Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
KYTH > SEC Filings for KYTH > Form 10-Q on 6-Aug-2013All Recent SEC Filings

Show all filings for KYTHERA BIOPHARMACEUTICALS INC

Form 10-Q for KYTHERA BIOPHARMACEUTICALS INC


6-Aug-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the period ended March 31, 2013.

In addition, the following discussion contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Our objective is to develop first-in-class, prescription products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. Our initial focus is on the facial aesthetics market, which comprises the majority of the aesthetic medicine market. Our product candidate, ATX-101, is a potential first-in-class, injectable drug currently in Phase III clinical development for the reduction of submental fat, which commonly presents as an undesirable "double chin." Based on clinical trials conducted to date, ATX-101 has exhibited significant, meaningful and durable results in the reduction of submental fat. These results correspond with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive solution for the reduction of submental fat, representing a new product category within the rapidly growing facial aesthetics market. ATX-101 is our only product candidate in clinical development and we are substantially dependent on its regulatory approval and successful commercialization.

Since commencing operations in August 2005, we have devoted substantially all our efforts to identify and develop products for the aesthetics market, recruiting personnel and raising capital. We have devoted predominantly all of our resources to the preclinical and clinical development of ATX-101. In August 2010, we entered into a license agreement and related collaboration agreement with Bayer to develop and commercialize ATX-101 for all indications. We have retained all rights to develop and commercialize ATX-101 in the United States and Canada and Bayer exclusively licensed the rights to ATX-101 in the rest of the world. We have not filed for approval with the FDA and Bayer has not filed for approval with any foreign regulatory agencies for the commercialization of ATX-101 and we have not generated any revenue from product sales. Historically we have funded substantially all of our operations through the sale and issuance of our common and preferred stock, convertible debt, amounts received from U.S. Government grants and pursuant to our collaboration arrangement with Bayer.

We have never been profitable and, as of June 30, 2013, we had an accumulated deficit of $146.7 million. We incurred net losses of $12.3 million and $26.4 million for the three and six months ended June 30, 2013, respectively. We expect to continue to incur net operating losses for at least the next several years as we advance ATX-101 through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party clinical research organizations, or CROs, to carry out our clinical development and we do not yet have a sales organization. We will need substantial additional funding to support our operating activities, especially as we approach anticipated regulatory approval in the United States and Canada and begin to establish our sales capabilities. Adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

We expect to release topline results from our U.S. and Canadian Phase III clinical trials late in the third quarter or early in the fourth quarter of 2013.

Page 14 of 48


Table of Contents

Financial Overview

Revenue

To date, all of our revenue has been derived from license fees we have received pursuant to our collaboration arrangement with Bayer. We have not generated any revenue from product sales.

In the future, if ATX-101 is approved for commercial sale in the United States and Canada, we may generate revenue from product sales. Pursuant to our license agreement with Bayer, we may generate additional revenue from a combination of payments of up to approximately $297.0 million contingent upon Bayer's achievement of specified regulatory and commercialization milestones and tiered escalating royalties in the mid- to high-teens on Bayer's sales of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement. We expect that any revenue we generate from our license agreement will fluctuate from quarter to quarter as a result of the uncertain timing and amount of license fees, milestone payments, royalties and other payments.

Even if ATX-101 is approved for commercial sale, we do not expect to generate revenue from product sales until at least 2015, if at all. If we fail to complete the development of ATX-101, or other product candidates, in a timely manner or to obtain regulatory approval, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Major components of our research and development costs are personnel costs, including cash compensation and stock-based compensation expense, pre-clinical studies, clinical trials and related clinical manufacturing, materials and supplies, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf. We expense all research and development costs in the periods in which they are incurred. To date, our research and development expenses have related predominately to the development of ATX-101. In the three and six months ended June 30, 2012 and 2013 we spent $8.4 million and $14.9 million, and $7.8 million and $17.8 million, respectively, on research and development expenses. Since inception through June 30, 2013, we have spent approximately $87.3 million on research and development expenses related to the development of ATX-101, excluding cash and stock-based compensation expenses. We do not allocate cash and stock-based compensation expense to individual product candidates, as we are organized and record expense by functional department and our employees may allocate time to more than one development project. We do not utilize a formal time allocation system to capture expenses on a project-by-project basis.

Conducting significant research and development is central to our business and strategy. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and greater duration of late stage clinical trials as compared to earlier clinical and preclinical development. We expect our research and development expenses will decrease as we complete our Phase III clinical development of ATX-101 in the United States and Canada.

General and Administrative Expenses

Our general and administrative costs primarily consist of personnel costs, including cash compensation and stock-based compensation expense, associated with our executive, accounting and finance, legal, marketing and human resources departments. Other general and administrative expenses include costs in connection with patent filing, prosecution and defense, facility costs and professional fees for legal, consulting, marketing, audit and tax services. For the three and six months ended June 30, 2012 and 2013 our general and administrative expenses totaled approximately $2.5 million and $4.7 million, and $4.0 million and $7.7 million, respectively. We expect our general and administrative costs will rise as we increase our headcount and expand our staffing and activities to support our operations as a public company and as we prepare for a potential commercial launch of ATX-101. Additionally, we anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, director and officer insurance premiums and investor relations costs associated with being a public company.

Page 15 of 48


Table of Contents

Collaboration Arrangement with Bayer

In August 2010, we entered into a license agreement with Bayer Consumer Care AG and a related collaboration agreement with Bayer's affiliate, Intendis GmbH. We refer to these agreements jointly as our collaboration arrangement with Bayer, and we refer to Bayer Consumer Care AG and Intendis GmbH jointly as Bayer. Pursuant to our collaboration arrangement, we licensed to Bayer all of the development and commercial rights to ATX-101 outside the United States and Canada. In connection with establishing the collaboration arrangement, we received upfront payments of $43.6 million in 2010 comprised of license fees and amounts to fund certain further global development activities of ATX-101. We remain eligible to receive up to an aggregate of approximately $297.0 million in additional payments contingent upon Bayer's achievement of specified regulatory and commercialization milestones, as well as escalating royalties from the mid- to high-teens on Bayer's net product sales of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further Bayer global development activities of ATX-101 under the terms of the collaboration arrangement.

The next contingent event-based payment is $39.6 million and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, United Kingdom, France, Spain or Italy. In addition, the Company is eligible to receive further payments upon the first commercial sales in two defined territories outside of the EU, if approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer's territory in a calendar year. Bayer expects to file a Marketing Authorization Application in 2013.

License Fees

License fees received in 2010 of approximately $21.3 million were deferred and recognized on a straight-line basis over the expected period of substantial involvement in the collaboration activities that were required to be conducted relative to the upfront license fee and development funds received from Bayer and completion of which was a condition to Bayer's decision to pursue continued development and regulatory approval for ATX-101. These activities were completed as of May 31, 2012.

Collaboration Development Funds

Additionally, we have received approximately $39.6 million to fund certain further global development activities of ATX-101, which were recorded as restricted cash and deferred development funds and are an offset to research and development expenses as the restricted cash is utilized to fund development activities. Amounts recognized as offsets to research and development expenses were $3.5 million, $6.5 million, $2.1 million and $5.2 million for the three and six months ended June 30, 2012 and 2013, respectively.

Los Angeles Biomedical Research Institute

We entered into a license agreement with the Los Angeles Biomedical Research Institute, or LA Biomed, in August 2005, which granted us exclusive worldwide rights to key intellectual property for the active ingredient in ATX-101. As part of this license agreement, we incur sublicense fees equal to 10% of any non-royalty sublicense income, up to a total of an aggregate of $5.0 million. We are obligated to pay LA Biomed low- to mid-single digit royalties on net product sales of ATX-101 by us and Bayer. Additionally, we will incur a milestone payment of $0.5 million upon receipt of marketing approval.

In August 2010, due to the receipt of the license fee income from Bayer, we incurred non-royalty sublicense fees of $2.0 million, which was deferred and recorded as sublicense expense on a straight-line basis over the same period as the license income recorded. During 2010, we made payments to LA Biomed in cash and stock totaling $0.4 million related to the non-royalty sublicense fee incurred and the remaining $1.6 million was paid upon our IPO in 50% cash and 50% stock. Due to the receipt of the $15.8 million contingent event-based payment from Bayer in May 2012, we incurred an additional non-royalty sublicense fee of $1.6 million due to LA Biomed which was paid in 50% cash and 50% stock.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ materially from these estimates.

Page 16 of 48


Table of Contents

There have been no significant changes in critical accounting policies during the three and six months ended June 30, 2013, as compared to the critical accounting policies described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Basis of Presentation" in our audited financial statements included in the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2012 and in the Company's Quarterly Report on Form 10-Q for the period ending March 31, 2013.

Results of Operations



Comparison of Three Months Ended June 30, 2012 and 2013 (unaudited)



                                                Three Months
                                               Ended June 30,             Change
                                             2012          2013          $        %
                                                (unaudited)
                                              (in thousands, except percentages)
License income                            $   17,763    $        -   $ (17,763 ) (100 )%
Sublicense expense                             1,760             -      (1,760 ) (100 )
Gross margin                                  16,003             -     (16,003 ) (100 )
Operating expenses:
Research and development                       8,399         7,767        (632 )   (8 )
General and administrative                     2,469         3,973       1,504     61
Total operating expenses                      10,868        11,740         872      8
Income (loss) from operations                  5,135       (11,740 )   (16,875 ) (329 )
Interest income                                    -            35          35    100
Interest expense                                 (52 )        (553 )      (501 )  963
Warrant and other income (expense), net         (577 )           -         577   (100 )
Net income (loss)                         $    4,506    $  (12,258 ) $ (16,764 ) (372 )%

License income. License income in the quarter ended June 30, 2012 represents the amortization of upfront license fees received in 2010 from our license agreement with Bayer, which was entered into in August 2010, and was fully amortized by May 31, 2012.

Sublicense expense. Sublicense expense in the quarter ended June 30, 2012 represents the amortization of our $2.0 million non-royalty sublicense fee payable to LA Biomed as a result of our receipt of license fee income pursuant to our license agreement with Bayer, and was recognized on a straight-line basis over the same period that the license income was recorded and was fully amortized by May 31, 2012.

Research and development expenses. Research and development expenses decreased $0.6 million, or 8%, from $8.4 million for the three months ended June 30, 2012 to $7.8 million for the three months ended June 30, 2013. The decrease is primarily attributable to a decrease of $3.9 million in clinical trial costs as we incurred substantial costs for the enrollment and initiation of treatment of Phase III patients during the second quarter of 2012 and patients had completed the treatment phase and are in the follow up phase of the study during the second quarter of 2013. The decrease was partially offset by higher costs from an increase in headcount and related personnel costs of $1.3 million, including increased stock compensation expense of $0.8 million, as well as increased consulting and other costs associated with NDA filing preparations of $1.6 million.

General and administrative expenses. General and administrative expenses increased by $1.5 million, or 61%, from $2.5 million for the three months ended June 30, 2012 to $4.0 million for the three months ended June 30, 2013. The increase is primarily due to increased personnel costs associated with an increase in headcount in support of the growing organization of approximately $0.5 million, including increased stock compensation expense of $0.4 million, increased accounting, legal, director fees and insurance costs of $0.4 million as a result of being a public company and increased marketing costs in connection with ATX-101 brand development and market research of $0.6 million.

Interest income. Interest income for the three months ended June 30, 2013 represents interest earned on marketable securities purchased during the first quarter of 2013 offset by the amortization of premiums paid on the purchased securities.

Interest expense. Interest expense increased by $0.5 million from $52,000 for the three months ended June 30, 2012 to $0.6 million for the three months ended June 30, 2013. The increase is due to the interest expense incurred on the outstanding balance of the note payable.

Warrant and other income (expense), net. Warrant and other income (expense), net, of $0.6 million for the three months ended June 30, 2012 relates to the change in the fair value of the warrants due to revaluation. All warrants were exercised on a cashless basis in December 2012 and no warrants are outstanding as of June 30, 2013.

Page 17 of 48


Table of Contents

Comparison of Six Months Ended June 30, 2012 and 2013 (unaudited)



                                                Six Months
                                              Ended June 30,             Change
                                             2012         2013          $         %
                                                (unaudited)
                                              (in thousands, except percentages)
License income                            $   19,687    $       -   $ (19,687 )  (100 )%
Sublicense expense                             1,936            -      (1,936 )  (100 )
Gross margin                                  17,751            -     (17,751 )  (100 )
Operating expenses:
Research and development                      14,884       17,801       2,917      20
General and administrative                     4,661        7,698       3,037      65
Total operating expenses                      19,545       25,499       5,954      30
Loss from operations                          (1,794 )    (25,499 )   (23,705 ) 1,321
Interest income                                    -           63          63     100
Interest expense                                (104 )       (948 )      (844 )   812
Warrant and other income (expense), net         (476 )          -         476    (100 )
Net loss                                  $   (2,374 )  $ (26,384 ) $ (24,010 ) 1,011 %

License income. License income in the six months ended June 30, 2012 represents the amortization of upfront license fees received in 2010 from our license agreement with Bayer, which was entered into in August 2010, and was fully amortized by May 31, 2012.

Sublicense expense. Sublicense expense in the six months ended June 30, 2012 represents the amortization of our $2.0 million non-royalty sublicense fee payable to LA Biomed as a result of our receipt of license fee income pursuant to our license agreement with Bayer, and was recognized on a straight-line basis over the same period that the license income was recorded and was fully amortized by May 31, 2012.

Research and development expenses. Research and development expenses increased $2.9 million, or 20%, from $14.9 million for the six months ended June 30, 2012 to $17.8 million for the six months ended June 30, 2013. The increase is primarily attributable to higher costs from an increase in headcount and related personnel costs of $2.4 million, including increased stock compensation expense of $1.1 million, and increased clinical costs of approximately $0.5 million due to increased consulting and other costs related to NDA filing preparations of approximately $3.5 million. The increase was partially offset by a decrease in the U.S. and Canadian Phase III clinical trial costs of approximately $3.0 million as we transitioned from the enrollment and initiation of patient treatment during the first half of 2012 to the post treatment follow up stage.

General and administrative expenses. General and administrative expenses increased by $3.0 million, or 65%, from $4.7 million for the six months ended June 30, 2012 to $7.7 million for the six months ended June 30, 2013. The increase is primarily due to increased personnel costs associated with an increase in headcount in support of the growing organization of approximately $1.1 million, including increased stock compensation expense of $0.8 million, increased accounting, legal, director fees and insurance costs of $0.9 million as a result of being a public company and increased marketing costs in connection with ATX-101 brand development and market research of $0.9 million.

Interest income. Interest income for the six months ended June 30, 2013 represents interest earned on marketable securities purchased during the first half of 2013 offset by the amortization of premiums paid on the purchased securities.

Interest expense. Interest expense increased by $0.8 million from $0.1 million for the six months ended June 30, 2012 to $0.9 million for the six months ended June 30, 2013. The increase is due to the interest expense incurred on the outstanding balance of the note payable.

Warrant and other income (expense), net. Warrant and other income (expense), net, of $0.5 million for the six months ended June 30, 2012 relates to the fair value of the warrants due to revaluation. All warrants were exercised on a cashless basis in December of 2012 and no warrants are outstanding as of June 30, 2013.

Page 18 of 48


Table of Contents

Liquidity and Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $2.4 million and $26.4 million, and used $7.0 million and $24.5 million of cash flows for our operating activities for the six months ended June 30, 2012 and 2013, respectively. At June 30, 2013 we had an accumulated deficit of $146.7 million.

As of June 30, 2013, we had working capital of $54.5 million. We have principally financed our operations through sales and issuances of our equity securities, including our initial public offering in October 2012, as well as private placements of redeemable convertible preferred stock and convertible debt, and amounts received pursuant to our collaboration arrangement with Bayer for the development of our product candidate, ATX-101.

At June 30, 2013, we had capital resources consisting of cash and cash equivalents, marketable securities and restricted cash of $75.7 million, of which $11.1 million was restricted. Additionally, we have drawn $15.0 million under our credit facility and have no further borrowing capacity under our existing credit facility. Our funds are currently invested in money market funds, U.S. government agency securities, corporate debt securities and demand deposit accounts. Restricted cash was received in accordance with our collaboration arrangement with Bayer in order to fund continued development of ATX-101 under the terms of our collaboration agreement.

In accordance with the terms of the collaboration arrangement with Bayer, we received a contingent event-based payment on May 31, 2012 for $15.8 million triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement. Due to the receipt of the contingent event-based payment, we incurred an additional non-royalty sublicense fee of $1.6 million due to LA Biomed, which was paid in a combination . . .

  Add KYTH to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for KYTH - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.