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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended: March 31, 2022

 

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-39101

 

Baudax Bio, Inc.

(Exact name of registrant as specified in its charter)

 

 

Pennsylvania

47-4639500

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

490 Lapp Road, Malvern, Pennsylvania

19355

(Address of principal executive offices)

(Zip Code)

 

(484) 395-2440

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Common Stock, par value $0.01

BXRX

Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 3, 2022, there were 6,422,762 shares of common stock, par value $0.01 per share, outstanding.

 

1

 


 

TABLE OF CONTENTS

Index

 

 

 

 

 

 

Page

 

 

 

Forward-Looking Statements

 

3

 

 

 

PART I. FINANCIAL INFORMATION

 

5

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements (Unaudited)

 

5

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

39

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

39

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

39

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

39

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

40

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

40

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

40

 

 

 

 

 

 

SIGNATURES

 

41

 

 

 

 

 

 

 

 

2

 


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would,” “could,” “should,” “potential,” “seek,” “evaluate,” “pursue,” “continue,” “design,” “impact,” “affect,” “forecast,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

These forward-looking statements in this Quarterly Report include, among other things, statements about:

our estimates regarding expenses, revenue, capital requirements and timing and availability of and the need for additional financing;
our ability to continue as a going concern for the next twelve months;
our ability to operate under significant indebtedness;
our ability to maintain the listing of our common stock on the Nasdaq Capital Market;
our ability to maintain regulatory approval for ANJESO® (meloxicam) injection, or ANJESO, and obtain regulatory approval for any other product candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
our ability to successfully manage the timing, costs and other aspects of the commercialization of ANJESO, including maintaining an acceptable price for and adequate coverage and reimbursement of ANJESO;
our ability to successfully market, commercialize and achieve broad market acceptance for ANJESO and any of our other product candidates once approved;
the acceptance of ANJESO by the medical community, including physicians, patients, healthcare providers and hospital formularies;
our ability and that of our third-party manufacturers to successfully scale-up our commercial manufacturing process for ANJESO;
the results, timing and outcome of our clinical trials of our product candidates, and any future clinical trials and preclinical studies;
our ability to source materials needed for our drug candidates, optimize formulations for stability and other characteristics;
our relationships with Alkermes plc, or Alkermes, other third parties, licensors, collaborators, and our employees;
potential indemnification liabilities we may owe to Societal CDMO, Inc., or Societal CDMO, formerly Recro Pharma, Inc., after the separation of Societal CDMO’s acute care business and transfer of such assets to us, or the Separation;
the effects of changes in our effective tax rate due to changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, tax impacts and net operating loss utilization related to the Separation from Societal CDMO and changes in the tax laws;
our ability to comply with the regulatory schemes applicable to our business and other regulatory developments in the United States and foreign countries;
the performance of third-parties upon which we depend, including third-party contract research organizations, or CROs, and third-party suppliers, manufacturers including Alkermes and Patheon UK Limited, group purchasing organizations, distributors, supply chain and logistics providers;
our ability to obtain and maintain patent protection and defend our intellectual property rights against third-parties;
our ability to maintain our relationships, profitability and contracts with our key commercial partners;
our ability to defend any material litigation filed against us and avoid liabilities resulting from any material litigation, including any liabilities associated with the ongoing securities class action filed against Societal CDMO for which we have agreed to indemnify Societal CDMO;

3

 


 

our ability to recruit or retain key scientific, technical, commercial, and management personnel or to retain our executive officers;
our ability to raise future financing and attain profitability for continued development of our business and commercialization of ANJESO and our product candidates and to meet any required debt payments, and any milestone payments owing to Alkermes, or our other licensing and collaboration partners;
the volatility of capital markets and other macroeconomic factors, including geopolitical tensions or the outbreak or escalation of hostilities or war;
our ability to operate under increased leverage and associated lending covenants; to pay existing required interest and principal amortization payments when due; and/or to obtain acceptable refinancing alternatives; and
our expectations regarding the impact of the ongoing COVID-19 pandemic including, but not limited to, the emergence of variants of the virus, the availability and efficacy of vaccines for COVID-19 and peoples’ willingness to avail themselves of such vaccines, the expected duration of disruption and immediate and long-term delays, disruption in the commercialization of ANJESO, our ability to access hospital systems and formulary committees, manufacturing and supply chain interruptions, including but not limited to manufacturing components and raw materials, adverse effects on healthcare systems and disruption of the global economy, and the overall impact of the COVID-19 pandemic on our business, financial condition and results of operations.

Any forward-looking statements that we make in this Quarterly Report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

You should also read carefully the factors described in the “Risk Factors” included in Part II, Item 1A of this Quarterly Report and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 16, 2022, or the 2021 Annual Report, to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this Quarterly Report and you should not place undue reliance on any forward-looking statements.

4

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BAUDAX BIO, INC.

Consolidated Balance Sheets

(Unaudited)

 

(amounts in thousands, except share and per share data)

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,527

 

 

$

15,891

 

Accounts receivable, net

 

 

608

 

 

 

542

 

Inventory

 

 

5,212

 

 

 

5,002

 

Prepaid expenses and other current assets

 

 

2,369

 

 

 

2,059

 

Total current assets

 

 

19,716

 

 

 

23,494

 

Property, plant and equipment, net

 

 

4,992

 

 

 

5,015

 

Intangible assets, net

 

 

21,034

 

 

 

21,678

 

Goodwill

 

 

2,127

 

 

 

2,127

 

Other long-term assets

 

 

944

 

 

 

963

 

Total assets

 

$

48,813

 

 

$

53,277

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,284

 

 

$

1,468

 

Accrued expenses and other current liabilities

 

 

6,837

 

 

 

5,540

 

Current portion of long-term debt, net

 

 

3,056

 

 

 

2,222

 

Current portion of contingent consideration

 

 

7,220

 

 

 

6,416

 

Total current liabilities

 

 

20,397

 

 

 

15,646

 

Long-term debt, net

 

 

5,705

 

 

 

6,309

 

Long-term portion of contingent consideration

 

 

12,339

 

 

 

17,446

 

Other long-term liabilities

 

 

629

 

 

 

650

 

Total liabilities

 

 

39,070

 

 

 

40,051

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value. Authorized, 10,000,000 shares; issued and
   outstanding,
0 shares at March 31, 2022 and 8,289 shares at
   December 31, 2021

 

 

 

 

 

 

Common stock, $0.01 par value. Authorized, 190,000,000 shares; issued and
   outstanding,
6,412,979 shares at March 31, 2022 and 2,807,239 shares at
   December 31, 2021

 

 

64

 

 

 

28

 

Additional paid-in capital

 

 

154,577

 

 

 

145,287

 

Accumulated deficit

 

 

(144,898

)

 

 

(132,089

)

Total shareholders’ equity

 

 

9,743

 

 

 

13,226

 

Total liabilities and shareholders’ equity

 

$

48,813

 

 

$

53,277

 

 

See accompanying notes to consolidated financial statements.

5

 


 

BAUDAX BIO, INC.

Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

(amounts in thousands, except share and per share data)

 

2022

 

 

2021

 

Revenue, net

 

$

422

 

 

$

198

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Cost of sales

 

 

648

 

 

 

821

 

Research and development

 

 

1,293

 

 

 

1,108

 

Selling, general and administrative

 

 

14,190

 

 

 

12,088

 

Amortization of intangible assets

 

 

644

 

 

 

644

 

Change in warrant valuation

 

 

(5

)

 

 

18

 

Change in contingent consideration valuation

 

 

(3,803

)

 

 

1,841

 

Total operating expenses

 

 

12,967

 

 

 

16,520

 

Operating loss

 

 

(12,545

)

 

 

(16,322

)

Other expense:

 

 

 

 

 

 

Other expense, net

 

 

(264

)

 

 

(590

)

Net loss

 

$

(12,809

)

 

$

(16,912

)

 

 

 

 

 

 

 

Per share information:

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(3.17

)

 

$

(9.46

)

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

4,038,434

 

 

 

1,788,118

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

6

 


 

BAUDAX BIO, INC.

Consolidated Statements of Shareholders’ Equity (Deficit)

(Unaudited)

 

For the Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

(amounts in thousands, except share data)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

paid-in
capital

 

 

Accumulated
Deficit

 

 

Total

 

Balance, December 31, 2021

 

 

8,289

 

 

$

 

 

 

2,807,239

 

 

$

28

 

 

$

145,287

 

 

$

(132,089

)

 

$

13,226

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

521

 

 

 

 

 

 

521

 

Issuance of common stock and warrants for
   public offering, net

 

 

 

 

 

 

 

 

3,508,772

 

 

 

35

 

 

 

8,784

 

 

 

 

 

 

8,819

 

Issuance of common stock and warrants for
   registered direct offerings, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Issuance of shares pursuant to vesting of
   restricted stock units, net of shares
   withheld for income taxes

 

 

 

 

 

 

 

 

2,234

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Conversion of preferred stock

 

 

(8,289

)

 

 

 

 

 

94,734

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,809

)

 

 

(12,809

)

Balance, March 31, 2022

 

 

 

 

$

 

 

 

6,412,979

 

 

$

64

 

 

$

154,577

 

 

$

(144,898

)

 

$

9,743

 

 

See accompanying notes to consolidated financial statements.

 

7

 


 

BAUDAX BIO, INC.

Consolidated Statements of Shareholders’ Equity (Deficit)

(Unaudited)

 

For the Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

(amounts in thousands, except share data)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

paid-in
capital

 

 

Accumulated
Deficit

 

 

Total

 

Balance, December 31, 2020

 

 

 

 

$

 

 

 

1,391,099

 

 

$

14

 

 

$

97,507

 

 

$

(112,320

)

 

$

(14,799

)

Recro Pharma allocation - stock-based
   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,201

 

 

 

 

 

 

1,201

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

975

 

 

 

 

 

 

975

 

Issuance of common stock and warrants for
   registered direct offerings, net

 

 

 

 

 

 

 

 

314,286

 

 

 

3

 

 

 

16,424

 

 

 

 

 

 

16,427

 

Issuance of shares pursuant to vesting of
   restricted stock units, net of shares
   withheld for income taxes

 

 

 

 

 

 

 

 

1,205

 

 

 

 

 

 

(41

)

 

 

 

 

 

(41

)

Exercise of warrants

 

 

 

 

 

 

 

 

297,484

 

 

 

3

 

 

 

12,152

 

 

 

 

 

 

12,155

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,912

)

 

 

(16,912

)

Balance, March 31, 2021

 

 

 

 

$

 

 

 

2,004,074

 

 

$

20

 

 

$

128,218

 

 

$

(129,232

)

 

$

(994

)

 

See accompanying notes to consolidated financial statements.

8

 


 

BAUDAX BIO, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

(amounts in thousands)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(12,809

)

 

$

(16,912

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

521

 

 

 

2,304

 

Non-cash interest expense

 

 

226

 

 

 

229

 

Depreciation expense

 

 

43

 

 

 

86

 

Amortization

 

 

644

 

 

 

644

 

Change in warrant valuation

 

 

(5

)

 

 

18

 

Change in contingent consideration valuation

 

 

(3,803

)

 

 

1,841

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Inventory

 

 

(210

)

 

 

205

 

Prepaid expenses and other assets

 

 

(287

)

 

 

840

 

Accounts receivable

 

 

(66

)

 

 

(112

)

Accounts payable, accrued expenses and other liabilities

 

 

2,843

 

 

 

(3,148

)

Net cash used in operating activities

 

 

(12,903

)

 

 

(14,005

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(20

)

 

 

(73

)

Purchase of short-term investments

 

 

 

 

 

(7,495

)

Net cash used in investing activities

 

 

(20

)

 

 

(7,568

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from public offering, net of transaction costs

 

 

9,074

 

 

 

 

Proceeds from registered direct offerings, net of transaction costs

 

 

(13

)

 

 

16,236

 

Proceeds from warrant exercises

 

 

 

 

 

12,155

 

Payment of contingent consideration

 

 

(500

)

 

 

(6,429

)

Payments of withholdings on shares withheld for income taxes

 

 

(2

)

 

 

(41

)

Net cash provided by financing activities

 

 

8,559

 

 

 

21,921

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,364

)

 

 

348

 

Cash and cash equivalents, beginning of period

 

 

15,891

 

 

 

30,342

 

Cash and cash equivalents, end of period

 

$

11,527

 

 

$

30,690

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Offering costs included in accounts payable and accrued expenses

 

$

281

 

 

$

38

 

See accompanying notes to consolidated financial statements.

 

9


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

(1) Background

Business

Baudax Bio, Inc. (“Baudax Bio” or the “Company”) is a pharmaceutical company primarily focused on innovative products for hospital and related acute care settings. Baudax Bio believes it can bring valuable therapeutic options to patients, prescribers and payers, such as its lead product, ANJESO® (meloxicam) injection, to the hospital and acute care markets.

Baudax Bio launched ANJESO, which is indicated for the management of moderate to severe pain, in 2020. ANJESO is currently approved for use within the Department of Veterans Affairs, the Department of Defense, Indian Health Service, 340B covered entities, and multiple state Medicaid programs.

The Company has determined that it operates in a single segment involved in innovative products for hospital and other acute care settings.

The Separation

Pursuant to the Separation Agreement between Societal CDMO, Inc. (“Societal CDMO”), formerly Recro Pharma, Inc., and Baudax Bio, Societal CDMO transferred the assets, liabilities, and operations of its Acute Care business to the Company (the “Separation”) and, on November 21, 2019, the distribution date, each Societal CDMO shareholder received one share of the Company’s common stock for every two and one-half shares of Societal CDMO common stock held of record at the close of business on November 15, 2019, the record date for the distribution (the “Distribution”). Following the Distribution and Separation, Baudax Bio operates as a separate, independent company.

Reverse Stock Split
 

On February 16, 2022, the Company effected a reverse split of shares of the Company’s common stock on a 1-for-35 basis (the “Reverse Stock Split”). All issued and outstanding shares of common stock, warrants, common stock options, and unvested restricted stock units and the related per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. The par value and authorized shares of common stock were not adjusted as a result of the Reverse Stock Split. Additionally, the authorized, issued and outstanding shares of preferred stock and their related per share amount, other than the conversion price per share, was not adjusted as a result of the Reverse Stock Split.
 

(2) Development-Stage Risks, Liquidity and Going Concern

The Company has incurred operating losses and negative cash flows since inception and has an accumulated deficit of $144,898 as of March 31, 2022.

The Company has raised funds from debt and equity transactions and will be required to raise additional funds to continue to operate as a standalone entity. In order to fund development activities, clinical and pre-clinical testing, modest commercialization of ANJESO and, if approved, commercialization of the Company’s other product candidates, the Company will require significant additional funding. The Company could delay clinical trial activity or reduce funding of specific programs in order to reduce cash needs. Insufficient funds may cause the Company to delay, reduce the scope of or eliminate one or more of its development, commercialization, or expansion activities. The Company may raise such funds, if available, through debt financings, bank or other loans, through strategic research and development, licensing (including out-licensing) and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and failure to raise capital when needed could materially adversely impact the Company’s growth plans and its financial condition or results of operations. Additional debt or equity financing, if available, may be dilutive to holders of the Company’s common stock and may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate its business.

10


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

The Company follows the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), Topic 205-40, “Presentation of Financial Statements — Going Concern”, or ASC 205-40, which requires management to assess the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are issued. Based on the Company’s available cash and cash equivalents as of March 31, 2022, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. The Company expects to seek additional funding to sustain its future operations and while the Company has successfully raised capital in the past, the ability to raise capital in future periods is not assured. The Company is not expected to be able to maintain its minimum liquidity covenant over the next twelve months without additional inflows of funds or capital financing. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(3) Summary of Significant Accounting Principles

(a) Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and notes required by U.S. GAAP for complete annual financial statements. In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s results for the interim periods. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2021 included in the Company’s Form 10-K.

(b) Use of Estimates

The preparation of financial statements and the notes to the financial statements in conformity with U.S. 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

(c) Cash and Cash Equivalents

Cash and cash equivalents represents cash in banks and highly liquid short-term investments that have maturities of three months or less when acquired to be cash equivalents. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value because of the changes in interest rates.

(d) Short-Term Investments

Short-term investments generally consist of government money market funds and commercial paper with maturity of greater than three months when acquired and does not meet the definition of a cash or cash equivalents. The Company has historically classified its entire investment portfolio as available-for-sale securities and is carried at fair value with unrealized gains and losses included in comprehensive loss in the consolidated statement of operations and realized gains and losses included in other income/expense, if applicable.
 

The Company uses benchmark inputs and industry standard analytical models to derive the fair value of its commercial paper.
 

11


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

(e) Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to seven years for furniture and office equipment; six to ten years for manufacturing equipment; and the shorter of the remaining lease term or useful life for leasehold improvements. Repairs and maintenance costs are expensed as incurred.

(f) Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a one-step method for determining impairment.

The one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has one reporting unit.

The Company performs its annual goodwill impairment test as of November 30th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of goodwill. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance of its reporting unit, anticipated changes in industry and market conditions, including recent tax reform, intellectual property protection, and competitive environments. The Company performed an impairment test as of March 31, 2022 after identifying indicators of impairment. There was no impairment to goodwill based on the analysis.

The Company’s intangible asset is classified as an asset resulting from R&D activities. The Company determined the useful life of its asset resulting from R&D activities to be approximately 10 years, which is based on the remaining patent life and is being amortized on a straight-line basis. The Company is required to review the carrying value of assets resulting from R&D activities for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company performed an impairment test as of March 31, 2022 after identifying indicators of impairment. There was no impairment to intangible assets based on the analysis as of March 31, 2022.

(g) Revenue Recognition

Subsequent to regulatory approval for ANJESO from the FDA, the Company began selling ANJESO in the U.S. through a single third-party logistics provider (“3PL”), which takes title to and control of the goods. The Company recognizes revenue from ANJESO product sales at the point the title to the product is transferred to the customer and the customer obtains control of the product. The transaction price that is recognized as revenue for products includes an estimate of variable consideration for reserves, which result from discounts, returns, chargebacks, rebates, and other allowances that are offered within contracts between the Company and end-user customers, wholesalers, group purchasing organizations and other indirect customers. The Company’s payment terms are generally between thirty to ninety days.

The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. These reserves reflect the Company’s best estimate of the amount of consideration to which the Company is entitled based on the terms of the contracts. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

12


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

(h) Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, short-term investments, and accounts receivable. The Company manages its cash, cash equivalents and short-term investments based on established guidelines relative to diversification and maturities to maintain safety and liquidity. The Company’s accounts receivable balance as of March 31, 2022 and December 31, 2021 is compromised solely from transactions with the Company’s 3PL.

(i) Research and Development

Research and development costs for the Company’s proprietary products/product candidates are charged to expense as incurred. Research and development expenses consist of internal costs and funds paid to third parties for the provision of services for pre-commercialization and manufacturing scale-up activities, drug development, pre-clinical activities, clinical trials, statistical analysis, and report writing and regulatory filing fees and compliance costs. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development project. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expenses relating to these costs.

Upfront and milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered. Costs incurred in obtaining product technology licenses are charged to research and development expense as acquired in-process research and development (“IPR&D”) if the technology licensed has not reached technological feasibility and has no alternative future use.

(j) Stock-Based Awards

Share-based compensation included in the consolidated financial statements following the Separation is based upon the Baudax Bio, Inc. 2019 Equity Incentive Plan (the “2019 Plan”). The plan includes grants of stock options, time-based vesting restricted stock units (“RSUs”) and performance-based RSUs. The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. The Company accounts for forfeitures as they occur.

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses an average of its peer group’s volatility in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future, therefore the dividend yield is zero.

(k) Income Taxes

Income taxes are accounted for under the asset and liability method. 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 basis, operating losses 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 of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

13


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

(l) Net Loss Per Common Share

Net loss per common share is computed using the two-class method required due to the participating nature of the Series A Preferred Stock (as defined and discussed in Note 13(b)). Except with respect to voting and conversion, the rights of the holders of the Company’s common stock and the Company’s Series A Preferred Stock are identical. Each class of shares has the same rights to dividends. Although the Preferred Stock are participating securities, such securities do not participate in net losses and therefore do not impact the Company’s net loss per share calculation as of March 31, 2022.

Basic net loss per common share is determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. Diluted net loss per common share is determined using the weighted average common shares outstanding during the period plus the weighted average number of shares of common shares that would be issued assuming exercise or conversion of all potentially dilutive instruments. Outstanding warrants, common stock options and unvested restricted stock units are excluded from the calculation of diluted net loss per share when their effect would be anti-dilutive.

For purposes of calculating basic and diluted loss per common share, the denominator includes the weighted average common shares outstanding, the weighted average common stock equivalents for warrants priced at par value, or $0.01, as the underlying common shares will be issued for little cash consideration and the conditions for the issuance of the underlying common shares are met when such warrants are issued, and, with regard to diluted loss per common share, the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive.

The following table sets forth the computation of basic and diluted loss per share:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Basic Loss Per Share

 

 

 

 

 

 

Net loss

 

$

(12,809

)

 

$

(16,912

)

Weighted average common shares
   outstanding, basic and diluted

 

 

4,038,434

 

 

 

1,788,118

 

Net loss per share of common stock,
   basic and diluted

 

$

(3.17

)

 

$

(9.46

)

 

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Options and restricted stock units outstanding

 

 

145,589

 

 

 

124,523

 

Warrants

 

 

5,320,653

 

 

 

653,191

 

 

Amounts in the table above reflect the common stock equivalents of the noted instruments.

14


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

(m) Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” or ASU 2020-06. ASU 2020-06 simplifies accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. ASU 2020-06 also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company adopted this guidance as of January 1, 2022, using the full retrospective method of adoption. The adoption eliminated the presentation of the beneficial conversion feature on the consolidated statement of operations and had no other material impact to the Company.
 

In May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options,” or ASU 2021-04. ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options, such as warrants, that remain equity classified after modification or exchange. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and early adoption is permitted. The Company adopted this guidance as of January 1, 2022, using the prospective method of adoption. This adoption did not have a material impact to the Company or its disclosures.
 

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” or ASU 2021-10. ASU 2021-10 requires entities to provide disclosures on government assistance transactions for annual reporting periods. The disclosures include information around the nature of the transaction, the related accounting policies used to account for the transaction, the effect of the transaction on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. ASU 2021-10 is effective for fiscal years beginning after December 15, 2021 and early adoption is permitted. The Company adopted this guidance as of January 1, 2022, using the prospective method of adoption. This adoption did not have a material impact to the Company or its disclosures.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a range of reasonable information to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including those interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

(4) Fair Value of Financial Instruments

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, warrants, and contingent consideration. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

15


BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

 

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and
Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company has classified assets and liabilities measured at fair value on a recurring basis as follows:

 

 

 

Fair value measurements at reporting date using

 

 

 

Quoted prices
in active
markets for
identical
assets
(Level 1)

 

 

Significant
other
observable
inputs
(Level 2)

 

 

Significant
unobservable
inputs
(Level 3)

 

At March 31, 2022:

 

 

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