticipated research & development milestones:
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[[Image Removed: pipelinechartfor10q1v2.jpg]]
Our Strategy
Our strategy for increasing shareholder value includes:
• Advancing our pipeline of compounds through development and to regulatory
approval;
• Acquiring or licensing rights to targeted, complementary differentiated
preclinical and clinical stage assets;
• Developing the go-to-market strategy to quickly and effectively market,
launch, and distribute each of our assets that receive marketing approval;
• Opportunistically out-licensing rights to indications or geographies; and
• Opportunistically out-licensing rights or sale of non-core assets.
Results of Operations
During the fourth quarter of 2019, the Company sold its rights, titles and
interest in, assets relating to its Pediatric Portfolio as well as the
corresponding commercial infrastructure consisting of the right to offer
employment to Cerecor's sales force and the assignment of supporting commercial
contracts, retaining as our only commercial product, Millipred, an oral
prednisolone indicated across a wide variety of inflammatory conditions. As a
result of the Aytu Divestiture, the Pediatric Portfolio met all conditions
required in order to be classified as discontinued operations. Accordingly,
unless otherwise noted, the following section focuses on results of operations
from continuing operations only for all periods discussed.
Comparison of the Three Months Ended March 31, 2020 and 2019
Product Revenue, net
Net product revenue was $2.8 million for the three months ended March 31, 2020,
which was relatively consistent with the net product revenue for the three
months ended March 31, 2019 of $2.6 million.
Cost of Product Sales
Cost of product sales were $0.1 million for the three months ended March 31,
2020, as compared to $0.8 million for the three months ended March 31, 2019. The
decrease in cost of product sales was mainly driven by a shift in product mix.
Most notably, cost of product sales for the three months ended March 31, 2019
was primarily comprised of minimum royalty obligations related to the Ulesfia
product, which is no longer sold by the Company as a result of a settlement
agreement the Company entered into during the second quarter of 2019.
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended March 31, 2020 and 2019:
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Three Months Ended March 31,
2020 2019
(in thousands)
Preclinical expenses $ 1,245 $ 879
Clinical expenses 596 1,590
CMC expenses 1,166 435
Internal expenses not allocated to programs:
Salaries, benefits and related costs 1,313 435
Stock-based compensation expense 382 57
Other 66 5
$ 4,768 $ 3,401Research and development expenses increased $1.4 million for the three months
ended March 31, 2020 compared to the same period in 2019. The overall increase
is driven by an increase in research and development activities in the current
year as the Company expanded its pipeline assets as a result of the Aevi Merger
and continued to develop its existing pipeline assets during the quarter.
Specifically, as part of the Aevi Merger, which closed in the first quarter of
2020, Cerecor acquired CERC-002, CERC-006 and CERC-007, expanding Cerecor's
pipeline to six clinical stage assets.
Chemistry, Manufacturing, and Controls ("CMC") expenses increased $0.7 million
for the three months ended March 31, 2020 compared to the same period in 2019
due to additional spending on manufacturing to support clinical development as a
result of the additional assets acquired as part of the Aevi Merger. Preclinical
expenses increased $0.4 million primarily due to additional spending related to
the Aevi Merger. These increases were partially offset by a $1.0 million
decrease in clinical expenses driven by minimal spend on clinical development of
CERC-301 as the Company began exploring strategic alternatives for the asset
during 2019.
Salaries, benefits and related costs increased by $0.9 million compared to the
same period in 2019 mainly due to an increase in headcount as a result of the
Aevi Merger and salary-related costs needed to grow our research and development
activities as we continue to invest in our expanded pipeline. Additionally, the
Company recognized $0.3 million of severance within salaries, benefits and
related costs for the three months ended March 31, 2020 related a separation
agreement entered into with a research and development executive during the
first quarter of 2020. There was no severance for the three months ended March
31, 2019. Stock-based compensation increased by $0.3 million mainly due to an
increase in stock option grants as a result of the increased headcount as a
result of the Aevi Merger.
Acquired In-Process Research and Development Expenses
On February 3, 2020, the Company consummated its merger with Aevi, which was
recorded as an asset acquisition in the first quarter of 2020. As a result, the
Company acquired $25.5 million of in-process research and development ("IPR&D")
for two clinical stage pipeline assets for rare and orphan diseases (CERC-006
and CERC-007). The fair value of the IPR&D was immediately recognized as
acquired in-process research and development expense as the IPR&D asset has no
other alternate use due to the stage of development. There was no acquired
in-process research and development expense for the three months ended March 31,
2019.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended March 31, 2020 and 2019:
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Three Months Ended March 31,
2020 2019
(in thousands)
Salaries, benefits and related costs $ 1,012 $ 1,230
Legal, consulting and other professional expenses 784 887
Stock-based compensation expense 706 469
Other 174 90
$ 2,676 $ 2,676General and administrative expenses were $2.7 million for the three months ended
March 31, 2020, which is consistent with the general and administrative expenses
for the three months ended March 31, 2019. Salaries, benefits and related costs
decreased by $0.2 million as a result of the Company covering the tax burden of
the first year's vesting of an executive's restricted stock units which vested
in the first quarter of 2019. Such expense was not repeated for the three months
ended March 31, 2020. This decrease was mainly offset by a $0.2 million increase
in stock-based compensation expense, which was driven by an increase in stock
option grants in the current quarter as a result of options granted on April 1,
2019 as part of the Company's previous year's annual grant and as a result of
the increased headcount as a result of the Aevi Merger which was consummated
during the first quarter of 2020.
Sales and Marketing Expenses
The following table summarizes our sales and marketing expenses for the three
months ended March 31, 2020 and 2019:
Three Months Ended March 31,
2020 2019
(in thousands)
Salaries, benefits and related costs $ 134 $ 185
Stock-based compensation expense 55 21
Advertising and marketing expense 481 190
Other 7 -
$ 677 $ 396Sales and marketing expenses of continuing operations consist of expenses
related to advertising and marketing initiatives to support the go-to-market
strategy of our pipeline assets and the respective salaries and stock-based
compensation to support such initiatives. The overall $0.3 million increase for
the three months ended March 31, 2020 as compared to the same period in 2019 was
primarily driven by a $0.3 million increase in advertising and marketing expense
related to market research in preparation to quickly and effectively market,
launch, and distribute each of our pipeline assets, if any, that receive
marketing approval in the future.
Amortization Expense
The following table summarizes our amortization expense for the three months
ended March 31, 2020 and 2019:
Three Months Ended March 31,
2020 2019
(in thousands)
Amortization of intangible assets $ 431 $ 335Amortization expense of the continuing operations relates to the amortization of
the Company's acquired Millipred product marketing rights, and amortization of
the assembled workforces acquired as part of the Ichorion Acquisition and Aevi
Merger. As a result of the asset acquisition accounting related to the Aevi
Merger recognized in the first quarter of 2020, the Company recorded an
assembled workforce intangible asset of $0.7 million, which was assigned a
two-year useful life. Therefore, the $0.1 million increase to amortization
expense for the three months ended March 31, 2020 as compared to the prior
period was primarily driven by the recognition of two months of amortization
expense of the assembled workforce acquired as part of the Aevi Merger.
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Other Income (Expense), Net
The following table summarizes our other income (expense), net for the three
months ended March 31, 2020 and 2019:
Three Months Ended March 31,
2020 2019
(in thousands)
Change in fair value of Investment in Aytu $ 7,080 $ -
Change in fair value of warrant liability and unit
purchase option liability 11 (48 )
Other expense, net - (9 )
Interest income, net 10 30
$ 7,101 $ (27 )Other income, net increased $7.1 million for the three months ended March 31,
2020 as compared to the prior period. This increase was primarily driven by the
$7.1 million gain on change in the fair value of the Company's Investment in
Aytu. As consideration of the Aytu Divestiture on November 1, 2019, the Company
received 9,805,845 shares of Aytu Series G Preferred Stock. Subsequent to the
initial measurement, at each reporting period, the Investment in Aytu is
remeasured at the current fair value with the change in fair value recorded to
other income, net in the accompanying statements of operations. As of March 31,
2020, the Investment of Aytu was $14.7 million, representing a change in fair
value of $7.1 million from December 31, 2019.
Income Tax (Benefit) Expense
The following table summarizes our income tax expense for the three months ended
March 31, 2020 and 2019:
Three Months Ended March 31,
2020 2019
(in thousands)
Income tax (benefit) expense $ (2,157 ) $ 131
The Company recognized income tax benefit of $2.2 million for the three months
ended March 31, 2020 and income tax expense of $0.1 million for the three months
ended March 31, 2019. The expense recognized for the three months ended March
31, 2019 was a result of interest on an unpaid tax liability related to the 2017
tax year and state taxes. The discrete benefit recognized for the three months
ended March 31, 2020 benefit was a result of a current year tax law change and
the ability of the Company to now carry back certain losses. On March 27, 2020,
President Trump signed into law the Coronavirus Aid, Relief and Economic
Security Act (the "CARES Act"). The CARES Act provided both stimulus measures
and a number of business tax provisions. The tax provisions included temporary
changes regarding the utilization and five year carry back of losses generated
in 2018, 2019 and 2020, temporary changes regarding interest deductions,
technical corrections from prior tax legislation related to qualified
improvement property, and various other measures. As of March 31, 2020, the
Company intended to file (and subsequently filed in April 2020) a refund claim
with the Internal Revenue Service (the "IRS") related to its 2017 tax liability
by carrying back losses not previously claimed and thus recognized a tax benefit
of $2.2 million for the three months ended March 31, 2020.
Liquidity and Capital Resources
In February 2020, the Company closed on a registered direct offering with
institutional investors of 1,306,282 shares of the Company's common stock at a
purchase price of $3.98 per share. The Company's largest stockholder, Armistice
Capital, LLC ("Armistice"), whose Chief Investment Officer Steve Boyd is a
Cerecor director, participated in the offering by purchasing 1,256,282 shares of
common stock from the Company. The net proceeds of the offering were
approximately $5.0 million. In March 2020, the Company entered into a securities
purchase agreement with Armistice pursuant to which the Company sold 1,951,219
shares of the Company's common stock for a purchase price of $2.05 per share,
which represents the closing stock price the day prior to entering into the
agreement. Net proceeds of the private placement were approximately $3.9
million. Additionally, in April 2020, the Company converted its shares of Aytu
preferred stock that were acquired in the fourth quarter of 2019 and
subsequently sold that common stock, which generated net proceeds of
approximately $12.8 million.
In order to meet its cash flow needs, the Company applies a disciplined
decision-making methodology as it evaluates the optimal allocation of the
Company's resources between investing in the Company's existing pipeline assets
and acquisitions or in-licensing of new assets. For the three months ended March
31, 2020, Cerecor generated a net loss of $21.1 million and negative
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cash flow from operations of $5.7 million. As of March 31, 2020, Cerecor had an
accumulated deficit of $135.4 million and a balance of $5.7 million in cash and
cash equivalents.
The accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern; however, the Company
expects to incur additional losses in the future in connection with research and
development activities and will require additional financing to fund its
operations and to continue to execute its strategy. The Company plans to use its
current cash on hand, which includes the cash generated from the sale of Aytu
common shares in April 2020, the anticipated cash flows from the Company's
profits from Millipred product sales and/or the potential proceeds from a
possible out-license or sale of Millipred to a third party to offset costs
related to its pipeline assets, business development, and costs associated with
its organizational infrastructure; however, Cerecor expects to continue to incur
significant expenses and operating losses for the immediate future as it
continues to invest in the Company's pipeline assets. The Company's ability to
continue as a going concern through 2020 is dependent upon the Company's ability
to raise additional equity and/or debt capital, sell assets and obtain
government funding; however, there can be no assurance that it will be able to
do so nor that such activities will generate sufficient amounts on terms
acceptable to the Company.
Over the long term, the Company's ultimate ability to achieve and maintain
profitability will be dependent on, among other things, the development,
regulatory approval, and commercialization of its pipeline assets, and the
potential sale of any PRVs it receives, in order to support its cost structure
and pipeline asset development.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern within one year after the date that the financial statements
are issued. To alleviate these conditions, the Company monetized its investment
in Aytu generating net proceeds of $12.8 million in April 2020 and is evaluating
the potential out-licensing or sale of Millipred, its non-core neurology
pipeline assets and/or some combination of rights to future PRV sales, equity or
debt financings, collaborations, other out-licensing arrangements, strategic
alliances, federal and private grants, marketing, other distribution or
licensing arrangements, or the sale of current or future assets. If the Company
raises additional funds through collaborations, strategic alliances or licensing
arrangements with third parties, the Company might have to relinquish valuable
rights to its technologies, future revenue streams, research programs or product
candidates. If the Company is not able to secure adequate additional funding,
the Company may be forced to make reductions in spending, extend payment terms
with suppliers, liquidate assets where possible or suspend or curtail planned
programs. Due to the uncertainty regarding future financings and/or other
potential options to raise additional funds, management has concluded that
substantial doubt exists with respect to the Company's ability to continue as a
going concern within one year after the date that the financial statements are
issued.
Uses of Liquidity
The Company uses cash to fund research and development expenses related to its
rare pediatric and orphan disease pipeline, business development and costs
associated with its organizational infrastructure.
Cash Flows
The following table summarizes our cash flows for the three months ended March
31, 2020 and 2019:
Three Months Ended March 31,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ (5,740 ) $ (3,122 )
Investing activities (1,251 ) (166 )
Financing activities 9,098 8,817
Net increase in cash and cash equivalents $ 2,107 $ 5,529
Net cash used in operating activities
Net cash used in operating activities was $5.7 million for the three months
ended March 31, 2020, consisting primarily of a net loss of $21.1 million, which
was driven by increased research and development activities as the Company
continued to fund its pipeline of development assets, and non-cash adjustments
to reconcile net loss to net cash used in operating activities including a $7.1
million gain related to the change in fair value of the Investment in Aytu and a
$1.8 million gain related to the change in value of the Guarantee. This decrease
was offset by the following non-cash adjustments: non-cash acquired IPR&D
expense of $25.5 million and
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non-cash stock-based compensation of $1.1 million. Additionally, changes in net
assets, increased by a net $2.9 million, mainly driven by a $2.0 million
increase in other receivables. Other receivables increased mainly due to a $2.2
million income tax receivable.
Net cash used in operating activities was $3.1 million for the three months
ended March 31, 2019 and consisted primarily of a net loss of $7.5 million,
offset by depreciation and amortization of $1.1 million, non-cash stock-based
compensation expense of $0.6 million, and changes in working capital, primarily,
an increase in accrued expenses of $2.0 million, largely related to the
contractual minimum obligations. The net loss for the three months ended March
31, 2019 was driven by increased research and development activities incurred as
the Company continued to fund its pipeline of development assets and also by
increased sales and marketing expenses incurred to support commercial sales
activities.
Net cash used in investing activities
Net cash used in investing activities was $1.3 million for the three months
ended March 31, 2020 and consisted primarily of transaction costs incurred as
part of the Aevi Merger, partially offset by the cash acquired as part of the
merger.
Net cash used in investing activities was $0.2 million for the three months
ended March 31, 2020 and consisted primarily of the purchase of property and
equipment in connection with the Company occupying its corporate headquarters
during the first quarter of 2019.
Net cash provided by financing activities
Net cash provided by financing activities was $9.1 million for the three months
ended March 31, 2020 and consisted primarily of net proceeds of $5.1 million
from a registered direct offering with certain institutional investors, which
included Armistice, that closed in February 2020 for the sale of 1,306,282
shares of common stock of the Company, at a price of $3.98 per share. The
Company also received $3.9 million from a private placement of equity securities
with Armistice during March 2020.
Net cash provided by financing activities was $8.8 million for the three months
ended March 31, 2019 and consisted primarily of net proceeds of
approximately $9.0 million from the underwritten public offering of common stock
for 1,818,182 shares of common stock of the Company, at a price to the public of
$5.50 per share. The increase was partially offset by $0.2 million payment of
contingent consideration related to the Avadel acquisition.
Critical Accounting Policies, Estimates, and Assumptions
This Management's Discussion and Analysis of Financial Condition and Results of
Operations is based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with GAAP. In preparing the
financial statements in conformity with GAAP, the Company makes estimates and
assumptions that have an impact on assets, liabilities, revenue and expenses
reported. These estimates can also affect supplemental information disclosed by
us, including information about contingencies, risk, and financial condition. In
our unaudited condensed consolidated financial statements, estimates are used
for, but not limited to, revenue recognition, cost of product sales, stock-based
compensation, fair value measurements (including those relating to the Guarantee
and Investment in Aytu), cash flows used in management's going concern
assessment, income taxes, goodwill, and other intangible assets and clinical
trial accruals. The Company believes, given current facts and circumstances, our
estimates and assumptions are reasonable, adhere to GAAP and are consistently
applied. Inherent in the nature of an estimate or assumption is the fact that
actual results may differ from estimates, and estimates may vary as new facts
and circumstances arise. Our most critical accounting estimates and assumptions
are included in our Annual Report on Form 10-K for the year ended December 31,
2019 filed with the SEC on March 11, 2020 except for the recently adopted
accounting standards described in Note 2 to our unaudited condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q.
There have been no material changes to our critical accounting policies during
the three months ended March 31, 2020
OffBalance Sheet Arrangements
We do not have any offbalance sheet arrangements, as defined by applicable SEC
rules and regulations.
Recently Adopted Accounting Pronouncements
See Item 1 of Part I, "Notes to Unaudited Financial Statements," Note 2, of this
Quarterly Report on Form 10-Q.
JOBS Act
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The JOBS Act contains provisions that, among other things, reduce reporting
requirements for an "emerging growth company." As an emerging growth company, we
have elected to not take advantage of the extended transition period afforded by
the JOBS Act for the implementation of new or revised accounting standards and,
as a result, will comply with new or revised accounting standards on the
relevant dates on which adoption of such standards is required for nonemerging
growth companies.
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