Collaboration and Stock Purchase Agreements
|3 Months Ended|
Mar. 31, 2021
|Collaboration and Stock Purchase Agreements|
|Collaboration and Stock Purchase Agreements||
3. Collaboration and Stock Purchase Agreements
Agreement with Sentynl Therapeutics, Inc. (“Sentynl”)
On February 24, 2021, Cyprium entered into an asset purchase agreement with Sentynl. Pursuant to the terms of the agreement, Sentynl paid Cyprium an upfront fee of $8.0 million specifically earmarked to complete the CUTX-101 development program for the treatment of Menkes disease, through the filing of Cyprium’s New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”). As further compensation, Cyprium will receive an additional $12.0 million to be paid (i) $3.0 million upon NDA acceptance by the FDA and (ii) $9.0 million upon FDA approval of the NDA and transfer of CUTX-101 to Sentynl. The Company will recognize revenue associated with these future milestones based upon achievement. At March 31, 2021, none of these future milestones were deemed probable.
Upon the transfer of CUTX-101 to Sentynl, Cyprium is eligible to earn an additional five potential sales milestones totaling $255.0 million in addition to royalties on CUTX-101 net sales ranging from mid-single digits up to the mid-twenties. Cyprium will retain 100% ownership over any FDA priority review voucher that may be issued at NDA approval for CUTX-101.
The Company determined that this agreement falls within the scope of ASC 606-10-15-3 Revenue from Contracts with Customers (“ASC-606”) and ASC 808-10-15-5A Revenue from Collaborative Arrangements (“ASC-808”) and as such the Company will recognize revenue in connection with achievement of two future development milestone payments.
In connection with the $8.0 million upfront payment at March 31, 2021, the Company will recognize revenue using an input method based upon the costs incurred to date to the total estimated costs to complete the development activities. Accordingly, the Company will recognize revenue over the period in which the development activities are expected to occur. For the three month period ending March 31, 2021, the company recognized revenue of $0.8 million. No revenue was recognized in connection with this agreement in 2020.
Agreement with InvaGen
On November 12, 2018, Avenue entered into a Stock Purchase and Merger Agreement (the “Avenue SPMA”) with InvaGen Pharmaceuticals Inc. (“InvaGen”), and Madison Pharmaceuticals Inc. (the “Merger Sub”), under which Avenue would be sold to InvaGen in a two-stage transaction. The first stage of the strategic transaction between InvaGen and Avenue closed in February 2019. InvaGen acquired approximately 5.8 million shares of Avenue’s common stock at $6.00 per share for total gross consideration of $35.0 million, representing a 33.3% stake in Avenue’s capital stock on a fully diluted basis (the “Stock Purchase Transaction”). At the second stage closing, InvaGen would acquire the remaining shares of Avenue’s common stock, for $180 million, pursuant to a reverse triangular merger (the “Merger Transaction’).
Consummation of the Merger Transaction is conditioned upon, among other things, U.S. Federal Drug Administration (“FDA”) approval of IV Tramadol, its labeling and scheduling, and the absence of certain other restrictions in effect with respect to IV Tramadol. Pursuant to the Avenue SPMA, if FDA approval of IV Tramadol was not obtained on or before April 30, 2021, InvaGen would not be subject to the mandatory closing obligations set forth in the Avenue SPMA with respect to the Merger Transaction. As of the date of this report, Avenue has not received approval from the FDA for IV Tramadol. As a result, InvaGen is no longer subject to the mandatory closing obligations under the Avenue SPMA, but retains an option to complete the Merger Transaction until October 31, 2021, and also retains the option to terminate the Avenue SPMA.
In the event that InvaGen does not exercise its right to terminate the Avenue SPMA, certain restrictions relating to Avenue’s ability to raise capital and explore strategic alternatives, among other things, could exist through October 31, 2021, the time at which Avenue can choose to terminate the Avenue SPMA. In the event of termination of the Avenue SPMA, InvaGen will retain certain other rights pursuant to the Stockholder’s Agreement entered into on November 12, 2018 between Avenue and InvaGen. These rights exist as long as InvaGen maintains at least 75% of the common shares acquired in the Stock Purchase Transaction, and include, among other things, the right to restrict Avenue from certain equity issuances and changes to Avenue’s capital stock without obtaining InvaGen’s prior written consent.
Subject to the terms and conditions described in the Avenue SPMA, InvaGen may also (in its sole discretion) provide interim financing to Avenue in an amount of up to $7.0 million during the time period between the Stock Purchase Transaction (which occurred on February 8, 2019) and the Merger Transaction. Any amounts drawn on the interim financing would be deducted from the aggregate consideration payable to the Avenue stockholders by virtue of the Merger Transaction. There have been no amounts drawn upon this interim financing as of March 31, 2021.
Over the past several months, Avenue has communicated with InvaGen relating to InvaGen’s assertions that Material Adverse Effects (as defined in the Avenue SPMA) have occurred due to the impact of the COVID-19 pandemic on potential commercialization and projected sales of IV Tramadol. Additionally, in connection with the resubmission of Avenue’s NDA in February 2021, InvaGen communicated to Avenue that it believes the proposed label for IV Tramadol would also constitute a Material Adverse Effect (as defined in the Avenue SPMA) on the purported basis that the proposed label under certain circumstances would make the product commercially unviable. InvaGen has communicated to Avenue its desire to consider all options on the proposed merger, including the option to not consummate the merger. Since Avenue did not receive FDA approval for IV Tramadol by April 30, 2021, these assertions have no impact as to whether InvaGen is obligated to close the Avenue SPMA, because, as discussed above, InvaGen no longer has such an obligation. As a result, the possible timing and likelihood of the completion of the merger are uncertain.There can be no assurance that the Merger Transaction will be completed on the expected terms, anticipated schedule, or at all. It is also possible InvaGen could attempt to pursue monetary claims against Avenue and/or Fortress.
Avenue is not yet generating revenue, has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and may never become profitable. As of March 31, 2021, Avenue had an accumulated deficit of $74.3 million.
On October 12, 2020, Avenue announced that it had received a Complete Response Letter (“CRL”) from the FDA regarding the Company’s NDA for IV Tramadol. The CRL cited deficiencies related to the terminal sterilization validation and stated that IV Tramadol, intended to treat patients in acute pain who require an opioid, is not safe for the intended patient population. On February 12, 2021, Avenue resubmitted its NDA to the FDA for IV Tramadol. The NDA resubmission follows the receipt of official minutes from a Type A meeting with the FDA. The resubmission included revised language relating to the proposed product label and a report relating to terminal sterilization validation. The FDA assigned a Prescription Drug User Fee Act goal date of April 12, 2021 and informed Avenue that it had not yet completed its review of the NDA resubmission. Avenue’s ability to potentially commercialize IV Tramadol, and the timing of any potential commercialization, are dependent on the FDA’s review of Avenue’s resubmission of its NDA for IV Tramadol, whether or not the FDA ultimately approves IV Tramadol, and potentially on whether or not Avenue procures additional capital.
As of March 31, 2021, Avenue had cash and cash equivalents of $1.8 million. In the event that IV Tramadol is approved by the FDA, this triggers an obligation by Avenue to make $5.0 million in contractual milestone payments, for which Avenue currently does not have sufficient funding. In the event that IV Tramadol is not approved by the FDA, Avenue believes that its cash and cash equivalents should be sufficient to fund its operating expenses only through the end of the second quarter of 2021. Avenue will need to secure additional funds through equity or debt offerings, or other potential sources. Avenue cannot be certain that additional funding will be available on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about Avenue’s ability to continue as a going concern within one year from the date of this report.
In light of the foregoing, it may be necessary at some point for Avenue to seek protection under Chapter 11 of the United States Bankruptcy Code, which could have a material adverse impact on Avenue’s business, financial condition, operations and could place its shareholders at significant risk of losing all of their investment. In any such Chapter 11 proceeding, Avenue may seek to restructure its obligations or commence an orderly wind-down of its operations and sale of its assets, in either event, holders of equity interests could receive or retain little or no recovery. We also note that the process of exploring refinancing or restructuring alternatives, including those under Chapter 11, may be disruptive to Avenue’s business and operations.