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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, 2021

 

 

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, 2021, there were 70,152,898 shares of common stock, par value $0.01 per share, outstanding.

 

 

 


 

 

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

 

27

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

36

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

36

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

36

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

36

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

36

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

36

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

36

 

 

 

 

 

 

SIGNATURES

 

38

 

 

 

 

 

 

 


2

 


 

 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, or Quarterly Report, contains 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 12 months;

 

our ability to operate under significant indebtedness and obtain forgiveness of our Paycheck Protection Program, or PPP, Loan;

 

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 setting an acceptable price for and obtaining 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 and preclinical studies;

 

our relationships with Alkermes plc, or Alkermes, other third parties, licensors, collaborators, and our employees;

 

our ability to operate as a standalone company and execute our strategic priorities;

 

potential indemnification liabilities we may owe to Recro Pharma, Inc. (Recro) after the separation of Recro’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 Recro 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, 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 Recro for which we have agreed to indemnify Recro;

 

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;

3

 


 

 

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 coronavirus 2019, or COVID-19, pandemic including, but not limited to, the availability 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, 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, Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 16, 2021, or the 2020 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, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,690

 

 

$

30,342

 

Short-term investments

 

 

7,495

 

 

 

 

Accounts receivable, net

 

 

163

 

 

 

51

 

Inventory, net

 

 

2,773

 

 

 

2,978

 

Prepaid expenses and other current assets

 

 

2,569

 

 

 

3,346

 

Total current assets

 

 

43,690

 

 

 

36,717

 

Property, plant and equipment, net

 

 

5,039

 

 

 

5,052

 

Intangible assets, net

 

 

23,610

 

 

 

24,254

 

Goodwill

 

 

2,127

 

 

 

2,127

 

Other long-term assets

 

 

520

 

 

 

583

 

Total assets

 

$

74,986

 

 

$

68,733

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,140

 

 

$

3,653

 

Accrued expenses and other current liabilities

 

 

4,680

 

 

 

5,326

 

Current portion of long-term debt, net

 

 

1,196

 

 

 

683

 

Current portion of contingent consideration

 

 

7,107

 

 

 

8,467

 

Total current liabilities

 

 

14,123

 

 

 

18,129

 

Long-term debt, net

 

 

8,185

 

 

 

8,469

 

Warrant liability

 

 

83

 

 

 

65

 

Long-term portion of contingent consideration

 

 

53,348

 

 

 

56,576

 

Other long-term liabilities

 

 

241

 

 

 

293

 

Total liabilities

 

 

75,980

 

 

 

83,532

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value. Authorized, 10,000,000 shares; none issued and

   outstanding

 

 

 

 

 

 

Common stock, $0.01 par value. Authorized, 100,000,000 shares; issued and

   outstanding, 70,142,608 shares at March 31, 2021 and 48,688,480 shares at

   December 31, 2020

 

 

701

 

 

 

487

 

Additional paid-in capital

 

 

127,537

 

 

 

97,034

 

Accumulated deficit

 

 

(129,232

)

 

 

(112,320

)

Total shareholders’ equity (deficit)

 

 

(994

)

 

 

(14,799

)

Total liabilities and shareholders’ equity

 

$

74,986

 

 

$

68,733

 

 

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)

 

2021

 

 

2020

 

Revenue, net

 

$

198

 

 

$

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

821

 

 

 

 

Research and development

 

 

1,108

 

 

 

3,070

 

Selling, general and administrative

 

 

12,088

 

 

 

8,046

 

Amortization of intangible assets

 

 

644

 

 

 

215

 

Change in warrant valuation

 

 

18

 

 

 

1,378

 

Change in contingent consideration valuation

 

 

1,841

 

 

 

27,626

 

Total operating expenses

 

 

16,520

 

 

 

40,335

 

Operating loss

 

 

(16,322

)

 

 

(40,335

)

Other expense:

 

 

 

 

 

 

 

 

Interest and other expense

 

 

(590

)

 

 

37

 

Net loss

 

$

(16,912

)

 

$

(40,298

)

 

 

 

 

 

 

 

 

 

Per share information:

 

 

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(0.27

)

 

$

(4.03

)

Weighted average common shares outstanding, basic and diluted

 

 

62,584,129

 

 

 

10,001,228

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

6

 


 

BAUDAX BIO, INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

 

For the Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

(amounts in thousands, except share data)

 

Shares

 

 

Amount

 

 

paid-in

capital

 

 

Accumulated

Deficit

 

 

Total

 

Balance, December 31, 2020

 

 

48,688,480

 

 

$

487

 

 

$

97,034

 

 

$

(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

 

 

11,000,000

 

 

 

110

 

 

 

16,317

 

 

 

 

 

 

16,427

 

Issuance of shares pursuant to vesting of

   restricted stock units, net of shares

   withheld for income taxes

 

 

42,159

 

 

 

 

 

 

(41

)

 

 

 

 

 

(41

)

Exercise of warrants

 

 

10,411,969

 

 

 

104

 

 

 

12,051

 

 

 

 

 

 

12,155

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,912

)

 

 

(16,912

)

Balance, March 31, 2021

 

 

70,142,608

 

 

$

701

 

 

$

127,537

 

 

$

(129,232

)

 

$

(994

)

 

 

For the Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

(amounts in thousands, except share data)

 

Shares

 

 

Amount

 

 

paid-in

capital

 

 

Accumulated

Deficit

 

 

Total

 

Balance, December 31, 2019

 

 

9,350,709

 

 

$

94

 

 

$

19,405

 

 

$

(36,220

)

 

$

(16,721

)

Recro Pharma allocation - stock-based compensation

 

 

 

 

 

 

 

 

456

 

 

 

 

 

 

456

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,177

 

 

 

 

 

 

2,177

 

Issuance of common stock and warrants for

   public offering, net

 

 

7,692,308

 

 

 

77

 

 

 

14,899

 

 

 

 

 

 

14,976

 

Sale of common stock under equity

   facility, net of transaction costs

 

 

441,967

 

 

 

4

 

 

 

3,608

 

 

 

 

 

 

3,612

 

Issuance of common stock upon Separation

 

 

45,874

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Issuance of shares pursuant to vesting of

   restricted stock units, net of shares

   withheld for income taxes

 

 

39,130

 

 

 

 

 

 

(95

)

 

 

 

 

 

(95

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(40,298

)

 

 

(40,298

)

Balance, March 31, 2020

 

 

17,569,988

 

 

$

176

 

 

$

40,450

 

 

$

(76,518

)

 

$

(35,892

)

 

See accompanying notes to consolidated financial statements.

7

 


 

BAUDAX BIO, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

(amounts in thousands)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(16,912

)

 

$

(40,298

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,304

 

 

 

2,633

 

Non-cash interest expense

 

 

229

 

 

 

 

Depreciation expense

 

 

86

 

 

 

105

 

Amortization

 

 

644

 

 

 

215

 

Change in warrant valuation

 

 

18

 

 

 

1,378

 

Change in contingent consideration valuation

 

 

1,841

 

 

 

27,626

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventory

 

 

205

 

 

 

 

Prepaid expenses and other current assets

 

 

777

 

 

 

184

 

Right-of-use asset

 

 

63

 

 

 

99

 

Accounts receivable

 

 

(112

)

 

 

 

Accounts payable, accrued expenses and other liabilities

 

 

(3,081

)

 

 

1,848

 

Operating lease liability

 

 

(67

)

 

 

(104

)

Net cash used in operating activities

 

 

(14,005

)

 

 

(6,314

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(73

)

 

 

 

Purchase of short-term investments

 

 

(7,495

)

 

 

 

Net cash used in investing activities

 

 

(7,568

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from equity facility, net of transaction costs

 

 

 

 

 

3,612

 

Proceeds from public offering, net of transaction costs

 

 

 

 

 

23,341

 

Proceeds from registered direct offerings, net of transaction costs

 

 

16,236

 

 

 

 

Proceeds from warrant exercises

 

 

12,155

 

 

 

 

Payment of contingent consideration

 

 

(6,429

)

 

 

 

Payments of withholdings on shares withheld for income taxes

 

 

(41

)

 

 

(95

)

Net cash provided by financing activities

 

 

21,921

 

 

 

26,858

 

Net increase in cash and cash equivalents

 

 

348

 

 

 

20,544

 

Cash and cash equivalents, beginning of period

 

 

30,342

 

 

 

17,740

 

Cash and cash equivalents, end of period

 

$

30,690

 

 

$

38,284

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Fair value of warrants issued in connection with public offering

 

$

 

 

$

8,111

 

Offering costs included in accounts payable and accrued expenses

 

$

38

 

 

$

254

 

 

See accompanying notes to consolidated financial statements.

 

 


8

 


 

 

BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

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

(Unaudited)

Note 1:

Background

Business

Baudax Bio, Inc. (“Baudax Bio” or the “Company”) is a pharmaceutical company primarily focused on developing and commercializing innovative products for 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.

In June 2020, Baudax Bio announced the commercial launch of ANJESO, which is indicated for the management of moderate to severe pain, alone or in combination with other non-NSAID analgesics and that the Centers for Medicare and Medicaid Services (“CMS”) approved transitional pass-through status and established a new reimbursement C-code for ANJESO.

In October 2020, the J-code for ANJESO facilitating reimbursement in the hospital outpatient, ambulatory surgery center and physician office settings of care took effect and replaced the previously issued C-code.

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

The Separation

Pursuant to the Separation Agreement between Recro Pharma, Inc. (“Recro”) and Baudax Bio, Recro 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 Recro shareholder received one share of the Company’s common stock for every two and one-half shares of Recro 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.

Note 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 $129,232 as of March 31, 2021.

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. The Company’s ability to generate cash inflows is highly dependent on the commercialization of ANJESO, which is in its early launch stage. In addition, development activities, clinical and pre-clinical testing and, if approved, commercialization of the Company’s other product candidates, 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. 

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. 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. Based on the Company’s available cash, cash equivalents and short-term investments as of March 31, 2021, 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 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.

9

 


 

Note 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, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.

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, 2020 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. 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)

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.

 

(e)

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.

As of March 31, 2021, 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 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. As a result of the latest impairment tests, November 30, 2020, the Company determined that there was no impairment to goodwill or intangible assets. Additionally, there were no indicators of impairment as of March 31, 2021.

10

 


 

 

(f)

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-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.

 

(g)

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 is compromised solely from transactions with the Company’s 3PL.

 

(h)

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 primarily of 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 objectives. 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.

 

(i)

Stock-Based Awards

Baudax 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.

11

 


 

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.

Recro Awards

The Recro Pharma, Inc. 2018 Amended and Restated Equity Incentive Plan (the “Recro Equity Plan”) includes grants of stock options, time-based vesting RSUs and performance-based vesting RSUs granted to the Company’s employees prior to the Separation. The consolidated financial statements reflect share-based compensation expense based on an allocation of a portion of Recro share-based compensation issued to the Company’s employees based on where their services are performed.

Recro 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. Forfeitures are accounted for 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. Recro 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.

The expected life of stock options was estimated using the “simplified method,” as Recro 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, Recro uses the historical volatility of its publicly traded stock 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.

 

(j)

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.

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.

 

(k)

Net Loss Per Common Share

Basic net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average common shares outstanding during the period. Outstanding warrants, common stock options and unvested restricted stock units have been excluded from the calculation of diluted net loss per share because 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.

12

 


 

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

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Basic and Diluted Loss Per Share

 

 

 

 

 

 

 

 

Net loss

 

$

(16,912

)

 

$

(40,298

)

Weighted average common shares outstanding, basic and diluted

 

 

62,584,129

 

 

 

10,001,228

 

Net loss per share of common stock, basic and diluted

 

$

(0.27

)

 

$

(4.03

)

 

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,

 

 

 

2021

 

 

2020

 

Options and restricted stock units outstanding

 

 

4,314,310

 

 

 

2,320,480

 

Warrants

 

 

22,862,636

 

 

 

15,384,616

 

 

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

 

(l)

Recent Accounting Pronouncements

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.

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 removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for such exception. ASU 2020-06 also simplifies the diluted earnings per share calculation in certain areas. 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 is currently assessing the impact of adopting this standard.

13

 


 

Note 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, short-term investments, 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:

 

 

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, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (See Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

12,794

 

 

$

 

 

$

 

Commercial paper

 

 

 

 

 

15,221

 

 

 

 

Total cash equivalents

 

$

12,794

 

 

$

15,221

 

 

$

 

Short-term investments (See Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

7,495

 

 

 

 

Total financial assets

 

$

12,794

 

 

$

22,716

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrants (See Note 13(c))

 

$

 

 

$

 

 

$

83

 

Contingent consideration (See Note 12(b))

 

 

 

 

 

 

 

 

60,455

 

 

 

$

 

 

$

 

 

$

60,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2020: