Collaboration and Stock Purchase Agreements
|9 Months Ended|
Sep. 30, 2021
|Collaboration and Stock Purchase Agreements|
|Collaboration and Stock Purchase Agreements||
3. Collaboration and Stock Purchase Agreements
Agreement with AstraZeneca’s Alexion
In January 2019, Caelum entered into a Development, Option and Stock Purchase Agreement (as amended, the “DOSPA”) and related documents by and among Caelum, AstraZeneca (as successor-in-interest to Alexion, “AstraZeneca”), the Company and Caelum’s other equity holders as parties thereto (such equity holders, including Fortress, the “Sellers”). Under the terms of the agreement, AstraZeneca obtained a minority interest in Caelum and a contingent exclusive option to acquire the remaining equity in Caelum.
On September 28, 2021 AstraZeneca notified Caelum of its intention to exercise its purchase option, and on October 6, 2021 AstraZeneca acquired Caelum for an upfront payment of approximately $150 million (see Note 21). The Sellers currently remain eligible to receive up to an additional $350 million in contingent regulatory and commercial milestone payments.
Agreement with Sentynl
On February 24, 2021, Cyprium entered into a development and contingent asset purchase agreement with Sentynl. Pursuant to the terms of the agreement, Sentynl paid Cyprium an upfront fee of $8.0 million specifically earmarked to complete the CUTX-101 development program for the treatment of Menkes disease, through the filing of Cyprium’s New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”). Cyprium also remains eligible to receive up to an additional $12.0 million payable as follows: (i) $3.0 million upon acceptance by the FDA of the NDA for review; and (ii) $9.0 million upon FDA approval of the NDA and transfer of CUTX-101 to Sentynl. The Company will recognize revenue associated with these future milestones based upon achievement. At September 30, 2021, none of these future milestones was deemed probable.
Following the transfer of CUTX-101 to Sentynl (if any), Cyprium would remain eligible to receive up to $255.0 million in additional sales milestone payments (payable pursuant to five milestones), as well as royalties on CUTX-101 net sales ranging from mid-single digits up to the mid-twenties. Cyprium would retain 100% ownership over any FDA Priority Review Voucher that may be issued at NDA approval for CUTX-101.
The Company determined that this agreement falls within the scope of ASC 606-10-15-3 and ASC 808-10-15-5A Revenue from Collaborative Arrangements (“ASC 808”) and as such the Company will recognize revenue in connection with achievement of two future development milestone payments.
In connection with the $8.0 million upfront payment to Sentynl, the Company is recognizing revenue using an input method based upon the costs incurred to date in relation to the total estimated costs to complete the development activities. Accordingly, revenue is being recognized over the period in which the development activities are expected to occur. For the three and nine months ended September 30, 2021, the Company recognized revenue of $1.4 million and $4.6 million, respectively. No revenue was recognized in connection with this agreement in 2020.
Agreement with InvaGen
On November 12, 2018, Avenue entered into a Stock Purchase and Merger Agreement (the “Avenue SPMA”) with InvaGen and Madison Pharmaceuticals Inc. (the “Merger Sub”), under which Avenue would be sold to InvaGen in a two-stage transaction. The first stage of the strategic transaction between InvaGen and Avenue closed in February 2019. InvaGen acquired approximately 5.8 million shares of Avenue’s common stock at $6.00 per share for total gross consideration of $35.0 million, representing a 33.3% stake in Avenue’s capital stock on a fully diluted basis (the “Stock Purchase Transaction”). At the second stage closing, InvaGen would acquire the remaining shares of Avenue’s common stock, for $180 million, pursuant to a reverse triangular merger (the “Merger Transaction”).
Consummation of the Merger Transaction was conditioned upon, among other things, FDA approval of IV Tramadol, its labeling and scheduling, and the absence of certain other restrictions in effect with respect to IV Tramadol. Pursuant to the Avenue SPMA, if FDA approval of IV Tramadol was not obtained on or before April 30, 2021, InvaGen would not be subject to the mandatory closing obligations set forth in the Avenue SPMA with respect to the Merger Transaction (but would instead retain an option to complete the Merger Transaction up until such time as the Avenue SPMA was terminated). Pursuant to the Avenue SPMA, the Company could choose to terminate the Avenue SPMA after October 31, 2021, if FDA approval of IV Tramadol had not occurred by such time. On November 1, 2021, the Company terminated the Avenue SPMA.
Even though the Avenue SPMA has been terminated, InvaGen retains certain rights pursuant to the Stockholders Agreement entered into on November 12, 2018 between the Company, Avenue and InvaGen, and other agreements entered into in connection therewith on such date. These rights exist as long as InvaGen maintains at least 75% of the common shares acquired in the Stock Purchase Transaction, and include, among other things, the right to restrict Avenue from certain equity issuances and changes to Avenue’s capital stock without obtaining InvaGen’s prior written consent.
Over the past year, Avenue has communicated with InvaGen relating to InvaGen’s assertions that Material Adverse Effects (as defined in the Avenue SPMA) have occurred due to the impact of the COVID-19 pandemic on potential commercialization and projected sales of IV Tramadol. Additionally, in connection with the resubmission of Avenue’s NDA in February 2021, InvaGen communicated to Avenue that it believes the proposed label for IV Tramadol would also constitute a Material Adverse Effect (as defined in the Avenue SPMA) on the purported basis that the proposed label under certain circumstances would make the product commercially unviable. Even though the Avenue SPMA has been terminated, it is still possible for InvaGen to pursue monetary claims against the Company and/or Avenue based on the foregoing or other potential causes of action.
Avenue is not yet generating revenue, has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and may never become profitable. As of September 30, 2021, Avenue had an accumulated deficit of $76.1 million.
On October 12, 2020, Avenue announced that it had received a Complete Response Letter (“the First CRL”) from the FDA regarding Avenue’s NDA for IV Tramadol. The First CRL cited deficiencies related to the terminal sterilization validation and stated that IV Tramadol, intended to treat patients in acute pain who require an opioid, is not safe for the intended patient population. On February 12, 2021, Avenue resubmitted its NDA to the FDA for IV Tramadol. The NDA resubmission followed the receipt of official minutes from a Type A meeting with the FDA. The resubmission included revised language relating to the proposed product label and a report relating to terminal sterilization validation. On June 14, 2021, Avenue announced that it had received a second Complete Response Letter (the “Second CRL”) from the FDA regarding Avenue’s NDA for IV tramadol. The Second CRL stated that the delayed and unpredictable onset of analgesia with IV tramadol does not support its benefit as a monotherapy to treat patients in acute pain and that there is insufficient information to support that IV tramadol in combination with other analgesics is safe and effective for the intended patient population. In particular, the Second CRL stated that, while the primary endpoint was met in two efficacy studies, meaningful pain relief was delayed (accounting for the use of rescue medication, e.g., ibuprofen), and some patients never achieved pain relief.
Avenue continues to pursue regulatory approval for IV Tramadol and had a Type A meeting with the FDA in July 2021. The FDA did not deviate from any of the positions the FDA previously took in the First CRL and the Second CRL. Avenue submitted a formal dispute resolution request (“FDRR”) with the Office of Neuroscience of the FDA on July 27, 2021. On August 26, 2021, Avenue received an Appeal Denied Letter from the Office of Neuroscience of the FDA in response to the FDRR submitted on July 27, 2021. On August 31, 2021, Avenue submitted a FDRR with the Office of New Drugs (“OND”) of the FDA. On October 21, 2021, Avenue received a written response from the OND of the FDA stating that the OND needs additional input from an Advisory Committee in order to reach a decision on the FDRR. Avenue’s ability to potentially commercialize IV Tramadol, and the timing of any potential commercialization, are dependent on the FDA’s review of the FDRR for IV Tramadol, the outcome of the aforementioned Advisory Committee meeting, whether or not the FDA ultimately approves IV Tramadol, and potentially on whether or not Avenue procures additional capital.
As of September 30, 2021, Avenue had cash and cash equivalents of $0.6 million. Avenue believes that its cash and cash equivalents are only sufficient to fund its operating expenses into the fourth quarter of 2021. Avenue will need to secure additional funds through equity or debt offerings, or other potential sources. Furthermore, under the Shareholders’s Agreement between Avenue and InveGen, any equity funding must be approved by InvaGen. Avenue cannot be certain that additional funding will be available to it on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about Avenue’s ability to continue as a going concern within one year from the date of this report.
In light of the foregoing, it may be necessary at some point for Avenue to seek protection under Chapter 11 of the United States Bankruptcy Code, which could have a material adverse impact on Avenue’s business, financial condition, operations and could place its shareholders at significant risk of losing all of their investment. In any such Chapter 11 proceeding, Avenue may seek to restructure its obligations or commence an orderly wind-down of its operations and sale of its assets, in either event, holders of equity interests could receive or retain little or no recovery. The Company also notes that the process of exploring refinancing or restructuring alternatives, including those under Chapter 11, may be disruptive to Avenue’s business and operations.
On September 2, 2021, Avenue received a delinquency notification letter from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that Avenue is not in compliance with Nasdaq rules requiring listed securities to maintain a minimum Market Value of Listed Securities (“MVLS”) of $35 million (the “MVLS Requirement”). Avenue has 180 calendars days, expiring March 1, 2022, to regain compliance with the MVLS Requirement. If Avenue maintains a MVLS at or greater than $35 million or more for a minimum of ten consecutive business days, Avenue will regain compliance. If Avenue does not regain compliance within 180 calendar days, Avenue will receive a written notification from Nasdaq that its securities are subject to delisting. Avenue intends to monitor its MVLS and may, if appropriate, consider implementing available options to regain compliance with the MVLS Requirement. There can be no assurance that Avenue will be able to regain compliance with the MVLS Requirement, or maintain compliance if Avenue regains compliance.