# TG THERAPEUTICS, INC. (TGTX) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TG THERAPEUTICS, INC.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1001316/000143774925005908/tgtx20241231_10k.htm
Accession: 0001437749-25-005908
Filing date: 2025-03-03
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/TGTX/
All MD&A years: /company/TGTX/mda/
Previous year: /company/TGTX/mda/fy2023/ (FY 2023)
Next year: /company/TGTX/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Risk Factors.” See also the “Special Cautionary Notice Regarding Forward-Looking Statements” set forth at the beginning of this report.

You should read the following discussion and analysis in conjunction with “Item 8. Financial Statements and Supplementary Data,” and our consolidated financial statements beginning on page F-1 of this report.

Overview

TG Therapeutics is a fully-integrated, commercial stage, biopharmaceutical company focused on the acquisition, development and commercialization of novel treatments for B-cell mediated diseases. TG has received approval from the U.S. Food and Drug Administration (FDA) for BRIUMVI® (ublituximab-xiiy) for the treatment of adult patients with relapsing forms of multiple sclerosis (RMS), to include clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease, in adults, as well as approval by the European Commission (EC) and the Medicines and Healthcare products Regulatory Agency (MHRA) for BRIUMVI to treat adult patients with RMS who have active disease defined by clinical or imaging features in Europe and the United Kingdom (UK), respectively. We also actively evaluate complementary products, technologies and companies for in-licensing, partnership, acquisition and/or investment opportunities.  

In February of 2021, we announced that the FDA granted accelerated approval of umbralisib, the Company’s PI3K delta inhibitor, then commercially referred to as UKONIQ, for the treatment of adult patients with relapsed or refractory MZL who have received at least one prior anti-CD20 based regimen and adult patients with relapsed or refractory FL who have received at least three prior lines of systemic therapy. In April of 2022, we announced the voluntary withdrawal of UKONIQ from sale for the approved indications. Our only source of product revenues during the year ended December 31, 2022 was from the sale of UKONIQ. Our only source of product revenues during the years ended December 31, 2023 and 2024, was from the sale of BRIUMVI. Product revenues are recorded net of estimates of variable consideration. For further discussion of our revenue recognition policy, see “Critical Accounting Policies and Significant Judgements and Estimates” below.

Cost of revenue consists primarily of materials and third-party manufacturing costs, as well as freight and royalties owed to our licensing partner for BRIUMVI sales. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, a portion of the manufacturing costs of BRIUMVI units recognized as revenue during the years ended December 31, 2023 and 2024 were expensed prior to receipt of FDA approval on December  28, 2022, and therefore are not included in costs of product revenue during those periods.​

Our other research and development expenses consist primarily of expenses relating to the design, development, manufacture, testing and enhancement of our drug candidates and technologies, milestone expenses related to in-licensing of new product candidates, fees paid to consultants and outside service providers for clinical and laboratory development, personnel expenses and other facilities-related expenses. We expense our research and development costs as they are incurred. Research and development expenses for the years ended December 31, 2024, 2023 and 2022 were approximately $83.1 million, $63.2 million and $112.1 million respectively, excluding noncash compensation expenses related to research and development.

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Our selling, general and administrative expenses consist primarily of expenses related to the commercialization of our approved products, including salaries and related expenses for our commercialization team and commercial development activities. Other selling, general and administrative expenses consist of executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Our results of operations include noncash compensation expenses as a result of stock-based compensation costs related to equity awards, restricted stock and options, granted to employees and non-employees. Stock-based compensation costs are measured at the date of grant based on the fair value of the award. We estimate the grant date fair value of options, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. Equity awards with market conditions are valued using advanced option-pricing models, such as a Monte Carlo simulation. The effect of a market condition is reflected in the award’s fair value on the grant date. For time-based or performance-based restricted stock, the fair value is based on the market value of our common stock on the date of grant. Stock-based compensation expense for time-based restricted stock and options is recognized on a straight-line basis over the requisite service period. Stock-based compensation expense for awards that vest upon the achievement of milestones is recognized over the requisite service period when the achievement of such milestones becomes probable. Stock-based compensation expense for an award that has a market condition is recognized over the requisite service period, which is derived from the valuation model, even if the market condition is never satisfied. We recognize all stock-based payments to employees and non-employee directors (as compensation for service) as noncash compensation expense in the consolidated financial statements. Forfeitures are recognized as they occur.

RESULTS OF OPERATIONS

Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes the results of operations for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["(in thousands)","","2024","","","2023"],["Product revenue, net","","$","313,728","","","$","92,005"],["License, milestone, royalty and other revenue","","","15,276","","","","141,657"],["Total Revenue","","$","329,004","","","$","233,662"],["Costs and expenses:"],["Cost of revenue","","","38,486","","","","14,131"],["Research and development:"],["Noncash compensation","","","11,160","","","","13,010"],["Other research and development","","","83,131","","","","63,182"],["Total research and development","","","94,291","","","","76,192"],["Selling, General and administrative:"],["Noncash compensation","","","31,381","","","","24,923"],["Other selling, general and administrative","","","122,917","","","","97,783"],["Total selling, general and administrative","","","154,298","","","","122,706"],["Total costs and expenses","","","287,075","","","","213,029"],["Interest expense","","","24,028","","","","12,615"],["Other income","","","(7,693",")","","","(5,044",")"],["Total other expense, net","","","16,335","","","","7,571"],["Net income before taxes","","","25,594","","","","13,062"],["Income taxes","","","2,211","","","","390"],["Net income","","$","23,383","","","$","12,672"]]
[[/GREPCENT_TABLE]]

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Product Revenue, net. Product revenue, net was approximately $313.7 million for the year ended December 31, 2024 compared to $92.0 million for the year ended December 31, 2023. The increase in product revenue, net is driven by an increase in product shipments for BRIUMVI as a result of greater market penetration. BRIUMVI, was commercially launched in the U.S. in January 2023, following FDA approval.

License, Milestone, Royalty and Other Revenue. License, milestone, royalty and other revenue was $15.3 million for the year ended December 30, 2024 compared to approximately $141.7 million for the year ended December 31, 2023. License, milestone, royalty and other revenue for the year ended December 31, 2024 is comprised of a $12.5 million milestone payment under the Neuraxpharm Commercialization Agreement for the first key market commercial launch of BRIUMVI in the EU, as well as consideration received for development and regulatory activities performed on behalf of Neuraxpharm in accordance with the Commercialization Agreement. License, milestone, royalty and other revenue for the year ended December 31, 2023 is predominantly comprised of recognition of the one-time $140.0 million non-refundable upfront payment under the Commercialization Agreement with Neuraxpharm (see Note 2 for more information). ​

 ​

Cost of Revenue. Cost of revenue for the year ended December 31, 2024 was $38.5 million compared to approximately $14.1 million for the year ended December 31, 2023.  Cost of revenue for both the years ended December 31, 2024 and December 31, 2023 consists primarily of third-party manufacturing, distribution, overhead costs and royalties owed to our licensing partner for BRIUMVI sales. A portion of the costs of producing BRIUMVI sold to date was expensed as research and development prior to the FDA approval of BRIUMVI and therefore it is not reflected in the cost of revenue. We expect the cost of revenue for BRIUMVI to increase in relation to product revenues as we deplete these inventories. We expect to use the remaining pre-commercialization inventory for product sales through the first quarter of 2025, after which our product gross margin is anticipated to decrease modestly. The cost of revenue for the years ended December 31, 2024 and  December 31, 2023 includes $2.4 million and $1.5 million, respectively, of costs related to delivering regulatory support and development services to Neuraxpharm in accordance with the Commercialization Agreement.

Noncash Compensation Expense (Research and Development). Noncash compensation expense (research and development) related to equity incentive grants totaled $11.2 million for the year ended December 31, 2024, as compared to $13.0 million during the comparable period in 2023. The decrease in noncash compensation expense was primarily due to decreased vesting of milestone-based grants during the year ended December 31, 2024, as compared to the year ended December 31, 2023.

Other Research and Development Expense. Other research and development expense increased for the year ended December 31, 2024, by approximately $19.9 million to $83.1 million as compared to the prior year ended December 31, 2023. The increase in other research and development expense during the year ended December 31, 2024 was primarily attributable to manufacturing and development costs incurred in connection with our ublituximab subcutaneous development work, increased personnel and costs associated with the Precision License Agreement incurred during the period.

Noncash Compensation Expense (Selling, General and Administrative). Noncash compensation expense (selling, general and administrative) related to equity incentive grants totaled $31.4 million for the year ended December 31, 2024, as compared to $24.9 million during the comparable period in 2024. The increase in noncash compensation expense was primarily due to greater recognition of noncash compensation expense for grants to executives during the year ended December 31, 2024.

Other Selling, General and Administrative. Other selling, general and administrative expenses increased for the year ended December 31, 2024, by approximately $25.1 million to $122.9 million as compared to the prior year ended December 31, 2023. The increase was primarily due to other selling, general and administrative costs, including personnel, consultants, and third parties associated with the commercialization of BRIUMVI during the year ended December 31, 2024.

Interest Expense. Interest expense for the year ended December 31, 2024 was $24.0 million compared to $12.6 million for the comparable period ended December 31, 2023. The $11.4 million increase is mainly due to $4.6 million of debt extinguishments costs incurred pertaining to the First Amendment with Hercules as well as increased interest expense pertaining to the Initial Term Loan with Blue during the same period (see Note 7 for more information).

Other Income. Other income increased by $2.7 million to $7.7 million for the year ended December 31, 2024, as compared to $5.0 million for the year ended December 31, 2023. The increase is mainly due to greater accretion income earned from short-term investment securities during the year ended December 31, 2024, compared to the prior period.

Income Taxes. Income tax increased by $1.8 million to $2.2 million for the year ended December 31, 2024, as compared to $0.4 for the year ended December 31, 2023. The increase is due to state tax liabilities incurred during the year ended December 31, 2024.

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Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes the results of operations for the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["(in thousands)","","2023","","","2022"],["Product revenue, net","","$","92,005","","","$","2,633"],["License, milestone and other revenue","","","141,657","","","","152"],["Total Revenue","","$","233,662","","","$","2,785"],["Costs and expenses:"],["Cost of product revenue","","","14,131","","","","265"],["Research and development:"],["Noncash compensation","","","13,010","","","","13,224"],["Other research and development","","","63,182","","","","112,128"],["Total research and development","","","76,192","","","","125,352"],["General and administrative:"],["Noncash compensation","","","24,923","","","","31,438"],["Other selling, general and administrative","","","97,783","","","","64,046"],["Total general and administrative","","","122,706","","","","95,484"],["Total costs and expenses","","","213,029","","","","221,101"],["Interest expense","","","12,615","","","","10,191"],["Other income","","","(5,044",")","","","(4,695",")"],["Total other expense, net","","","7,571","","","","5,496"],["Net income (loss) before taxes","","","13,062","","","","(223,812",")"],["Income taxes","","","390","","","","\u2014"],["Net income (loss)","","$","12,672","","","$","(223,812",")"]]
[[/GREPCENT_TABLE]]

Product Revenues, net. Total revenue for the year ended December 31, 2023 increased compared to the comparable period ended December 31, 2022 primarily due to an increase in net product revenues from sales of our sole commercial product, BRIUMVI, which was commercially launched in the U.S. in January 2023, following FDA approval. Product revenue, net for the year ended December 31, 2022, consisted of net product sales of UKONIQ, which was officially withdrawn from the market in May 2022.

License Revenue. License revenue was $140.2 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022, respectively. License revenue for the year ended December 31, 2023 is predominantly comprised of recognition of license revenue from the one-time $140.0 million non-refundable upfront payment recognized in the third quarter of 2023 as part of the Commercialization Agreement with Neuraxpharm (see Note 2 for more information). License revenue for the year ended December 31, 2022 is comprised of recognition of a portion of the upfront payment from the ublituximab sublicense agreement with Ildong.

Other Revenue. Other revenue was $1.5 million and zero for the year ended December 31, 2023 and December 31, 2022, respectively. Other revenue for the year ended December 31, 2023 is comprised of consideration received for development and regulatory activities performed on behalf of Neuraxpharm in accordance with the Commercialization Agreement.

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Cost of Product Revenue. Cost of revenue for the year ended December 31, 2023 increased compared to the comparable period ended December 31, 2022 due to increased product sales resulting from the commercial launch of BRIUMVI in the U.S. market  which began in January 2023 following FDA approval. During the year ended December 31, 2023 the cost of revenue consisted primarily of third-party manufacturing, distribution, overhead costs and royalties on net sales of BRIUMVI owed to our licensing partner. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, a portion of the manufacturing costs of BRIUMVI units recognized as revenue during the year ended December 31, 2023 were expensed as research and development expenses prior to receipt of FDA approval, and therefore are not reflected in the cost of revenue. We expect the cost of revenue for BRIUMVI to increase in relation to product revenues as we deplete these inventories and we expect to use the remaining pre-commercialization inventory for product sales through the first quarter of 2025.

Noncash Compensation Expense (Research and Development). Noncash compensation expense (research and development) related to equity incentive grants totaled $13.0 million for the year ended December 31, 2023, as compared to $13.2 million during the comparable period in 2022.

Other Research and Development Expense. Other research and development expense decreased for the year ended December 31, 2023, by approximately $48.9 million to $63.2 million as compared to the prior year ended December 31, 2022. The decrease in other research and development expense during the year ended December 31, 2023 was primarily attributable to reduced manufacturing expense, a decrease in license milestones and reduced clinical trial related expenses. Prior to the approval of BRIUMVI, manufacturing costs pertaining to BRIUMVI were expensed to research and development expense in the period incurred, and following approval are reflected in inventory. 

Noncash Compensation Expense (Selling, General and Administrative). Noncash compensation expense (selling, general and administrative) related to equity incentive grants totaled $24.9 million for the year ended December 31, 2023, as compared to $31.4 million during the comparable period in 2022. The decrease in noncash compensation expense was primarily due to greater recognition of noncash compensation expense for grants to executives during the year ended December 31, 2022.

Other Selling, General and Administrative. Other selling, general and administrative expenses increased for the year ended December 31, 2023, by approximately $33.9 million to $97.8 million as compared to the prior year ended December 31, 2022. The increase was primarily due to other selling, general and administrative costs, including personnel and consultants, associated with the approval and commercialization of BRIUMVI, as well as increase in advisory fees pertaining to the Commercialization Agreement with Neuraxpharm during the year ended December 31, 2023.

Interest Expense. Interest expense for the year ended December 31, 2023 was $12.6 million compared to $10.2 million for the comparable period ended December 31, 2022. The $2.4 million increase is mainly due to greater interest expense related to First Amendment to the Amended Loan Agreement.

Other Income. Other income increased by $0.3 million to $5.0 million for the year ended December 31, 2023, as compared to $4.7 million for the year ended December 31, 2022.

Income Taxes. Income tax increased by $0.4 million to $0.4 million for the year ended December 31, 2023, as compared to zero for the year ended December 31, 2022. The $0.4 million increase is due to state tax liabilities incurred during the year ended December 31, 2023.

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LIQUIDITY AND CAPITAL RESOURCES

Historically, we have incurred operating losses since our inception; however, during the year ended December 31, 2024, and December 31, 2023 the Company generated net income. During the year ended December 31, 2023, the Company experienced a net profit due to a $140.0 million non-refundable upfront payment recognized as license revenue in the third quarter of 2023 as part of our Commercialization Agreement with Neuraxpharm (see Note 2 for more information). We may incur operating losses in the near term and may never become profitable. As of December 31, 2024, we have an accumulated deficit of $1.5 billion.

Our major sources of cash have been proceeds from private placements and public offerings of equity securities, from our loan and security agreements, the upfront payment from the Commercialization Agreement (see Note 2 for more information), and from product revenue from drug sales of BRIUMVI. Substantially all our operating losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations, including our commercialization activities. As of December 31, 2024, we generated $313.7 million in product revenue from sales of BRIUMVI. BRIUMVI first became commercially available in the United States in January 2023. Even with the commercialization of BRIUMVI and the possible future commercialization of our other drug candidates, we may not realize continued profitability. Our ability to achieve continued profitability depends on our ability to generate revenue and many other factors, including our ability to successfully commercialize our drug candidates alone or in partnership; successfully complete any post-approval regulatory obligations and our ability to maintain or obtain regulatory approval for our drug candidates. We may incur operating losses even now that we are generating revenues from BRIUMVI.

As of December 31, 2024, we had $311.0 million in cash and cash equivalents, and short-term investment securities. We anticipate that our cash, cash equivalents, and investment securities as of December 31, 2024, combined with projected revenues associated with the sale of BRIUMVI in the U.S. and ex-U.S.,  will provide sufficient liquidity for more than a twelve-month period from the date of filing this Annual Report on Form 10-K. The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, our commercialization efforts for BRIUMVI, and the timing, design and conduct of clinical trials for our drug candidates as well as the costs associated with licensing or otherwise acquiring new product candidates. We may be dependent upon significant future financing to provide the cash necessary to execute our ongoing and future operations, including the commercialization of any of our drug candidates.

Discussion of Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["(in thousands)","","2024","","","2023"],["Net cash used in operating activities","","$","(40,517",")","","$","(31,413",")"],["Net cash used in investing activities","","$","(1,036",")","","$","(50,651",")"],["Net cash provided by (used in) financing activities","","$","128,527","","","$","72,705"]]
[[/GREPCENT_TABLE]]

Cash used in operating activities for the year ended December 31, 2024 was $40.5 million as compared to $31.4 million for the year ended December 31, 2023. The increase in net cash used in operating activities was due to higher operating expenditures and an increase in cash used for inventory purchases during the year ended December 31, 2024.

For the year ended December 31, 2024, net cash used in investing activities was $1.0 million as compared to $50.7 million for the year ended December 31, 2023. The decrease in net cash used in investing activities was primarily due to lower maturities of short-term securities during the year ended December 31, 2023, mainly based on timing of maturities.

For the year ended December 31, 2024, net cash provided by financing activities was $128.5 million as compared to $72.7 million for the year ended December 31, 2023. The increase in net cash provided by financing activities during the year ended December 31, 2024 is mainly due to the proceeds from the new loan with Blue Owl, offset by the payoff of our prior loan with Hercules.

 ​

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ATM Program

On September 2, 2022, we filed an automatic “shelf registration” statement on Form S-3 (the 2022 WKSI Shelf) as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act, which registered an unlimited and indeterminate amount of debt or equity securities for future issuance and sale. The 2022 WKSI Shelf was declared effective in September 2022. In connection with the 2022 WKSI Shelf, we entered into an At-the-Market Issuance Sales Agreement (the 2022 ATM) with Cantor Fitzgerald & Co. and B. Riley Securities, Inc. (each a 2022 Agent and collectively, the 2022 Agents), relating to the sale of shares of our common stock. Under the 2022 ATM, we will pay the 2022 Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock. The 2022 ATM is our only active ATM program.

During the year ended December 31, 2023, we sold a total of 1,385,700 shares of common stock under the 2022 ATM for aggregate total gross proceeds of approximately $47.1 million at an average selling price of $34.01 per share, resulting in net proceeds of approximately $46.3 million after deducting commissions and other transactions costs. 

We had no activity on the 2022 ATM during the year ended December 31, 2024.

The 2022 WKSI Shelf is currently our only active shelf registration statement. We may offer any combination of the securities registered under the 2022 WKSI Shelf from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in the best interests of our stockholders. We may need to file additional shelf registration statements in the future to provide us with the flexibility to raise additional capital to finance our operations as needed.

Debt Financings

On March 31, 2023 (the First Amendment Effective Date), the Company entered into a First Amendment to the Amended and Restated Loan and Security Agreement (the First Amendment) with Hercules Capital, Inc. (Hercules). The First Amendment amended the terms of the Amended and Restated Loan and Security Agreement (Amended Loan Agreement) with Hercules that closed on December 30, 2021. The First Amendment amended the terms of the Amended Loan Agreement to, among other things, (i) issue an advance of $25.0 million drawn at the First Amendment Effective Date (the Tranche 3A Advance), (ii) provide for the formal expiration of Tranche 2, (iii) change the draw amounts and dates available under subsequent tranches, including splitting the remaining balance of Tranche 3 into two additional advances in an aggregate principal amount of up to $20.0 million, in increments of $10.0 million (a Tranche 3B Advance and a Tranche 3C Advance), decreasing the amount available under Tranche 4 from $65.0 million to $60.0 million, and adding a Tranche 5 of $25.0 million, subject to the achievement of revenue related performance milestones, (iv) extend the interest only period from February 1, 2025 to August 1, 2025 and (v) modify the cash interest rate to be the greater of either (a) the “prime rate” as reported in The Wall Street Journal plus 1.20%, and (b) 8.95%. In addition to the cash interest rate, the principal balance will accrue paid-in-kind interest at a rate of 2.25%, which amount will be capitalized and added to the outstanding principal balance of the Amended Term Loan and payable at the maturity date of the Amended Loan Agreement, as amended, The Amended Loan Agreement, as amended, contains financial covenants that require the Company to maintain certain levels of unrestricted cash and additional financial covenants related to market capitalization. 

The Amended Loan Agreement, as amended also contains warrant coverage of 2.95% of the total amount funded. A warrant (the Warrant) was issued by the Company to Hercules to purchase 115,042 shares of common stock with an exercise price of $17.95 for the initial amount funded at the Closing Date. The Warrant shall be exercisable for seven years from the date of issuance. Hercules may exercise the Warrant either by (a) cash or check or (b) through a net issuance conversion. Additionally, a warrant was issued by the Company to Hercules to purchase 50,172 shares of common stock with an exercise price of $14.70 for the amount funded pertaining to the Tranche 3A Advance (the First Amendment Warrant). The First Amendment Warrant shall be exercisable for seven years from the date of issuance. Hercules may exercise the First Amendment Warrant either by (a) cash or check or (b) through a net issuance conversion.

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On August 2, 2024 (the New Closing Date), the Company entered into a term loan facility of $250 million (the Initial Term Loan) with Blue Owl Capital Corporation, as administrative agent (the Administrative Agent), HealthCare Royalty and Blue Owl Capital under the Financing Agreement (as defined below). The Company repaid all outstanding principal and accrued interest and fees under the First Amendment with Hercules (such repayment, the Refinancing), which Refinancing was funded with the proceeds of the Initial Term Loan. The existing Amended Loan Agreement with Hercules was effectively terminated, and all guarantees and liens granted thereunder were released upon the consummation of the Refinancing.

The Initial Term Loan is governed by a financing agreement, dated as of the New Closing Date (the Financing Agreement), which provides for (i) a single draw of the Initial Term Loan on the New Closing Date and (ii) an uncommitted additional facility in an aggregate principal amount of up to $100 million. The Initial Term Loan will mature on August 2, 2029 (the Term Loan Maturity Date). The Initial Term Loan accrues interest at a per annum rate of interest equal to an applicable margin plus, at the Company’s option, either (a) at a base rate determined by reference to the highest of (1) the prime rate published by the Wall Street Journal, (2) the federal funds effective rate plus 0.50% and (3) Term SOFR, plus 1.00% or (b) Term SOFR, which, shall be no less than 1.00%. The applicable margin for borrowings of the Initial Term Loan is determined on a quarterly basis by reference to a pricing grid based on the achievement of US Net Sales (as defined in the Financing Agreement) for the most recently completed four consecutive fiscal quarters of the Company and its Subsidiaries (as defined in the Financing Agreement). The pricing grid commences at 5.50% for SOFR borrowings and 4.50% for base rate borrowings and is subject to a 25-basis point step-down upon achievement of a specified US Net Sales threshold. The Initial Term Loan requires scheduled quarterly amortization payments, commencing with the fiscal quarter ending June 30, 2028, in an amount equal to $12.5 million, with the balance due and payable on the Term Loan Maturity Date; provided that such amortization payments may be deferred to the Term Loan Maturity Date upon the achievement of a Total Net Leverage Ratio (as defined in the Financing Agreement) that is less than or equal to an agreed threshold.

The Initial Term Loan is secured by a lien on substantially all of the assets of the Company and certain subsidiaries of the Company as guarantors and contains customary covenants and representations.

The events of default under the Financing Agreement are customary for financings of this type. If an event of default occurs, the Administrative Agent is entitled to take enforcement action, including acceleration of amounts due under the Financing Agreement.

The Company evaluated whether the Initial Term Loan represented a debt modification or extinguishment of the First Amendment with Hercules with ASC 470-50, Debt – Modifications and Extinguishments. As a result of the Initial Term Loan and effective termination of the First Amendment with Hercules, this transaction was accounted for by the Company under the extinguishment accounting model. The Company recorded a loss on extinguishment of debt of approximately $4.6 million in the Company’s statement of operations for the three and nine months ended September 30, 2024, representing the write-off of unamortized debt issuance costs and a prepayment charge. The Company capitalized third party fees from the Initial Term Loan to debt issuance costs and capitalized the facility fee incurred with the Administrative Agent as part of the Initial Term Loan to debt discount.

The Company incurred total financing and upfront costs of $6.0 million related to the Initial Term Loan which are recorded as debt issuance costs and debt discount costs and as an offset to loan payable on the Company’s consolidated balance sheet. The debt issuance and debt discount costs are being amortized over the term of the debt using the straight-line method, which approximates the effective interest method, and will be included in interest expense in the Company’s consolidated statements of operations. Amortization of debt issuance and debt discount costs was $5.6 million (including write off of remaining debt issuance balance under the First Amendment with Hercules), $2.4 million and $1.8 million for the years ended December 31, 2024, 2023 and 2022, respectively. At December 31, 2024, the remaining unamortized balance of debt issuance and debt discount costs was $5.6 million.

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Leases

In October 2014, we entered into an agreement (the Office Agreement) with Fortress Biotech, Inc. (FBIO) to occupy approximately 45% of the 24,000 square feet of New York City office space leased by FBIO. The Office Agreement requires us to pay our respective share of the average annual rent and other costs of the 15-year lease. We approximate an average annual rental obligation of $1.8 million under the Office Agreement. We began to occupy this new space in April 2016, with rental payments beginning in the third quarter of 2016. Also in connection with this lease, we have pledged $1.3 million to secure a line of credit as a security deposit for the Office Agreement, which has been recorded as restricted cash in the accompanying consolidated balance sheets.

Total rental expense was approximately $2.3 million, $2.2 million and $2.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Future minimum lease commitments as of December 31, 2024 total, in the aggregate, approximately $12.6 million through December 31, 2032. Our future minimum lease commitments include our office leases in New York and North Carolina as of December 31, 2024.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions.

We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies include the following:

Revenue Recognition. Pursuant to Topic 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, Topic 606 includes provisions within a five-step model that includes i) identifying the contract with a customer, ii) identifying the performance obligations in the contract, iii) determining the transaction price, iv) allocating the transaction price to the performance obligations, and v) recognizing revenue when, or as, an entity satisfies a performance obligation.

At contract inception, we assess the goods or services promised within each contract and assess whether each promised good or service is distinct and determine those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

Product Revenue, Net – The Company recognizes product revenues, net of variable consideration related to certain allowances and accruals, when the customer takes control of the product, which is typically upon delivery to the customer. Product revenue is recorded at the net sales price, or transaction price. The Company records product revenue reserves, which are classified as a reduction in product revenues, to account for the components of variable consideration. Variable consideration includes the following components, which are described below: chargebacks, government rebates, trade discounts and allowances, product returns, and co-payment assistance.

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These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is expected to be settled with a credit against the Company's customer account) or a liability (if the amount is expected to be settled with a cash payment). The Company's estimates of reserves established for variable consideration are calculated based upon a consistent application of the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. These estimates reflect the Company's current contractual requirements, customer channel mix, changes to product price, government pricing calculations, and industry data. The amount of variable consideration that is included in the transaction price may be subject to constraint and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration received may ultimately differ from the Company's estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment. For a complete discussion of the accounting for product revenue, see Note 1 – Organization and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

License Revenue - Revenue recognized from license agreements will include royalties on sales, upfront, milestone and other payments, if any, under any current or future licensing agreements, including revenues related to the supply of our drug candidates or approved drugs to our various licensing partners under these types of contracts. For a complete discussion of the accounting for license revenue, see Note 1 – Organization and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

Stock Compensation. Stock-based compensation costs related to equity awards granted to employees and non-employees are measured at the date of grant based on the fair value of the award. We estimate the grant date fair value of options, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. Equity awards with market conditions are valued using advanced option-pricing models, such as a Monte Carlo simulation. The effect of a market condition is reflected in the award’s fair value on the grant date. For time-based or performance-based restricted stock, the fair value is based on the market value of our common stock on the date of grant.

Stock-based compensation expense for time-based restricted stock and options is recognized on a straight-line basis over the requisite service period. Stock-based compensation expense for awards that vest upon the achievement of milestones is recognized over the requisite service period when the achievement of such milestones becomes probable. Stock-based compensation expense for an award that has a market condition is recognized over the requisite service period, which is derived from the valuation model, even if the market condition is never satisfied. We recognize all stock-based payments to employees and non-employee directors (as compensation for service) as noncash compensation expense in the consolidated financial statements. Forfeitures are recognized as they occur.

Accrued Research and Development Expenses. As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include:

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[[GREPCENT_TABLE]]
[["","\u25cf","fees paid to contract research organizations (CROs) in connection with clinical studies;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","fees paid to contract manufacturing organizations (CMOs);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","fees paid to trial sites in connection with clinical studies; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","fees paid to vendors associated with licenses/milestones."]]
[[/GREPCENT_TABLE]]

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We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to an initial negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing certain service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

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RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about segment expenses categorized as significant or regularly provided to the Chief Operating Decision Maker (CODM). The amendments in ASU No. 2023-07 apply to public entities, including those with a single reportable segment, and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has evaluated the impact ASU No. 2023-07 on its consolidated financial statements. The Company has adopted this standard as of December 31, 2024 and noted there was no material impact on the Company's consolidated financial statements. The adoption did result in enhanced disclosures as included in Note 1 - Organization and Summary of Significant Accounting Policies.