UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 001-36297
Revance Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
77-0551645
(I.R.S. Employer
Identification No.)
7555 Gateway Boulevard
Newark, California 94560
(510) 742-3400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Name of Exchange on Which
Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-accelerated filer
☒
☐
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 statement accounting standards provide pursuance to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed
second fiscal quarter was approximately $1.0 billion, based on the closing price of the registrant’s common stock on the Nasdaq Global Market of $27.45 per share for such
date.
Number of shares outstanding of the registrant's common stock, par value $0.001 per share, as of February 22, 2019 : 44,028,590
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than April
30, 2019, in connection with the registrant's 2019 Annual Meeting of the Stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
Table of Contents
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Party Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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“Revance Therapeutics,” the Revance logos and other trademarks or service marks of Revance appearing in this annual report on Form 10-K are the
property of Revance. This Form 10-K contains additional trade names, trademarks and service marks of others, which are the property of their respective
owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or
sponsorship of us by, these other companies.
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or Form 10-K, contains “forward-looking statements” within the meaning of Section 21E of the Securities
Exchange Act of 1934, or the Exchange Act, as amended, which are subject to the “safe harbor” created by that section. The forward-looking statements in
this Form 10-K are contained principally under “Item 1. Business,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,”
“should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these
terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or
implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form
10-K, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about
which we cannot be certain. These forward-looking statements include, but are not limited to, statements concerning the following:
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our expectations regarding the results, timing and completion of our clinical trials and regulatory submissions needed for the approval of DAXI,
including but not limited to, for the treatment of glabellar (frown) lines, forehead lines, lateral canthal lines, cervical dystonia, plantar fasciitis, and
adult upper limb spasticity in the United States (“U.S.”), Europe and other countries;
our expectations regarding our future development of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates for other
indications, including but not limited to, chronic migraine;
our expectations regarding the development of future product candidates;
the potential for commercialization by us of DAXI, if approved;
our expectations regarding the potential market size, opportunity and growth potential for DAXI, DaxibotulinumtoxinA Topical, biosimilar or any
future product candidates, if approved for commercial use;
our belief that DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates can expand overall demand for botulinum toxin;
our ability to build our own sales and marketing capabilities, or seek collaborative partners including distributors, to commercialize our product
candidates, if approved;
our ability to manufacture in our facility and to scale up our manufacturing capabilities and those of future third-party manufacturers if our product
candidates are approved;
estimates of our expenses, future revenue, capital requirements and our needs for additional financing;
the timing or likelihood of regulatory filings and approvals;
our ability to advance product candidates into, and successfully complete, clinical trials;
the implementation of our business model, and strategic plans for our business, product candidates and technology;
the initiation, timing, progress and results of future preclinical studies and clinical trials and our research and development programs;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
our ability to establish collaborations or obtain additional funding;
our financial performance, including future revenue targets; and
developments and projections relating to our competitors and our industry.
In addition, you should refer to Item 1A. “Risk Factors” in this Form 10-K for a discussion of these and other important factors that may cause our
actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that
the forward-looking statements in this Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the impact
may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or
warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Also, forward-looking statements
represent our estimates and assumptions only as of the date of this Form 10-K. We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law.
Table of Contents
ITEM 1. BUSINESS
Overview
PART I
Revance Therapeutics, Inc. (“we” or “the Company”) is a clinical-stage biotechnology company focused on the development, manufacturing and
commercialization of novel neuromodulators for multiple aesthetic and therapeutic indications. We are leveraging our proprietary portfolio of botulinum toxin
type A compounds, formulated with our patented and proprietary peptide technology, to address unmet needs in large and growing neuromodulator markets.
Our initial focus is on developing daxibotulinumtoxinA, our highly purified botulinum toxin Type A, for a broad spectrum of aesthetic and therapeutic
indications, including facial wrinkles, muscle disorders, and chronic migraine.
Our lead drug candidate is DaxibotulinumtoxinA for Injection (“DAXI”). We used our unique proprietary peptide excipient technology to formulate
DAXI. The noncovalent bond formed between the proprietary peptide excipient technology and the botulinum toxin may enable longer residence time of
botulinum toxin Type A, which could explain DAXI’s long duration of effect. The process binds a highly purified botulinum toxin Type A with a unique
proprietary stabilizing excipient peptide. We do not use human serum albumin (“HSA”) and other animal-sourced ingredients, which carry the risk of
transmission of pathogens, to stabilize our product.
We are currently studying DAXI for the treatment of facial wrinkles, cervical dystonia, plantar fasciitis, adult upper limb spasticity and chronic
migraine. We believe DAXI has the potential to expand into additional aesthetic and therapeutic indications in the future. We also are developing a topically
applied neuromodulator for aesthetic and therapeutic indications, DaxibotulinumtoxinA Topical, and have a collaboration and license agreement with Mylan
Ireland Limited, a wholly-owned indirect subsidiary of Mylan N.V. (“Mylan”), to develop and commercialize a biosimilar to BOTOX®.
Pipeline Summary
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Our Product Candidates
DaxibotulinumtoxinA for Injection (“DAXI”)
We are developing an injectable formulation of botulinum toxin type A, which we refer to as DAXI, for indications where a long-lasting effect is
desired. We believe, and our preclinical and clinical studies using DAXI indicate, that daxibotulinumtoxinA combined with our novel peptide may safely
achieve enhanced clinical efficacy and duration without an increase in associated adverse events. We are currently focusing on developing DAXI for the
treatment of both aesthetic and therapeutic indications.
Glabellar Lines
The glabella is the area between the eyebrows and above the nose. Glabellar lines, often called “frown lines,” are vertical lines that develop between
the eyebrows and may appear as a single vertical line or as two or more lines. When one frowns, the muscles of the glabella contract causing vertical creases
to form between the eyebrows. Botulinum toxin is used to temporarily block the ability of nerves to trigger contraction of injected muscle, inhibiting
movement of the muscles that cause the frown lines, giving the skin a smoother, more refreshed appearance. The most common cosmetic use of BOTOX®
Cosmetic is for the treatment of glabellar lines. Consumers enjoy the benefits of currently available botulinum toxin injections and express a high rate of
satisfaction. However, consumers are less satisfied with the duration and longevity of currently available botulinum toxin injections.
Botulinum toxin treatment of glabellar lines is the largest proportion of cosmetic neuromodulator sales in the U.S. and, according to the American
Society for Aesthetic Plastic Surgery (“ASAPS”), botulinum toxin treatment is the number one nonsurgical cosmetic procedure in the U.S. According to our
2018 Harris Poll survey results, 86 percent of the physicians surveyed want a neuromodulator that offers longer-lasting results than is available today and 88
percent of the patients consider long lasting duration very important or absolutely essential. Our primary qualitative market research among aesthetic
physicians, patients, and office practice managers indicated that DAXI's longer lasting duration than what is available today is a differentiating and desirable
attribute. A majority of those physicians interviewed reported that if DAXI confirmed similar results in Phase 3 trials, the increased duration of effect would
cause them to change their treatment or purchase habits from currently available botulinum toxins to include DAXI. Duration of effect was reported in the
qualitative market research to be the greatest unmet need and the primary driver of adoption amongst physicians, patients, and office managers.
We believe that a product that shows increased persistence of effect over time, with a slower return to baseline and a meaningful consumer benefit up
to six months would better fit the current treatment regimen and consumer habits. Quantitative market research shows that the majority of consumers only
visit their physicians nearly twice per year for treatments and the longer duration would mean that they would enable patients to remain more satisfied
between treatments.
Development of DAXI for Treatment of Glabellar Lines
Phase 1 and 2 Clinical Trials. DAXI has demonstrated long-lasting effect and appeared to provide safe administration of botulinum toxin in Phase 1
and 2 clinical trials, even with repeated doses. Long-lasting effect was first demonstrated in 2014 in the final cohort of a four-cohort Phase 1/2 dose escalation
clinical trial conducted outside the U.S. for improvement of glabellar lines. In the trial, DAXI met its primary efficacy and safety endpoints. The open-label,
dose escalating, Phase 1/2 trial enrolled 48 adults.
DAXI appeared to be generally safe and well-tolerated with minimal adverse events in our Phase 1/2 trial. Adverse events were generally mild,
localized and transient. The most common adverse events observed were headache and injection site reactions. There was no evidence of spread beyond the
treatment site at any dose. There were no serious adverse events or evidence of any systemic exposure based on clinical laboratory results and related
evaluations. Adverse event rates did not change in frequency, severity, or type with increasing doses.
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Based on the results of this study, in 2015 we conducted BELMONT, a Phase 2, randomized, double-blind, dose ranging, active and placebo
controlled, multi-center study to evaluate the safety, efficacy, and duration of effect of DAXI to treat glabellar lines. The primary endpoints for the study were
the investigator's assessment of glabellar line severity at maximum frown at Week 24 based upon the subject response definition of at least one-point
improvement from baseline on the Investigator Global Assessment-Facial Wrinkle Severity (“IGA-FWS”) scale and median duration of effect from the date
of treatment back to baseline severity. The BELMONT trial evaluated treatment for glabellar lines in 268 subjects with moderate to severe glabellar lines at
nine investigational sites in Canada. The trial compared the safety, efficacy and duration of three doses of DAXI, the labeled dose of BOTOX®
Cosmetic/VISTABEL® and a placebo control in a randomized 1:1:1:1:1 trial design. In 2015, we reported positive 24-week results from the trial that showed
DAXI achieved its primary efficacy measurement with high statistical significance. In addition, the 40 Unit dose of DAXI demonstrated a 23.6-week median
duration, compared to BOTOX® Cosmetic with an 18.8-week median duration. Across all cohorts, DAXI appeared to be generally safe and well-tolerated.
Phase 3 Clinical Trials. The Phase 3 clinical program includes a) SAKURA 1 and SAKURA 2, two randomized, double-blind, placebo-controlled
pivotal trials to evaluate the safety and efficacy of a single administration of DAXI for the treatment of moderate to severe glabellar lines in adults and b)
SAKURA 3, a long-term, open-label safety trial designed to evaluate the long-term safety of DAXI for the treatment of moderate to severe glabellar lines in
adults following both single and repeat treatment administration.
The SAKURA 1 and SAKURA 2 trials enrolled more than 600 subjects at 30 sites in the U.S. and Canada. In both trials, subjects were randomized
in a 2:1 ratio to either the DAXI or placebo treatment groups, respectively. Post-treatment, subjects were followed for at least 24 weeks and up to 36 weeks.
The primary efficacy endpoint of the pivotal trials was a composite of the proportion of subjects who achieve a score of 0 or 1 (none or mild) and a two-point
improvement from baseline in glabellar line severity on the IGA-FWS and Patient Facial Wrinkle Severity (“PFWS”) scales, at maximum contraction
(frown), at Week 4. Duration of the reduction of severity of the glabellar lines was assessed as a secondary efficacy endpoint in the Phase 3 pivotal trials.
In December 2017, we announced top-line results for the SAKURA 1 and SAKURA 2 pivotal trials. Both SAKURA 1 and SAKURA 2 met the
primary composite endpoint by delivering highly statistically significant improvement against placebo in reducing the severity of glabellar lines. The
percentage of DAXI-treated patients who had none or mild wrinkles and achieved at least a two-point improvement from baseline on both validated physician
and patient assessments was 73.6 percent in SAKURA 1 and 74.0 percent in SAKURA 2 compared to placebo (p<0.0001) at Week 4. Also, at that time point,
88 percent of DAXI-treated patients in SAKURA 1 and 91 percent of DAXI patients in SAKURA 2 said they were very satisfied or satisfied with their
treatment experience.
There were several secondary endpoints used to evaluate duration of effect, including the proportion of patients achieving none or mild response
on IGA-FWS compared to placebo, median duration for time to loss of none or mild wrinkle severity on both IGA-FWS and PFWS, and median duration for
time to return to baseline on both IGA-FWS and PFWS. The percentage of DAXI-treated patients who achieved a none or mild response on IGA-FWS was
35.3 percent in SAKURA 1 and 29.4 percent at SAKURA 2 compared to placebo (p<0.0001) at Week 24. The median duration for time to loss of none or
mild wrinkle severity on both IGA-FWS and PFWS for DAXI-treated patients was 24.0 weeks for SAKURA 1 and 23.9 weeks for SAKURA 2. The median
duration for time to return to baseline wrinkle severity on both IGA-FWS and PFWS for DAXI-treated patients was 27.7 weeks for SAKURA 1 and 26.0
weeks for SAKURA 2. For comparison, an additional exploratory duration endpoint was evaluated, which mirrors the duration measure used in the
BELMONT Phase 2 study. This endpoint, was the median duration of greater or equal to 1 point improvement from baseline on IGA-FWS for DAXI-treated
patients, and the results were 24.1 weeks for both SAKURA 1 and SAKURA 2, and 23.6 weeks for BELMONT.
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In December 2018, we announced top-line results for the SAKURA 3 open-label, long-term safety study. DAXI appeared to be generally well-
tolerated, with no new tolerability or safety concerns reported. As was seen in the SAKURA 1 and SAKURA 2 pivotal trials, adverse events were mild,
localized and transient. The rate of treatment-related adverse events decreased over successive treatments. The most common treatment-related adverse events
per treatment of DAXI were headache (3.3 percent of treatments), injection site pain (2.7 percent), injection site erythema (2.5 percent), and injection site
oedema (2.2 percent). There were no treatment-related serious adverse events. Eyelid ptosis was reported in 0.9 percent of treatments, decreased in frequency
with successive treatments and was substantially lower than the rate observed in SAKURA 1 and SAKURA 2 (2.2 percent of treatments). The majority of
ptosis events were characterized as mild in severity (85 percent) and transient. A high degree of efficacy was seen consistently across all three treatment
cycles. Results were consistent with SAKURA 1 and SAKURA 2 based on the IGA-FWS and PFWS scales. As early as Week 1, over 90 percent of subjects
across all three treatments had none or mild wrinkles on the IGA-FWS. At Week 4, the percentage of DAXI-treated patients who achieved a none or mild
response on IGA-FWS was 95.8 percent, 96.6 percent, and 97.7 percent for first, second and third treatment for SAKURA 3, respectively, and 97.5 percent
for SAKURA 2 and SAKURA 1. On the more stringent 2-point composite endpoint, which was the primary efficacy endpoint in SAKURA 1 and 2, efficacy
improved with successive treatment cycles: 73.2 percent, 77.7 percent, and 79.6 percent for first, second and third treatment of SAKURA 3, respectively, and
73.6 percent and 74.0 percent for SAKURA 1 and 2, respectively.
As in the SAKURA 1 and SAKURA 2 pivotal trials, there were several secondary endpoints used to evaluate duration of effect, including median
time to loss of none or mild wrinkle severity on both IGA-FWS and PFWS, and median duration for time to return to baseline wrinkle severity on both IGA-
FWS and PFWS. Duration was evaluated in the first two 36-week treatment cycles; the third treatment cycle was not evaluated for duration as the observation
period ended at twelve weeks for the purpose of this study. Median time to return to baseline wrinkle severity on both IGA-FWS and PFWS is 28.0 weeks and
28.1 weeks for first and second treatment of SAKURA 3, respectively, 27.7 weeks for SAKURA 1, and 26.0 weeks for SAKURA 2. Median time to loss of
none or mild wrinkle severity on both IGA-FWS and PFWS is 24.0 weeks and 24.1 weeks for first and second treatment of SAKURA 3, respectively, 24.0
weeks for SAKURA 1, and 23.9 weeks for SAKURA 2. We held a pre-BLA meeting with U.S. Food and Drug Administration (“FDA”) in December 2018,
to agree upon the content and format of the BLA, which we plan to submit in first half of 2019. We plan to file marketing applications in the European Union,
Canada, and certain Latin American and Asian countries after filing in the U.S.
European Union Agency Interactions. We requested scientific guidance from the European Medicines Agency (“EMA”) on the development of
DAXI for the treatment of glabellar lines and the proposed Phase 3 program in 2016. The EMA provided comments on Quality, Nonclinical and Clinical
programs. Overall, the EMA agreed with the proposed programs and provided details and suggestions to be considered for our marketing application. We
have taken the EMA comments into consideration in the Phase 3 program and plan to provide data to support the various requests in the marketing
application.
Forehead Lines
Forehead lines are produced by the action of the frontalis muscle, a large, thin, vertically-oriented muscle which lifts the eyebrows. The frontalis
muscle serves as an antagonist to the glabellar musculature, a natural depressor that is responsible for frowning and associated eyebrow movement. As the
eyebrow is considered the aesthetic center of the upper face, forehead lines can significantly impact the aesthetic appearance of the face, contribute to
increased signs of aging and convey unwanted social signals. However, both men and women have identified internal factors, such as wanting to look good
for their age or having a more youthful appearance as very important and have prioritized forehead lines as bothersome areas for potential treatment
regardless of age or available income.
Minimally-invasive injectable treatments have become the most common procedure worldwide with an increase in frequency over the last decade
since the first approval of botulinum neurotoxin Type A (BOTOX® Cosmetic [onabotulinumtoxinA] UPSI, Allergan, Inc. 2013). This is largely the result of
years of experience of patients and injectors, and a favorable risk-benefit profile. BOTOX® Cosmetic was approved to treat forehead lines in 2017, and is
currently the only toxin approved for that use, though other toxins are used off-label.
We initiated a Phase 2 study in forehead lines in January 2019.
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Lateral Canthal Lines
Lateral canthal lines (“LCL” or “crow’s feet”) are the spider-like fine lines around the outside corners of the eyes that become more obvious when
someone smiles. These lines (also referred to as periorbital wrinkles, laugh lines or smile lines), fan out across the skin from the outer corner of each eye.
Sometimes they extend down across the cheekbones to the lower cheeks. Repetitive motions, such as squinting and smiling, can lead to the increase of
wrinkles and contribute to the severity and onset of crow’s feet. Age and exposure to sun also play significant roles in development of these lines, which can
deepen over time. Current treatments include anti-wrinkle eye creams and moisturizers, topical tretinoins, botulinum toxin injections, dermal fillers and laser
treatments. BOTOX® Cosmetic was approved to treat LCL in 2013, and is currently the only toxin approved for that use, though other toxins are used off-
label.
We plan to initiate a Phase 2 study in LCL in the first quarter of 2019.
Muscle Movement Disorders
Muscle movement disorders are neurological conditions that affect a person's ability to control muscle activity in one or more areas of the body.
Muscle spasticity happens after the body's nervous system has been damaged, most commonly by a stroke, disease, or trauma. While not life-threatening,
spasticity can be painful and may have a significant effect on a person's quality of life. Certain tasks, like getting dressed or bathing, become difficult, and a
person's self-esteem may be affected by an abnormal posture. Common muscle movement disorders include cervical dystonia (excessive pulling of the
muscles in the neck and shoulder), upper or lower limb spasticity (stiffness in muscles), and blepharospasm (involuntary closing of the eyelids). Botulinum
toxin type A has been proven safe and effective for such uses, as the most common treatment for muscle movement disorders is to relax the muscle by
injecting it with botulinum toxin. According to Global Industry Analytics, Inc. (“GIA”), the global opportunity for botulinum toxin for the treatment of
muscle movement disorders, which includes cervical dystonia and upper limb spasticity, was estimated to be over $1.0 billion in 2017. We will continue to
evaluate development for other therapeutic indications, such as neurological movement and other disorders, based on the results of our current preclinical
studies and clinical trials.
DAXI for Treatment of Cervical Dystonia
In 2015, we initiated a Phase 2 dose-escalating, open-label clinical study of DAXI to evaluate safety, preliminary efficacy, and duration of effect of
DAXI in subjects with moderate to severe isolated cervical dystonia symptoms of the neck. In December 2016, we announced positive interim results from
the Phase 2 clinical trial. The interim data showed that DAXI appeared to be generally safe and well-tolerated, demonstrated a median duration of at least 24
weeks for the first cohort of the study, and displayed a clinically significant impact on cervical dystonia signs and symptoms. The trial enrolled 37 subjects
and follows three sequential treatment cohorts for up to a total of 24 weeks after treatment for each cohort. The trial’s first cohort of 12 subjects received a
single dose of up to 200 units of DAXI, the second cohort of 12 subjects received between 200 and 300 units, and the third cohort of 13 subjects received
from 300 to 450 units. In May 2017, we announced positive 24-week topline results in all three cohorts from the Phase 2 trial. The topline data demonstrated
a median duration of at least 24 weeks for all three cohorts.
Key results of the cervical dystonia trial are as follows:
Safety. In all three cohorts, DAXI appeared to be generally safe and well-tolerated through Week 24. There were no serious adverse events and no
dose-dependent increase in adverse events. The treatment-related adverse events were transient and mild to moderate in severity, except for one case of neck
pain reported as severe, with a duration of 2 days. The most common adverse events were dysphagia, or difficulty in swallowing (14 percent), of which all
cases were mild in severity, injection site redness (8 percent), bruising (5 percent), injection site pain (5 percent), muscle tightness (5 percent) and muscle
weakness (5 percent). For reference, trials for botulinum type A products approved to treat cervical dystonia have reported adverse events for dysphagia
ranging from 13 percent to 39 percent.
Efficacy. The trial’s 4-week primary efficacy measurement was the improvement in dystonia symptoms as determined by reduction from baseline on
the Toronto Western Spasmodic Torticollis Rating Scale (“TWSTRS”) total score. DAXI showed a clinically significant mean reduction of 16.8 from
baseline, or 38 percent, across all three cohorts at Week 4. This reduction continued to increase to 50 percent at Week 6 for all subjects, was 42 percent at
Week 12 and was maintained at or above 30 percent through Week 24. Clinically meaningful mean reductions in the TWSTRS Severity, Disability and Pain
subscales were consistent and observed at all follow-up visits across all subjects. For reference, placebo-controlled trials for botulinum toxin type A products
approved to treat cervical dystonia had a reduction in the TWSTRS-Total score from baseline of 21 percent to 26 percent at Week 4 and 13 percent to 16
percent at Week 12.
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Duration of Effect. The median duration of effect was at least 24 weeks for each of the three dose cohorts studied. Duration of effect was defined as
the number of weeks from treatment until the return of signs and symptoms that warrant retreatment, based on subjects reaching their target TWSTRS score.
For reference, treatment with currently approved neuromodulators for cervical dystonia calls for injection of botulinum toxin approximately every 3 months
(12 weeks), or 4 times per year.
In November 2017, the FDA granted orphan drug status to DAXI for the treatment of cervical dystonia in adults. Additionally, in November 2017,
we completed our End-of-Phase 2 meeting with the FDA and received scientific advice from the EMA regarding DAXI for the treatment of cervical dystonia.
In June 2018, we announced the initiation of patient dosing in our ASPEN Phase 3 clinical program based on the Phase 2 safety and efficacy results
and guidance from the FDA and EMA. The ASPEN Phase 3 clinical program consists of two trials to evaluate the safety and efficacy of DAXI for the
treatment of cervical dystonia in adults including: a randomized, double-blind, placebo-controlled, parallel group trial, and an open-label, long-term safety
trial. The program is expected to enroll approximately 300 patients in the pivotal trial and 350 patients in the open-label trial at multiple sites in the U.S.,
Canada, and Europe.
The program is expected to complete enrollment by early 2020, and we expect to release topline results in the second half of 2020.
DAXI for Treatment of Adult Upper Limb Spasticity
We initiated a Phase 2 study (JUNIPER) in adult upper limb spasticity in December 2018. Our JUNIPER Phase 2 clinical trial of upper limb
spasticity is a randomized, double-blind, placebo-controlled trial to evaluate the efficacy and safety of DAXI at three dose levels versus placebo in reducing
muscle tone of adult patients with upper limb spasticity due to stroke or traumatic brain injury over 36 weeks. The program is expected to enroll a total of
approximately 128 patients, 18-70 years of age, at 25 sites in the U.S..
Patients will be randomized to one of three active treatment groups of DAXI or placebo. Post-treatment, patients will be followed for a maximum of
36 weeks. The co-primary efficacy endpoints of the trial will be the mean change from baseline in muscle tone using the Modified Ashworth Score (“MAS”)
scale in the suprahypertonic muscle group (SMG - highest degree for muscle tone) of the elbow, wrist, or finger flexors at Week 6, and the mean score on the
Physician Global Impression of Change (“PGIC”) scale at Week 6.
The JUNIPER study is expected to be fully enrolled by the second half of 2019, and we expect to release topline results in the second half of 2020.
Plantar Fasciitis
Plantar fasciitis is a painful affliction caused by inflammation of the ligament running along the bottom of the foot and is the most common cause of
heel pain. Heel pain is the most common complaint of patients who visit podiatrists and orthopedic foot and ankle surgeons. Eighty percent of reported heel
pain complaints are due to plantar fasciitis. Plantar fasciitis is estimated to affect 20 million individuals in the U.S.. Risk factors include age, long distance
running, excessive weight, abnormal foot posture, use of poor foot wear, and repetitive trauma.
Symptoms can last six months or more, sometimes requiring surgery. In the U.S. alone, more than two million patients undergo treatment for plantar
fasciitis each year. Treatment options for less severe cases include leg and foot stretching exercises, nonsteroidal anti-inflammatory drugs, shoe inserts, heel
pads, and night splints. More severe or refractory cases are currently treated with steroid injections, extracorporeal shock wave therapy, platelet rich plasma
injections, and/or surgery. Preclinical and clinical research suggests a neuromodulator candidate such as DAXI may provide patients with sustained relief
from chronic heel pain and support healing of the plantar fascia without the risks of plantar fascia rupture or atrophy of the fat pad that can occur with
corticosteroid injections, a common treatment.
Botulinum toxin is not currently approved for treating plantar fasciitis; the clinical endpoints, however, are well established. Published estimates
place the annual U.S. evaluation and treatment market for plantar fasciitis at more than $250 million, and we believe the market could grow significantly
larger if patients had a compelling neuromodulator treatment option.
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DAXI for Treatment of Plantar Fasciitis
In 2016, we initiated a Phase 2 prospective, randomized, double-blinded, placebo-controlled trial of DAXI in the therapeutic indication of plantar
fasciitis. This study evaluated the safety and efficacy of a single administration of DAXI in reducing the signs and symptoms of plantar fasciitis. The study
completed enrollment of 59 subjects in the U.S. in October 2017. The study's primary efficacy endpoint is the improvement in the American Orthopedic Foot
and Ankle Score (“AOFAS”).
In January 2018, we announced the interim 8-week Phase 2a results for the plantar fasciitis trial. The trial’s primary endpoint, the reduction in the
patient-reported visual analog scale (“VAS”) for pain at Week 8, showed a robust impact on pain, with a greater than 50 percent reduction for patients treated
with DAXI. In the intent-to-treat population, a mean reduction in the VAS score of 54.2 percent from baseline was achieved with DAXI, compared with a
42.6 percent reduction in the placebo group, which upon further subgroup analysis, was driven primarily by a strong placebo response in the control group at
three of the five study sites. While the results are not statistically significant (p=0.39), DAXI provided patients with considerable pain relief. Similar numeric
trends were seen in the secondary and exploratory endpoints. DAXI appeared to be generally safe and well-tolerated through Week 8. The majority of adverse
events in both treatment groups were mild in severity. There were no treatment-related serious adverse events. The most common treatment-related adverse
events for DAXI and placebo were injection site pain (10.0 percent and 10.3 percent) and muscle weakness (3.3 percent and 3.4 percent), both respectively,
all of which were classified as mild in severity. We completed the 16-week trial which showed a 58 percent reduction of pain from baseline along with a
strong placebo response, with the difference between the treatment groups not being statistically significant.
In September 2018, we completed a Type C meeting with FDA discussing the design of the Phase 2 dose-finding study. We initiated another Phase 2
trial in December 2018. The Phase 2 prospective, randomized, double-blind, multi-center, placebo-controlled study will evaluate the safety and efficacy of
two doses of administration of our investigational drug candidate DAXI in reducing the signs and symptoms of plantar fasciitis. The study is expected to
enroll approximately 150 adult patients with unilateral plantar fasciitis, from approximately 20 study centers in the U.S.. Patients will be randomized (1:1:1)
to receive an injection of a low dose, high dose or placebo. The study’s primary efficacy endpoint is the change from baseline in Numeric Pain Rating Scale
(“NPRS”) score at Week 8. Patients will be followed for up to 24 weeks post treatment to assess treatment response, tolerability and safety. We expect to
complete enrollment in this Phase 2 trial during the second half of 2019 and release topline results in the second half of 2020.
Chronic Migraine
Migraine headache is a central nervous system disorder characterized as moderate to severe headache and often includes other symptoms such as
nausea and vomiting. Migraine headache affects more than 38 million people in the U.S., of which more than 3 million of whom suffer from chronic migraine
headache. Chronic migraine headache is both undertreated and underdiagnosed, and is defined as more than fifteen headache days per month over a three-
month period of which more than eight are migrainous, in the absence of medication overuse. According to GIA, the global opportunity for botulinum toxin
for the treatment of chronic migraine was estimated to be approximately $600 million in 2017.
We are in the process of finalizing our Chronic Migraine Clinical Development strategy. We plan to study DAXI for the treatment of chronic
migraine in 2019 or 2020.
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OnabotulinumtoxinA Biosimilar
In February 2018, we entered into a collaboration and license agreement with Mylan (“Mylan Collaboration”) pursuant to which we will collaborate
with Mylan exclusively, on a world-wide basis (excluding Japan) (the “ex-U.S. Mylan territories”), to develop, manufacture and commercialize a biosimilar
to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®. As part of the Mylan Collaboration, Mylan agreed to pay a non-refundable
upfront payment of $25 million with additional contingent payments of up to $100 million, in the aggregate, upon the achievement of specified clinical and
regulatory (i.e. biosimilar biological pathway) milestones and of specified, tiered sales milestones of up to $225 million. In addition, Mylan would pay us low
to mid-double digit royalties on any sales of the biosimilar in the U.S., mid-double digit royalties on any sales in Europe, and high single digit royalties on
any sales in other ex-U.S. Mylan territories. However, we agreed to waive royalties for U.S. sales, up to a limit of $50 million in annual sales, during the first
approximately four years after commercialization to defray launch costs.
In February 2019, we and Mylan recently had a Biosimilar Initial Advisory Meeting with the FDA on a proposed biosimilar to BOTOX®. In this
meeting, the FDA provided guidance on their expectations for a development program to establish biosimilarity to BOTOX®. Based on the agency’s
feedback, we and Mylan believe that a 351(k) pathway for the development of a biosimilar to onabotulinumtoxinA is viable and provides the opportunity to
develop and commercialize the first biosimilar product for all eleven currently approved indications of BOTOX® and BOTOX® Cosmetic.
DaxibotulinumtoxinA Topical
DaxibotulinumtoxinA Topical presents several potential advantages, including painless topical administration, no bruising, ease of use and limited
dependence on administration technique by physicians and medical staff. We believe these potential advantages may improve the experience of patients
undergoing botulinum toxin procedures and could make DaxibotulinumtoxinA Topical suitable for multiple indications in the future. We are planning to
conduct additional preclinical work for DaxibotulinumtoxinA Topical in therapeutic and aesthetic applications where botulinum toxin has shown efficacy and
is particularly well suited for injection-free treatments.
Our Technology
Our Proprietary Peptide Excipient Technology
Combining our proprietary peptide excipient technology with active drug macromolecules such as daxibotulinumtoxinA may help address currently
unfulfilled needs in aesthetic medicine and therapeutic categories. Employing our proprietary peptide excipient technology may ensure overall formulation
performance of the DAXI where the focus is on delivering the first potentially long-acting neuromodulator. Our daxibotulinumtoxinA compound is often
referred to as “a pipeline within a product,” as there are multiple indications that may potentially be treated by our daxibotulinumtoxinA compound.
DAXI Delivery of Botulinum Toxin
DAXI utilizes our proprietary botulinum toxin-peptide complex in a saline-based formulation. In DAXI, the peptide interacts with both extracellular
structures and cell surface receptors in the targeted muscle. This interaction restricts the toxin molecule to the target site and potentially reduces unwanted
spread to other neighboring muscles. We believe that by limiting the spread of DAXI to neighboring muscles, DAXI is likely to be better tolerated at higher
doses than BOTOX® Cosmetic. Additionally, at doses where the spread of BOTOX® Cosmetic and DAXI were compared, DAXI appeared to be more
targeted with longer duration in our preclinical studies. Nonclinical and clinical data taken together suggest that DAXI may provide long duration of effect at
the target muscle and reduce spread to untargeted muscles.
The Botulinum Toxin Opportunity
Botulinum toxin is a protein and neuromodulator produced by Clostridium botulinum. Since 1989 botulinum toxin in an injectable dose form has
been used to treat a variety of aesthetic and therapeutic indications in the U.S. and globally. Botulinum toxin has been approved for a variety of therapeutic
indications including cervical dystonia, upper limb spasticity, blepharospasm, strabismus associated with neurological movement disorders, hyperhidrosis,
migraine headache, overactive bladder and, most recently, lower limb spasticity. In the U.S., botulinum toxin has been approved to treat three aesthetic
indications, glabellar lines, forehead lines and lateral canthal lines, although we believe botulinum toxin to be widely used for other aesthetic indications.
Three products, Allergan’s BOTOX® Cosmetic, Ipsen and Galderma’s Dysport®, and Merz’s Xeomin®, each of which is delivered in an injectable form,
have been approved for the treatment of glabellar lines in the United States.
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According to Millennium Research Group, Inc. ("MRG"), the global opportunity for botulinum toxin was estimated to be $4.3 billion in 2018
compared to $3.8 billion in 2017. The market is projected to reach approximately $9.0 billion by 2027, registering a compounded annual growth rate of
approximately 9 percent over the analysis period of 2017 to 2027. We estimate the market opportunity split between therapeutics and aesthetics is
approximately 60 percent and 40 percent, respectively. We expect continued growth to be driven by new indications and product launches in new
geographies. According to clinicaltrials.gov, as of December 31, 2018, there were more than 125 active clinical trials for a wide range of uses of botulinum
toxin, with approximately 24 percent of these identified as being in Phase 3 clinical development. We are unaware of any clinical trials for potentially
competitive long-lasting products that may realistically achieve commercialization before DAXI, but it is possible that clinical trials for such potentially
competitive products have occurred or are occurring.
The Opportunity for Botulinum Toxins for Aesthetic Indications
Today’s culture places significant value on physical appearance, leading to widespread adoption of anti-aging and aesthetic treatments. Aesthetic
treatments have grown dramatically in the U.S., driven by a large population of consumers who are looking to delay signs of aging and improve general
appearance.
Injectable botulinum toxin treatments are the single largest cosmetic procedure in the U.S. and the rest of the world. According to the ASAPS, a
strong consumer preference for non-surgical options and the increasing availability of effective alternatives have prompted adoption of non-surgical aesthetic
procedures by a broader patient population. Non-surgical procedures account for approximately 68 percent of all procedures performed in 2017, according to
the ASAPS 2017 annual statistics. Injectable botulinum toxin continued to be the most frequently performed non-surgical procedure in 2017, with 1.5 million
procedures in the US, a 7.6 percent increase over 2016. Injectable treatments overall, botulinum toxins and dermal fillers, increased 5.1 percent in 2017,
according to ASAPS. Injectable botulinum toxin treatments have been the number one nonsurgical procedure since 2000, according to ASAPS.
The Opportunity for Botulinum Toxins for Therapeutic Indications
While currently approved botulinum toxin products may be better known for their aesthetic applications, according to MRG, the fastest-growing
segment for botulinum toxin treatments globally is for therapeutic indications. This growth has been driven largely by the approval of botulinum toxin
products in new indications such as preventive treatment of chronic migraine headache and upper limb spasticity in 2010, urinary incontinence in 2011,
overactive bladder in 2013, and lower limb spasticity in 2016. Botulinum toxin’s ability to affect neuromuscular junctions, muscle activity or the release of
neuropeptides, neurotransmitters and neuromediators in a controlled manner has enabled it to be developed and used in a wide range of therapeutic
indications.
In addition to the approved therapeutic indications mentioned above, botulinum toxin products are being evaluated in clinical trials in multiple other
therapeutic indications including acne, rosacea, skin and wound healing, scar reduction, hair loss treatments, plantar fasciitis and several musculoskeletal
conditions.
We believe there is opportunity to improve injectable botulinum toxin use in neurological movement and other disorders. Muscle movement
disorders are neurological conditions that affect a person’s ability to control muscle activity in one or more areas of the body. Muscle spasticity happens after
the body’s nervous system has been damaged, most commonly by a stroke, disease, or trauma. Muscle spasticity can be painful and may have a significant
effect on a person’s quality of life. Certain tasks, like getting dressed or bathing, become difficult, and a person’s self-esteem may be affected by an abnormal
posture. Common muscle movement disorders include cervical dystonia (excessive pulling of the muscles in the neck and shoulder), and upper or lower limb
spasticity (stiffness in arm or leg muscles). Botulinum toxin type A has been proved safe and effective for such uses, as the most common treatment for
muscle movement disorders is to relax the muscle by injecting it with botulinum toxin. However, such injections must be repeated every 3-4 months and
require large doses, typically more than 200 BOTOX® units each treatment. As a result of the discomfort associated with muscle movement disorders and the
associated demand for treatment that currently requires up to four visits per year, we believe that there is a significant need for a long-lasting and targeted
injectable botulinum toxin.
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Our Strategy
Our objective is to be a leading provider of neuromodulator products across multiple aesthetic and therapeutic indications in both injectable and
topical dose forms and to expand the opportunity for botulinum toxin products. To achieve this objective, we plan to develop and commercialize two
proprietary, patent-protected product candidates, DAXI and DaxibotulinumtoxinA Topical, and participate in development and commercialization of
biosimilar to BOTOX® with Mylan.
Key elements of our strategy are:
•
•
•
•
•
Complete DAXI clinical development and file for marketing approval in frown lines in the U.S. followed by Europe. We announced positive top-
line results for DAXI in alleviating moderate-to-severe glabellar lines in two randomized, double-blind, placebo-controlled pivotal Phase 3 trials
that evaluated the safety and efficacy of a single administration of DAXI for the treatment of moderate-to-severe glabellar lines in adults. The
SAKURA 1 and SAKURA 2 trials enrolled a total of 609 patients at 30 sites in the U.S. and Canada. We also completed our SAKURA Phase 3
open-label, long-term safety study program of DAXI for the treatment of glabellar lines in December of 2018, which enrolled a total of 2,691
patients at 66 sites in the U.S. and Canada. In the first half of 2019, we plan to submit a Biologics License Application (“BLA”) in the U.S. to
gain marketing approval, followed by filings in other countries in 2020. In addition, we plan to initiate Phase 2 study for forehead lines and
lateral canthal lines in conjunction with treatment of the frown lines in the first quarter of 2019.
Advance DAXI clinical development for therapeutic indications. We reported Phase 2 results for cervical dystonia in November 2017 and Phase
2a results for plantar fasciitis in January 2018. We initiated our Phase 3 program for the treatment of cervical dystonia in June 2018, and the
Phase 3 program is expected to enroll approximately 300 patients in the pivotal trial and 350 patients in the open-label trial at multiple sites in
the U.S., Canada, and Europe. We are evaluating future development of DAXI in other indications. As part of this strategy, we initiated a Phase
2 study for upper limb spasticity and another Phase 2 study for plantar fasciitis in December 2018.
Build our own sales and marketing capabilities to commercialize DAXI in North America. We have expanded our pre-commercial activities in
anticipation of approval of DAXI in glabellar lines. If DAXI is approved for the treatment of glabellar lines by the FDA, we intend to expand
our own commercial organization in North America. Specifically, we plan to build a specialty sales force to target key physicians who perform
the majority of aesthetic procedures, including dermatologists, plastic surgeons, facial plastic surgeons, and oculoplastic surgeons.
Expand the global opportunity for botulinum toxin products. We believe DAXI has the ability to expand the botulinum toxin opportunity by
appealing to patients who seek a long-lasting effect. We also believe DaxibotulinumtoxinA Topical and other possible dose forms can expand
the overall botulinum toxin opportunity beyond the current patient base by bringing in new patients who would prefer a needle-free approach to
treatment and a more tolerable procedure.
Establish selective strategic partnerships to maximize the commercial potential of our product candidates and our proprietary peptide excipient
technology. Outside of North America, we plan to evaluate whether to commercialize our product candidates on our own or in collaboration
with potential partners and distributors. Specifically, assuming regulatory approval of DAXI outside of the U.S., we will evaluate whether to
build in-house commercial capabilities in one or more countries outside of the U.S. and Canada or to seek commercialization partners to
maximize the profitability of DAXI. As part of this strategy, in December 2018, we entered into a license agreement (the “Fosun License
Agreement”) with Shanghai Fosun Pharmaceutical Industrial Development Co., Ltd., a wholly-owned subsidiary of Shanghai Fosun
Pharmaceutical (Group) Co., Ltd (“Fosun”), whereby we have granted Fosun the exclusive rights to develop and commercialize our proprietary
DAXI in mainland China, Hong Kong and Macau (the “Fosun Territory”) and certain sublicense rights. Additionally, our proprietary peptide
excipient technology can be used for molecules other than botulinum toxin. We plan to partner or license the peptide excipient technology
opportunistically to monetize our technology platform.
• Maximize the value of our botulinum toxin cell line and manufacturing assets. We have developed an integrated manufacturing, analytics,
research and development facility that is capable of producing proprietary forms of botulinum toxin for us and for potential future partners. As
part of this strategy, in February 2018, we entered into the Mylan Collaboration, pursuant to which we will collaborate with Mylan exclusively,
on a world-wide basis (excluding Japan), to develop, manufacture and commercialize the biosimilar to BOTOX®.
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Manufacturing and Operations
We have established capabilities for the production of botulinum toxin type A, including bulk drug substance and injectable finished drug product.
Botulinum toxin is regulated as a Tier 1 Select Agent under authority of the Centers for Disease Control and Prevention (“CDC”), and as such requires that
we obtain a select agent registration and perform our operations in compliance with CDC regulations. We are in good standing under our select agent
registration with the CDC. We have assembled a team of experienced individuals in the technical disciplines of chemistry, biology, biosafety, and engineering
and have appropriately equipped laboratory space to support ongoing research and development efforts in our botulinum toxin product development platform.
We have the ability to manufacture our own botulinum toxin bulk drug substance to support our clinical trial programs and eventually, our commercial
production. We believe that having direct control over our manufacturing processes will enable us to develop additional pharmaceutical product
configurations effectively and with a competitive cost structure. In March 2017, we entered into a Technology Transfer, Validation and Commercial
Fill/Finish Services Agreement (the “Althea Services Agreement”) with Ajinomoto Althea, Inc.(“Althea”), a contract development and manufacturing
organization, to provide us with expanded capacity and a second source for drug product manufacturing to support a global launch of DAXI. The Althea
Services Agreement also mitigates supply chain risk by giving us a different manufacturing location for drug product manufacturing and reduces future
capital and operating expenditures required in our primary manufacturing facility by outsourcing to an experienced partner.
We manufacture and perform testing for both bulk drug substance and finished dosage forms of drug product to support our DAXI candidate. The
additional components required for our product lines and the peptide for DAXI are manufactured by third parties under contract with us. Refer to section
entitled “Outsourced Components” below for additional information.
Drug Substance
Manufacture of the drug substance for DAXI is based on microbial fermentation followed by product recovery and purification steps. The process is
entirely free of animal and human-derived materials and depends on standard raw materials available commercially. The process is already scaled to support
all future commercial demands. Bulk drug substance is stable when stored for extended periods, which allows us to establish reserves of drug substance and
allows periodic drug substance production to replenish inventories as needed.
Drug Product
Manufacture of dose forms to support the DAXI programs is currently performed at our fill-finish facility. The manufacturing process consists of
bulk compounding, liquid fill and freeze-drying to support acceptable shelf-life duration. We plan to perform further scale-up of DAXI drug product
manufacturing to meet anticipated commercial demand and may utilize internal capacity, a third-party manufacturer such as Althea or a combination of both.
Outsourced Components
We contract with third parties for the manufacture of our botulinum toxin and the additional components required for our products, which includes
the manufacture of bulk peptide.
Our agreement with List Biological Laboratories, Inc. (“List Laboratories”), a developer of botulinum toxin, includes certain milestone payments
related to the clinical development of our botulinum toxin products and the toxin manufacturing process. There is a royalty with an effective rate ranging from
low-to-mid single-digit percentages of future sales of botulinum toxin. Our agreement with List Laboratories will remain in effect until expiration of our
royalty obligations and may be terminated earlier on mutual agreement or because of a material breach by either party.
Our agreement with American Peptide Company, Inc. (“American Peptide”), which was acquired by Bachem, includes development, manufacture
and supply of peptide in accordance with certain specifications. This agreement also includes certain quality control and inspection provisions through which
we can ensure the satisfactory quality of our peptide. Our agreement with American Peptide will remain in effect until 2020 and may be terminated earlier by
either party following advance notice or a material breach by either party.
Our agreement with Althea includes manufacture and supply of drug product in accordance with certain specifications. This agreement also includes
certain quality control and inspection provisions through which we can ensure the satisfactory quality of our drug product. Our agreement with Althea will
remain in effect for seven years and may be terminated earlier by either party following advance notice or a material breach by either party.
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Competition
We expect to enter highly competitive pharmaceutical and medical device markets. Successful competitors in the pharmaceutical and medical device
markets have the ability to effectively discover, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize,
market and promote approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers and
medical staff. Numerous companies are engaged in the development, manufacture and marketing of healthcare products competitive with those that we are
developing.
Many of our competitors have substantially greater manufacturing, financial, research and development, personnel and marketing resources than we
do. Our competitors may also have more experience and expertise in obtaining marketing approvals from the FDA and other regulatory authorities. In
addition to product development, testing, approval and promotion, other competitive factors in the pharmaceutical and medical device industries include
product quality and price, product technology, reputation, customer service and access to technical information. Our competitors may be able to develop
competing or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could.
Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or
more of our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights
that may limit our products or potential products increases, which could lead to litigation.
Upon marketing approval, the first expected uses of our products will be to treat glabellar lines, cervical dystonia, plantar fasciitis, and adult upper
limb spasticity, followed by potential use to treat other aesthetic and therapeutic conditions. The technologies with which we expect to compete directly are
injectable and topical neuromodulators.
Injectable Neuromodulators
Our primary competitors for DAXI in the pharmaceutical market are expected to be companies offering injectable dose forms of botulinum toxin,
including:
•
•
BOTOX® and BOTOX Cosmetic®, marketed by Allergan plc, since its original approval by the FDA in 1989, has been approved for multiple
indications, including glabellar lines, forehead lines, crow’s feet, axillary hyperhidrosis, upper and lower limb spasticity, cervical dystonia,
strabismus, blepharospasm, chronic migraine, incontinence, and overactive bladder. Allergan is a leading global pharmaceutical company with
significant research, discovery, and delivery capabilities.
Dysport®, an injectable botulinum toxin for the treatment of cervical dystonia, glabellar lines and upper and lower limb spasticity, is marketed
by Ipsen Ltd., or Ipsen, and Galderma, a Nestle company. Galderma has rights to market the product in the U.S. and Canada. Dysport® was
approved by the FDA in 2009. Ipsen received marketing authorization for a cosmetic indication for Dysport® in Germany. Ipsen granted
Galderma an exclusive development and marketing license for Dysport® for cosmetic indications in the European Union, Russia, Eastern
Europe and the Middle East, and first rights of negotiation for other countries around the world, except the U.S., Canada and Japan. Galderma is
Ipsen’s sole distributor for Dysport® in Brazil, Argentina and Paraguay. The health authorities of 15 European Union countries have also
approved Dysport® for glabellar lines under the trade name Azzalure®. Ipsen and Syntaxin are engaged in a research collaboration agreement
to develop native and engineered formats of botulinum toxin.
• Myobloc® (rimabotulinumtoxinB) is currently marketed by US WorldMeds and approved by the FDA in 2000 for the treatment of cervical
dystonia.
•
•
Xeomin®, an injectable botulinum toxin for the treatment of cervical dystonia, glabellar lines, blepharospasm, and upper limb spasticity, is
marketed by Merz Pharma, or Merz. Xeomin is approved by the FDA for cervical dystonia and blepharospasm in adults, glabellar lines, and the
treatment of upper limb spasticity. Xeomin® is also currently approved for glabellar lines in Korea, Argentina and Mexico, and therapeutic
indications in most countries in the European Union as well as Canada and certain countries in Latin America and Asia. Bocouture® (rebranded
from Xeomin®), marketed by Merz, has approval for glabellar lines in Germany and the European Union.
Jeuveau™, an injectable botulinum toxin manufactured by Daewoong Pharmaceutical Co., Ltd. in South Korea, was approved in 2019 by the
FDA in the U.S. for the treatment of glabellar lines only. It is marketed in the U.S. by Evolus, Inc. Jeuveau is also known as NABOTA® in
South Korea along with other geographic areas and was designated Nuceiva™ in Canada.
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We are aware of competing botulinum toxins currently being developed or commercialized in the U.S., Asia, South America and other markets.
Some of these markets may or may not require adherence to the FDA’s cGMPs or the regulatory requirements of the EMA or other regulatory agencies in
countries that are members of the Organization for Economic Cooperation and Development. While some of these products may not meet U.S. regulatory
standards, the companies operating in these markets may be able to produce products at a lower cost than U.S. and European manufacturers. In addition to the
injectable botulinum toxin dose forms, we are aware that other companies are developing topical botulinum toxins for cosmetic and therapeutics indications
and are conducting clinical trials for acne, facial aesthetic and hyperhidrosis.
Aesthetic Medicine
Professional facial aesthetic medicine includes neuromodulators and dermal fillers, as well as polymer-based injectables. These and other products
experience competition from procedures, such as laser treatments, face lifts, chemical peels, fat injections and cold therapy. In the U.S., dermal filler products,
including Allergan’s Juvéderm family of fillers including Juvéderm VOLUMA® XC, compete with Galderma’s products Restylane® and Perlane™. The
FDA has approved Allergan’s Juvéderm® Ultra XC and Ultra Plus XC products containing lidocaine as well as new formulations of Galderma's Restylane®
and Perlane™, also containing lidocaine, and Restylane® without lidocaine for lips. Allergan also has FDA approval for Juvéderm Volbella® XC, created
specifically for lips for and long-lasting results. Galderma has FDA approval for Restylane Refyne for the treatment of moderate to severe facial wrinkles and
folds, and Restylane Defyne for the treatment of moderate to severe, deep facial wrinkles and folds. Additional competitors in the filler category include
Radiesse®, a calcium hydroxylapatite from BioForm, acquired by Merz, Sculptra® from Galderma, and Belotero Balance® from Merz. Internationally, other
competitive products include products from Bloomage BioTechnology, LG Life Sciences, Medytox, Laboratories TEOXANE, Sinclair Pharma, and a large
number of other hyaluronic acid, bioceramic, protein and other polymer-based dermal fillers. All new generation fillers now last at least six months. We
believe a neuromodulator with a six-month duration of effect would allow physicians to coordinate treatments with fillers.
Sales and Marketing
We currently have limited marketing capabilities and no sales organization. Assuming successful completion of clinical trials and receipt of
marketing approval for DAXI for treatment of glabellar lines by the FDA, we plan to launch in North America with our own commercial organization.
Specifically, we would access the North American market by hiring a focused, specialized sales force that targets the aesthetic physicians (dermatologists,
plastic surgeons, facial plastic surgeons, oculo-plastic surgeons, and aesthetic practitioners) who perform the majority of the cosmetic procedures. Assuming
approval to market in the U.S., we will focus our initial marketing of DAXI on these core specialties.
Strategic Partnering
We plan to focus our efforts on developing and commercializing DAXI in North America and we intend to market on our own. Outside of North
America, we will seek collaborations to maximize the commercial potential of our product candidates and delivery technology. As part of this strategy, in
December 2018, we announced a collaboration with Fosun to develop and commercialize DAXI in China.
We also plan to leverage our botulinum toxin cell line and manufacturing assistance by partnering with other companies. In February 2018, we
entered into a collaboration with Mylan pursuant to which Mylan and us will collaborate exclusively, on a world-wide basis (excluding Japan), to develop,
manufacture and commercialize the biosimilar to BOTOX®.
Intellectual Property
Our success depends in large part on our ability to obtain and maintain intellectual property protection for our drug candidates, novel biological
discoveries, and drug development technology and other know-how, to operate without infringing on the proprietary or intellectual property rights of others
and to prevent others from infringing our proprietary and intellectual property rights. We seek to protect our proprietary position by, among other methods,
filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and
implementation of our business. We also rely on know-how, copyright, trademarks and trade secret laws, continuing technological innovation and potential in-
licensing opportunities to develop and maintain our proprietary position. Such protection is also maintained using confidential disclosure agreements.
Protection of our technologies is important for us to offer our customers proprietary services and products unavailable from our competitors, and to exclude
our competitors from using technology that we have developed. If competitors in our industry have access to the same technology, our competitive position
may be adversely affected.
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It is possible that our current patents, or patents which we may later acquire or develop, may be successfully challenged or invalidated in whole or in
part. It is also possible that we may not obtain issued patents from our pending patent applications or other inventions we seek to protect. Due to uncertainties
inherent in prosecuting patent applications, sometimes patent applications are rejected and we subsequently abandon them. It is also possible that we may
develop proprietary products or technologies in the future that are not patentable or that the patents of others will limit or altogether preclude our ability to do
business. In addition, any patent issued to us, or any of our pending patent applications, may provide us with little or no competitive advantage, in which case
we may abandon such patent, or patent applications, or license them to another entity. Please refer to Item 1A. “Risk Factors—Risks Related to our
Intellectual Property.” for more information.
In June 2016, we entered into an asset purchase agreement with Botulinum Toxin Research Associates, Inc.(“BTRX”) (the “BTRX Purchase
Agreement”). Under the BTRX Purchase Agreement, we acquired all rights, title and interest in a portfolio of botulinum toxin-related patents and patent
applications from BTRX and were granted the right of first negotiation and of right of first refusal with respect to other botulinum toxin-related patents owned
or controlled by BTRX.
As of January 16, 2019, we held approximately 419 issued patents and approximately 106 pending patent applications, including foreign
counterparts of U.S. patents and applications. 37 of our patents are issued in the U.S., with the rest issued in Australia, Canada, China, various countries in
Europe, Hong Kong, Israel, Japan, Malaysia, Mexico, New Zealand, Singapore and South Africa. In addition, we have pending patent applications in the U.S.
as well as in Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Korea, Mexico, and Singapore. The earliest that any of our U.S.
patents will expire is December 10, 2019 for U.S. Patent No. 6429189, which is a patent acquired as part of the asset purchase from BTRX but does not
disclose or claim our DAXI technology. The latest that any of our U.S. patents will expire is July 20, 2035. We will continue to pursue additional patent
protection as well as take appropriate measures to obtain and maintain proprietary protection for our innovative technologies.
On May 2, 2018, Allergan plc filed an Opposition in the European Patent Office against our European Patent No. EP 2 661 276 titled “Topical
composition comprising botulinum toxin and a dye.” While the opposed patent is not material to RT002 injectable, we will continue to take appropriate
measures to defend the patent.
Our registered and pending U.S. trademarks include REVANCE®, TransMTS®, MOTISTE®, “Remarkable Science Changes Everything®”,
MEYESMILE, Relastin®, “Remarkable Science. Enduring Performance®”, and R Logo.
Government Regulation
Product Approval Process in the U.S.
In the U.S., the FDA regulates drugs and biologic products under the Federal Food, Drug and Cosmetic Act (“FDCA”), its implementing regulations,
and other laws, including, in the case of biologics, the Public Health Service Act (“PHSA”). Our product candidates, DAXI and DaxibotulinumtoxinA
Topical, are subject to regulation by the FDA as a biologic. Biologics require the submission of a BLA to the FDA and approval of the BLA by the FDA
before marketing in the U.S.
The process of obtaining regulatory approvals for commercial sale and distribution and the subsequent compliance with applicable federal, state,
local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S.
requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial
civil or criminal sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension or revocation, withdrawal of
an approval, imposition of a clinical hold on clinical trials, warning letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. The process required by the FDA
before a biologic may be marketed in the U.S. generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies performed in accordance with the FDA’s current good
laboratory practices (“GLPs”);
submission to the FDA of an Investigational New Drug Application (“IND”) which must become effective before human clinical trials in the
U.S. may begin;
approval by an institutional review board (“IRB”), at each clinical trial site before each trial may be initiated;
performance of adequate and well-controlled human clinical trials in accordance with the FDA’s current good clinical practices (“GCP”)
regulations to establish the safety and efficacy of the product candidate for its intended use;
submission to the FDA of a BLA;
satisfactory completion of an FDA inspection, if the FDA deems it as a requirement, of the manufacturing facility or facilities where the product
is produced to assess compliance with the FDA’s current good manufacturing practice standards (“cGMP”) regulations to assure that the
facilities, methods and controls are adequate to preserve the product’s identity, strength, potency, quality and purity, as well as compliance with
applicable Quality System Regulations (“QSR”), for devices;
potential inspections by the FDA of the nonclinical and clinical trial sites that generated the data in support of the BLA;
potential review of the BLA by an external advisory committee to the FDA, whose recommendations are not binding on the FDA; and
FDA review and approval of the BLA prior to any commercial marketing or sale.
Preclinical Studies
Before testing any compounds with potential therapeutic value in humans, the product candidate enters the preclinical testing stage. Preclinical tests
include laboratory evaluations of product chemistry, stability and formulation, as well as animal studies to assess the potential toxicity and activity of the
product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs. The sponsor must submit the
results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical
protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or
questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case,
the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a product
candidate at any time before or during clinical trials due to safety concerns or non-compliance, or for other reasons.
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Clinical Trials
Clinical trials involve the administration of the product candidate to human patients under the supervision of qualified investigators, generally
physicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the
objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and
effectiveness. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted in accordance with GCPs. Further, each
clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with
protecting the welfare and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical trials are
minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent that must be signed by
each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Human clinical trials are typically conducted in
three sequential phases that may overlap or be combined:
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Phase 1. The product candidate is initially introduced into a limited population of healthy human subjects and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. In the case of some products for some diseases, or when the product may be too inherently
toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients with the disease or condition for which
the product candidate is intended to gain an early indication of its effectiveness.
Phase 2. The product candidate is evaluated in a limited patient population, but larger than in Phase 1, to identify possible adverse events and
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to assess dosage tolerance, optimal dosage
and dosing schedule.
Phase 3. Clinical trials are undertaken to further evaluate dosage, and provide substantial evidence of clinical efficacy and safety in an expanded
patient population, such as several hundred to several thousand, at geographically dispersed clinical trial sites. Phase 3 clinical trials are
typically conducted when Phase 2 clinical trials demonstrate that a dose range of the product candidate is effective and has an acceptable safety
profile. These trials typically have at least 2 groups of patients who, in a blinded fashion, receive either the product or a placebo. Phase 3 clinical
trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. Generally, two
adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of a BLA.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain
additional experience from the treatment of patients in the intended therapeutic indication to further assess the biologic’s safety and effectiveness after BLA
approval. Phase 4 trials can be initiated by the drug sponsor or as a condition of BLA approval by the FDA.
Annual progress reports detailing the results of the clinical trials must be submitted to the FDA and written IND safety reports must be promptly
submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a
significant risk for human subjects.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the biologic and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP
requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must
develop methods for testing the identity, strength, quality and purity of the final biologic product. Additionally, appropriate packaging must be selected and
tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests,
proposed labeling and other relevant information are submitted to the FDA in the form of a BLA requesting approval to market the product for one or more
specified indications. The submission of a BLA is subject to the payment of substantial user fees.
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Once the FDA receives a BLA, it has 60 days to review the BLA to determine if it is substantially complete and the data are readable, before it
accepts the BLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the BLA. Under the goals and policies agreed to
by the FDA under the Prescription Drug User Fee Act (“PDUFA”), the FDA has twelve months from submission in which to complete its initial review of a
standard BLA and make a decision on the application, and eight months from submission for a priority BLA, and such deadline is referred to as the PDUFA
date. The FDA does not always meet its PDUFA dates for either standard or priority BLAs. The review process and the PDUFA date may be extended by
three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the
submission within the last three months before the PDUFA date.
After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product is safe
and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity,
strength, potency, quality and purity. The FDA may refer applications for novel drug or biological products or drug or biological products which present
difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a
recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory
committee, but it considers such recommendations carefully when making decisions. During the approval process, the FDA also will determine whether a
Risk Evaluation and Mitigation Strategies (“REMS”), is necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor
of the BLA must submit a proposed REMS; the FDA will not approve the BLA without an approved REMS, if required. A REMS can substantially increase
the costs of obtaining approval and limit commercial opportunity.
Before approving a BLA, the FDA can inspect the facilities at which the product is manufactured. The FDA will not approve the BLA unless it
determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the
clinical trials were conducted in compliance with GCP requirements. If the FDA determines that the application, manufacturing process or manufacturing
facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional clinical testing or information before a BLA can
be approved.
The FDA will issue a complete response letter if the agency decides not to approve the BLA. The complete response letter describes all of the
specific deficiencies in the BLA identified by the FDA during review. The deficiencies identified may be minor, for example, requiring labeling changes, or
major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might
take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of
the deficiencies identified in the letter, or withdraw the application.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or
precautions be included in the product labeling. In addition, the FDA may require post marketing studies, sometimes referred to as Phase 4 testing, which
involves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of
approved products that have been commercialized. After approval, certain changes to the approved biologic, such as adding new indications, manufacturing
changes or additional labeling claims, are subject to further FDA review and approval. Depending on the nature of the change proposed, a BLA supplement
must be submitted and approved before the change may be implemented. For many proposed post-approval changes to a BLA, the FDA has up to 180 days to
review the supplement. As with new BLAs, the review process is often significantly extended by the FDA requests for additional information or clarification.
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Post-Approval Requirements
Any biologic products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-
keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling
and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising
requirements, which include, among others, restrictions on direct-to-consumer advertising, promoting biologics for uses or in patient populations that are not
described in the product’s approved labeling, known as “off-label use,” industry-sponsored scientific and educational activities, and promotional activities
involving the internet. The FDA closely regulates the post-approval marketing and promotion of biologics, and although physicians may prescribe legally
available drugs for off-label uses, manufacturers may not market or promote such off-label uses. Failure to comply with these or other FDA requirements can
subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action,
mandated corrective advertising or communications with healthcare professionals, possible civil or criminal penalties or other negative consequences,
including adverse publicity.
We currently manufacture clinical drug supplies using a combination of third-party manufacturers and our own manufacturing facility in order to
support both of our product candidates and plan to do so on a commercial scale if our product candidates are approved. Our future collaborators may also
utilize third parties for some or all of a product we are developing with such collaborator. We and our third-party manufacturers are required to comply with
applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require among other things, quality control and
quality assurance as well as the corresponding maintenance of records and documentation. Drug manufacturers and other entities involved in the manufacture
and distribution of approved biologics are required to register their establishments with the FDA and certain state agencies, and are subject to periodic
inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time,
money, and effort in the area of production and quality control to maintain cGMP compliance.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of our biologic product candidate, some of our U.S. patents may be eligible
for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14
years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the
submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an
approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and
Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may
intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending
on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA.
Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of other companies seeking to
reference another company’s BLA. Specifically, the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), established an abbreviated pathway
for the approval of biosimilar and interchangeable biological products. Under the BPCIA, an application for a biosimilar product cannot be approved by the
FDA until twelve years after the original branded product was approved under a BLA. However, an application may be submitted after four years, which
initiates a process in which the innovator BLA holder and the biosimilar applicant identify patents that could be litigated and resolve patent disputes.
Product Approval Process Outside the U.S.
In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing manufacturing, clinical trials, commercial sales
and distribution of our future products. Whether or not we obtain FDA approval for a product candidate, we must obtain approval of the product by the
comparable regulatory authorities of foreign countries before commencing clinical trials or marketing in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from country to country.
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Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized, decentralized or mutual
recognition procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member
states. The decentralized procedure includes selecting one reference member state (“RMS”), and submitting to more than one member state at the same time.
The RMS National Competent Authority conducts a detailed review and prepares an assessment report, to which concerned member states provide comment.
The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing
authorization may submit an application to the remaining member states post-initial approval. Within 90 days of receiving the applications and assessment
report, each member state must decide whether to recognize approval.
Federal and State Fraud and Abuse and Data Privacy and Security Laws and Regulations
In addition to FDA restrictions on marketing of pharmaceutical products, federal and state fraud and abuse laws restrict certain business practices in
the biotechnology industry. These laws include anti-kickback and false claims statutes. We will be subject to these laws and regulations once we begin to
directly commercialize our products.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to
induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable under Medicare,
Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example,
gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing
anything at less than its fair market value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on
one hand prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and our practices may not in all cases meet all of
the criteria for statutory exemptions or safe harbor protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing,
purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Several courts have interpreted the statute’s
intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the
statute has been violated. The reach of the Anti-Kickback Statute was also broadened by the Patient Protection and Affordable Care Act as amended by the
Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, which, among other things, amends the intent requirement of the federal
Anti-Kickback Statute. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to
violate it in order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act or the civil
monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal
health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. The federal
transparency requirements under ACA require certain manufacturers of drugs, devices, biologics and medical supplies to annually report to the Department of
Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and
investment interests.
The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal
government. Pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with
the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be
submitted because of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses. Also, many states have similar fraud and
abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the
payor.
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In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our
business. The Health Insurance Portability and Accountability Act (“HIPAA”), as amended by the Health Information Technology and Clinical Health Act
(“HITECH”), and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable
health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” those
independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a
covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other
persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and
seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in
certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business
activities now and in the future could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the
federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and
significant civil monetary penalties, damages, fines, imprisonment, exclusion of products from reimbursement under government programs and the
curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the
extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance,
applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and
reporting of payments or transfers of value to healthcare professionals.
Environment, Health and Safety
We are voluntarily assessing and publicly reporting our greenhouse gas emissions and water usage, and have begun to take action to reduce such
emissions and usage. For example, we have established employee commuter programs, evaluated the energy efficiency of our buildings and installed low-
flow water fixtures. Various laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by
greenhouse gas emissions. For example, the California Air Resources Board is in the process of drafting regulations to meet state emissions targets. Based on
current information and subject to the finalization of the proposed regulations, we believe that our primary risk related to climate change is the risk of
increased energy costs. However, because we are not an energy-intensive business, we do not anticipate being subject to a cap and trade system or any other
mitigation measures that would likely be material to our capital expenditures, results of operations or competitive position.
We are also subject to other federal, state and local regulations regarding workplace safety and protection of the environment. We use hazardous
materials, chemicals, and various compounds in our research and development activities and cannot eliminate the risk of accidental contamination or injury
from these materials. Certain misuse or accidents involving these materials could lead to significant litigation, fines and penalties. We have implemented
proactive programs to reduce and minimize the risk of hazardous materials incidents.
Research and Development
Conducting research and development is central to our business model. We have invested and expect to continue to invest significant time and
capital in our research and development operations. We plan to maintain or increase our research and development expenses for the foreseeable future to
initiate and complete additional clinical trials and associated programs related to DAXI for aesthetic indications in areas such as forehead lines and lateral
canthal lines, and therapeutic indications in areas such as cervical dystonia, plantar fasciitis, adult upper limb spasticity, and chronic migraine.
Customers
For the year ended December 31 2018, revenue from Mylan represented 100 percent of our total revenue. For the years ended December 31, 2017
and 2016, all of our revenue was from Precision Dermatology, Inc. (“PDI”), which was subsequently acquired by Valeant Pharmaceuticals International, Inc.
(“Valeant”).
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Employees
As of December 31, 2018, we had 170 employees. Of these employees, 111 employees were engaged in research and development and 59 employees
were engaged in finance, marketing, human resources, facilities, information technology, general management, and administrative activities. We plan to
continue to expand our research, development, and commercial activities next year. None of our employees are represented by a labor union and we consider
our employee relations to be good.
Other Information
We were incorporated in Delaware on August 10, 1999, under the name Essentia Biosystems, Inc. We commenced operations in June 2002 and, in
April 2005, changed our name to Revance Therapeutics, Inc. Our principal executive offices are located at 7555 Gateway Boulevard, Newark, California
94560, and our telephone number is (510) 742-3400. Our website address is http://www.revance.com. The information contained in, or that can be accessed
through, our website is not part of this Form 10-K.
We file electronically with the SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make available on our website at
www.revance.com (under “Investors-Financials & Filings”), free of charge, copies of these reports as soon as reasonably practicable after filing these reports
with, or furnishing them to, the SEC.
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ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as all other
information included in this Form 10-K, including our Consolidated Financial Statements, the notes thereto and the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” before you decide to purchase shares of our common stock. If any of the
following risks actually occurs, our business, prospects, financial condition and operating results could be materially harmed. As a result, the trading price of
our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations and stock price.
We are substantially dependent on the clinical and commercial success of our product candidate DAXI.
Risks Related to Our Business and Strategy
To date, we have invested substantial efforts and financial resources in the research and development of botulinum toxin-based product candidates.
Our success as a company is substantially dependent on the clinical and commercial success of DAXI.
We are in Phase 3 clinical development for DAXI in North America for the treatment of glabellar lines. From 2016 to 2018, we conducted and
announced results relating to multiple pivotal and safety trials in our SAKURA Phase 3 program. The SAKURA 1 and SAKURA 2 trials were designed to
evaluate the safety and efficacy of a single administration of DAXI for the treatment of moderate-to-severe glabellar lines in adults. In addition to the two
pivotal trials, the Phase 3 program includes a long-term open-label safety trial (SAKURA 3), which is designed to evaluate the long-term safety and duration
of DAXI for the treatment of moderate to severe glabellar lines in adults following both single and repeat treatment administration. SAKURA 3 was designed
to support a safety database adequate for both domestic and international marketing applications. We plan to file marketing applications for DAXI for the
treatment of glabellar lines first in the U.S. in the first half of 2019, followed by the European Union, Canada, and certain Latin American and Asian
countries.
In 2015, we initiated a Phase 2 dose-escalating, open-label clinical study of DAXI for the treatment of cervical dystonia. The Phase 2 study
evaluated the safety, preliminary efficacy, and duration of effect of DAXI in subjects with moderate to severe isolated cervical dystonia. Based on the Phase 2
safety and efficacy results and subsequent guidance from the FDA and EMA, in June 2018 we announced the initiation of patient dosing in our ASPEN Phase
3 clinical program. The ASPEN Phase 3 clinical program consists of two trials to evaluate the safety and efficacy of DAXI for the treatment of cervical
dystonia in adults including: a randomized, double-blind, placebo-controlled, parallel group trial and an open-label, long-term safety trial.
In 2016, we also initiated a Phase 2 prospective, randomized, double-blinded, placebo-controlled trial of DAXI in the therapeutic indication of
plantar fasciitis. This study evaluated the safety and efficacy of a single administration of DAXI in reducing the signs and symptoms of plantar fasciitis. The
study's primary efficacy endpoint is the improvement in the AOFAS. In January 2018, we announced interim 8-week results from this study. We completed
the 16-week trial which showed a 58 percent reduction of pain from baseline along with a strong placebo response, with the difference between the treatment
groups not being statistically significant. We initiated another Phase 2, double-blind, placebo-controlled trial utilizing two doses of DAXI in the fourth quarter
of 2018.
In April 2018, we announced two new clinical programs for DAXI, including adult upper limb spasticity and chronic migraine. We initiated a Phase
2 study in adult upper limb spasticity in the fourth quarter of 2018 and we expect to have topline results in second half of 2020. In 2019, we plan to continue
evaluating DAXI for the treatment of chronic migraine.
Our near-term prospects, including our ability to finance our company and generate revenue, will depend heavily on the successful development,
regulatory approval and commercialization of DAXI. Our longer-term prospects will depend on the successful development, regulatory approval and
commercialization of DAXI, as well as DaxibotulinumtoxinA Topical, biosimilar or any future product candidates. The preclinical, clinical and commercial
success of our product candidates will depend on a number of factors, including the following:
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timely completion of, or need to conduct additional, clinical trials, including our clinical trials for DAXI, DaxibotulinumtoxinA Topical,
biosimilar and any future product candidates, which may be significantly slower or cost more than we currently anticipate and will depend
substantially upon the number and design of such trials and the accurate and satisfactory performance of third-party contractors;
our ability to demonstrate the effectiveness and differentiation of our products on a consistent basis as compared to existing or future therapies;
our ability to demonstrate to the satisfaction of the FDA, the safety and efficacy of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any
future product candidates through clinical trials;
whether we are required by the FDA or other similar foreign regulatory agencies to conduct additional clinical trials to support the approval of
DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates;
our success in educating physicians and patients about the benefits, administration and use of DAXI, DaxibotulinumtoxinA Topical, biosimilar
or any future product candidates, if approved;
the prevalence and severity of adverse events experienced with our product candidates or future approved products;
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
the ability to raise additional capital on acceptable terms and in the time frames necessary to achieve our goals;
achieving and maintaining compliance with all regulatory requirements applicable to DAXI, DaxibotulinumtoxinA Topical, biosimilar or any
future product candidates or approved products;
the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative treatments;
the effectiveness of our own or our current and any future potential strategic collaborators’ marketing, sales and distribution strategy and
operations;
our ability to manufacture clinical trial supplies of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates and to
develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices, or
cGMP;
our ability to successfully commercialize DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates, if approved for
marketing and sale, whether alone or in collaboration with others;
our ability to enforce our intellectual property rights in and to DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates;
our ability to avoid third-party patent interference or intellectual property infringement claims;
acceptance of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates, if approved, as safe and effective by patients
and the medical community;
the willingness of third-party payors to reimburse physicians or patients for DAXI and any future products we may commercialize for
therapeutic indications;
the willingness of patients to pay out of pocket for DAXI and any future products we may commercialize for aesthetic indications;
the continued acceptable safety profile of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates following approval.
If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience
significant delays or an inability to successfully commercialize our product candidates. Accordingly, we cannot assure you that we will be able to generate
sufficient revenue through the sale of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidate to continue our business.
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We may be unable to obtain regulatory approval for DAXI, topical product candidate, biosimilar product candidate or future product candidates
under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization and have a material adverse
effect on our potential to generate revenue, our business prospects, and our results of operations.
To gain approval to market a biologic product such as DAXI, DaxibotulinumtoxinA Topical or biosimilar, we must provide the FDA and foreign
regulatory authorities with data that adequately demonstrate the safety, efficacy and quality of the product for the intended indication applied for in the BLA
or other respective marketing applications. The development of biologic products is a long, expensive and uncertain process, and delay or failure can occur at
any stage of any of our clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant
setbacks in clinical trials, including in Phase 3 development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have
been caused by, among other things, findings made while clinical trials were underway, safety or efficacy observations, including previously unreported
adverse events; and the need to conduct further supportive or unanticipated studies, even after initiating Phase 3 trials. Success in preclinical testing and early
clinical trials does not ensure that later clinical trials will be successful or that additional supportive studies will not be required, and the results of clinical
trials by other parties may not be indicative of the results in trials we may conduct.
For example, we completed DaxibotulinumtoxinA Topical clinical trials for the treatment of lateral canthal lines (“crow’s feet”) and primary axillary
hyperhidrosis, but discontinued further clinical development in 2016 following the results from our REALISE 1 Phase 3 clinical trial for crow's feet. In 2016,
we also initiated a Phase 2 trial of DAXI for the treatment of plantar fasciitis. In January 2018, we announced interim 8-week results from this study and
subsequently completed the 16-week trial, which showed a strong placebo response, with the difference between the treatment groups not being statistically
significant.
Our business currently depends substantially on the successful development, regulatory approval and commercialization of our product candidates.
Based on discussion with the FDA at a Pre-Phase 3 meeting in the second quarter of 2016 and the minutes received following the meeting, we submitted an
IND in the U.S. and initiated subject dosing in Phase 3 clinical studies of DAXI for the treatment of glabellar lines in 2016. In the first quarter of 2017, we
completed patient enrollment in the two pivotal trials of our SAKURA Phase 3 program and in October 2017, we completed enrollment of SAKURA 3. In
December 2017, we announced positive top-line results from the two pivotal trials. In December 2018, we announced top-line results for the SAKURA 3
open-label, long-term safety study. We plan to move forward with studies required for submission of a BLA. In June 2018, we announced the initiation of
patient dosing in our ASPEN Phase 3 clinical program for DAXI for the treatment of cervical dystonia. The program is expected to enroll approximately 300
patients in each of the two studies at multiple sites in the U.S., Canada, and Europe.
Such studies may increase the time, expense and uncertainty of our product development programs, including, for example, because results of such
studies may indicate to us a further need to refine the related product candidate.
We currently have no drug or biologic products approved for sale, and we may never obtain regulatory approval to commercialize DAXI,
DaxibotulinumtoxinA Topical or biosimilar. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug and biologic
products are subject to extensive regulation by the FDA and other regulatory authorities in the U.S. and other countries, and such regulations differ from
country to country. We are not permitted to market our product candidates in the U.S. until we receive approval of a BLA from the FDA. We are also not
permitted to market our product candidates in any foreign countries until we receive the requisite approval from the regulatory authorities of such countries.
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The FDA or any foreign regulatory body can delay, limit or deny approval of our product candidates for many reasons, including:
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our inability to demonstrate to the satisfaction of the FDA or an applicable foreign regulatory body that DAXI, DaxibotulinumtoxinA Topical,
biosimilar or any future product candidates are safe and effective for the requested indication;
our inability to demonstrate preclinical proof of concept of DaxibotulinumtoxinA Topical, biosimilar or other products in future, new
indications;
the FDA’s or an applicable foreign regulatory agency’s disagreement with the trial protocol or the interpretation of data from preclinical studies
or clinical trials;
our inability to demonstrate that clinical and other benefits of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates
outweigh any safety or other perceived risks;
the FDA’s or an applicable foreign regulatory agency’s requirement for additional preclinical or clinical studies;
the FDA’s or an applicable foreign regulatory agency’s non-approval of the formulation, labeling or the specifications of DAXI,
DaxibotulinumtoxinA Topical, biosimilar or any future product candidates;
the FDA’s or an applicable foreign regulatory agency’s failure to approve our manufacturing processes or facilities, or the manufacturing
processes or facilities of third-party manufacturers with which we contract; or
the potential for approval policies or regulations of the FDA or an applicable foreign regulatory agency to significantly change in a manner
rendering our clinical data insufficient for approval.
Of the large number of drugs, including biologics, in development, only a small percentage successfully complete the FDA or other regulatory
approval processes and are commercialized.
Even if we eventually complete clinical testing and receive approval of any regulatory filing for DAXI, DaxibotulinumtoxinA Topical, biosimilar or
any future product candidates, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional
post-approval clinical trials. The FDA or the applicable foreign regulatory agency also may approve DAXI, DaxibotulinumtoxinA Topical, biosimilar or any
future product candidates for a more limited indication or a narrower patient population than we originally requested, and the FDA or applicable foreign
regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates. Any
delay in obtaining, or inability to obtain, applicable regulatory approval for any of our product candidates, and DAXI in particular, would delay or prevent
commercialization of DAXI and would materially adversely impact our business, results of operations and prospects.
Even if we receive regulatory approval for our product candidates, we will be subject to ongoing FDA and foreign regulatory obligations and
continued regulatory review.
We and any third party contract development and manufacturers or suppliers are required to comply with applicable GMP regulations and other
international regulatory requirements. The regulations require that our product candidates be manufactured and records maintained in a prescribed manner
with respect to manufacturing, testing and quality control/quality assurance activities. Manufacturers and suppliers of materials must be named in a BLA
submitted to the FDA for any product candidate for which we are seeking FDA approval. Additionally, third party manufacturers and suppliers and any
manufacturing facility must undergo a pre-approval inspection before we can obtain marketing authorization for any of our product candidates. Even after a
manufacturer has been qualified by the FDA, the manufacturer must continue to expend time, money and effort in the area of production and quality control
to ensure full compliance with GMP. Manufacturers are subject to regular, periodic inspections by the FDA following initial approval. Further, to the extent
that we contract with third parties for the manufacture of our products, our ability to control third-party compliance with FDA requirements will be limited to
contractual remedies and rights of inspection.
If, as a result of the FDA’s inspections, it determines that the equipment, facilities, laboratories or processes do not comply with applicable FDA
regulations and conditions of product approval, the FDA may not approve the product or may suspend the manufacturing operations. If the manufacturing
operations of any of the suppliers for our product candidates are suspended, we may be unable to generate sufficient quantities of commercial or clinical
supplies of product to meet market demand, which would harm our business. In addition, if delivery of material from our suppliers were interrupted for any
reason, we might be unable to ship our approved product for commercial supply or to supply our products in development for clinical trials. Significant and
costly delays can occur if the qualification of a new supplier is required.
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Failure to comply with regulatory requirements could prevent or delay marketing approval or require the expenditure of money or other resources to
correct. Failure to comply with applicable requirements may also result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total
or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution, any of which could be harmful to
our ability to generate revenues and our stock price.
Any regulatory approvals that we receive for our product candidates are likely to contain requirements for post-marketing follow-up studies, which
may be costly. Product approvals, once granted, may be modified based on data from subsequent studies or commercial use. As a result, limitations on
labeling indications or marketing claims, or withdrawal from the market may be required if problems occur after approval and commercialization.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms,
or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.
Since our inception, most of our resources have been dedicated to the research and preclinical and clinical development of our botulinum toxin product
candidates, DAXI, DaxibotulinumtoxinA Topical or biosimilar. In particular, our clinical programs for DAXI, DaxibotulinumtoxinA Topical or biosimilar
will require substantial additional funds to complete. We had an accumulated deficit through December 31, 2018 of $684.8 million and a working capital
surplus of $176.0 million as of December 31, 2018, primarily as a result of our November 2015 and December 2017 follow-on public offerings, and at-the-
market (“ATM”) offerings in 2015 and 2017. Our recorded net losses were $142.6 million, $120.6 million and $89.3 million, for the years ended
December 31, 2018, 2017, and 2016, respectively. We have funded our operations primarily through the sale and issuance of convertible preferred stock,
common stock, notes payable and convertible notes. As of December 31, 2018, we had capital resources consisting of cash and cash equivalents and short-
term investments of $175.8 million. We raised aggregate net proceeds of $126.2 million and $156.9 million in our follow-on public offerings in November
2015 and December 2017, respectively. In addition, we raised net proceeds of approximately $10.0 million by selling an aggregate of 352,544 shares of our
common stock under the 2015 ATM agreement, which was effectively terminated on March 7, 2016, and raised net proceeds of approximately $38.2 million
by selling an aggregate of 1,802,651 shares of our common stock under the 2016 ATM agreement. In March 2018, we terminated the 2016 ATM Agreement
and entered into a Controlled Equity Offering sales agreement with Cantor Fitzgerald & Co., or Cantor Fitzgerald (the “2018 ATM Agreement”). Under the
2018 ATM Agreement, we may offer and sell common stock having aggregate proceeds of up to $125.0 million from time to time through Cantor Fitzgerald
as our sales agent. No sales of our common stock have taken place under the 2018 ATM Agreement as of December 31, 2018. We believe that we will
continue to expend substantial resources for the foreseeable future for the clinical development of DAXI, DaxibotulinumtoxinA Topical or biosimilar and
development of any other indications and product candidates that we may choose to pursue. These expenditures will include costs associated with research
and development, conducting preclinical studies and clinical trials, and manufacturing and supply as well as marketing and selling any products approved for
sale. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual
amounts necessary to successfully complete the development and commercialization of DAXI and any future product candidates.
We believe that our existing cash, cash equivalents, and short-term investments including the net proceeds from our follow-on public offerings and
ATM offerings will allow us to fund our operations for at least 12 months following the filing of this Form 10-K. However, our operating plan may change as
a result of many factors currently unknown to us, and we may need to seek additional capital sooner than planned, through public or private equity or debt
financings or other sources, such as strategic collaborations. Such financings may result in dilution to stockholders, imposition of debt covenants and
repayment obligations or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or
strategic considerations even if we believe that we have sufficient funds for our current or future operating plans.
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Our future capital requirements depend on many factors, including:
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the results of our clinical trials for DAXI and preclinical trials of DaxibotulinumtoxinA Topical, biosimilar or any future product candidates;
the timing of, and the costs involved in, obtaining regulatory approvals for DAXI, or any future product candidates including
DaxibotulinumtoxinA Topical or biosimilar;
the number and characteristics of any additional product candidates we develop or acquire;
the scope, progress, results and costs of researching and developing and conducting preclinical and clinical trials of DAXI,
DaxibotulinumtoxinA Topical, biosimilar or any future product candidates;
the cost of commercialization activities if DAXI or any future product candidates including DaxibotulinumtoxinA Topical or biosimilar are
approved for sale, including marketing, sales and distribution costs;
the cost of manufacturing DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates and any products we successfully
commercialize and maintaining our related facilities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements including the Mylan collaboration, Fosun licensing,
and the terms of and timing such arrangements;
the degree and rate of market acceptance of any future approved products;
the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing
products or treatments;
any product liability or other lawsuits related to our products;
the expenses needed to attract and retain skilled personnel;
any litigation, including litigation costs and the outcome of such litigation;
the costs associated with being a public company;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the
outcome of such litigation; and
the timing, receipt and amount of sales of, or royalties on, future approved products, if any.
Additional capital may not be available when needed, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timely
basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials, research, development, manufacturing, sales, marketing or
other commercial activities for DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidate.
If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements
with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or
grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our
existing stockholders will be diluted and the terms of any new equity securities may have a preference over our common stock. If we raise additional capital
through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making
capital expenditures or specified financial ratios, any of which could restrict our ability to commercialize our product candidates or operate as a business.
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Even if our product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary for
commercial success.
The commercial success of DAXI, and any future product candidates including DaxibotulinumtoxinA Topical or biosimilar, if approved, will depend
significantly on the broad adoption and use of the resulting product by physicians for approved indications. The degree and rate of physician adoption of
DAXI and any future product candidates, if approved, will depend on a number of factors, including:
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the effectiveness and duration of effect of our product as compared to existing and future therapies;
physician willingness to adopt a new therapy to treat glabellar lines, cervical dystonia, plantar fasciitis, adult upper limb spasticity, chronic
migraine or other aesthetic or therapeutic indications;
patient satisfaction with the results and administration of our product and overall treatment experience;
patient demand for the treatment of glabellar lines, cervical dystonia, plantar fasciitis or other aesthetic or therapeutic indications;
the willingness of third-party payors to reimburse physicians or patients for DAXI and any future products we may commercialize for
therapeutic indications;
the willingness of patients to pay out of pocket for DAXI and any future products we may commercialize for aesthetic indications; and
the revenue and profitability that our product will offer a physician as compared to alternative therapies.
If DAXI or any future product candidates are approved for use but fail to achieve the broad degree of physician adoption necessary for commercial
success, our operating results and financial condition will be adversely affected.
Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving
significant market penetration and expansion.
We expect to enter highly competitive pharmaceutical and medical device markets. Successful competitors in the pharmaceutical and medical device
markets have the ability to effectively discover therapies, obtain patents, develop, test and obtain regulatory approvals for products, and have the ability to
effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to actual and
prospective customers and medical staff. Numerous companies are engaged in the developing, patenting, manufacturing and marketing healthcare products
which we expect will compete with those that we are developing. Many of these competitors are large, experienced companies that enjoy significant
competitive advantages, such as substantially greater financial, research and development, manufacturing, personnel and marketing resources, greater brand
recognition and more experience and expertise in obtaining marketing approvals from the FDA and other regulatory authorities.
Upon marketing approval, the first expected use of our products will be in aesthetic medicine. Competition in aesthetic products is significant and
dynamic, and is characterized by rapid and substantial technological development and product innovations. Numerous competitors have obtained patents
protecting what they consider to be their intellectual property.
In aesthetic medicine, we plan to seek regulatory approval of DAXI for the treatment of glabellar lines. We anticipate that DAXI, if approved, will
face significant competition from existing injectable botulinum toxins as well as unapproved and off-label treatments. Further, if approved, in the future we
may face competition for DAXI from biosimilar products and products based upon botulinum toxin. To compete successfully, we will have to demonstrate
that the treatment of glabellar lines with DAXI is a worthwhile aesthetic treatment and has advantages over other therapies. Competition could result in
reduced profit margins and limited sales, which would harm our business, financial condition and results of operations.
Due to less stringent regulatory requirements, there are many more aesthetic products and procedures available for use in a number of foreign
countries than are approved for use in the U.S.. There are also fewer limitations on the claims that our competitors in certain countries can make about the
effectiveness of their products and the manner in which they can market them.
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We currently make our DAXI clinical drug product exclusively in one internal manufacturing facility. We plan to utilize internal and external
facilities, including through one or more third-party contractors, in the future to support commercial production if our product candidates are
approved. If these or any future facility or our equipment were damaged or destroyed, or if we experience a significant disruption in our operations
for any reason, our ability to continue to operate our business would be materially harmed.
We currently manufacture our own clinical drug product to support DAXI development in one internal manufacturing facility. In March 2017, we
entered into Althea Services Agreement. Under the Althea Services Agreement, Althea will provide us commercial fill/finish services and will serve as a
second source of manufacturing for DAXI. We plan to utilize our internal and external Althea facility to support commercial production of DAXI, if
approved. If these or any future facility were to be damaged, destroyed or otherwise unable to operate, whether due to earthquakes, fire, floods, hurricanes,
storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of such manufacturing facilities
is disrupted for any other reason, such an event could delay our clinical trials or, if our product candidates are approved, jeopardize our ability to manufacture
our products as promptly as our customers expect or possibly at all. If we experience delays in achieving our development objectives, or if we are unable to
manufacture an approved product within a timeframe that meets our customers’ expectations, our business, prospects, financial results and reputation could be
materially harmed.
Currently, we maintain insurance coverage totaling $22.8 million against damage to our property, equipment and tenant improvements, $2.0 million
in general liability coverage, a $9.0 million umbrella policy, and an additional $70.0 million to cover business interruption and research and development
restoration expenses, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, or if an
interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses.
Impairment in the carrying value of long-lived assets could negatively affect our operating results.
We constructed a fill/finish line dedicated to the manufacture of DaxibotulinumtoxinA Topical and to support our regulatory license applications. We
discontinued further clinical development of DaxibotulinumtoxinA Topical for the treatment of crow’s feet and for the treatment of primary axillary
hyperhidrosis in June 2016, following the results from our REALISE 1 Phase 3 clinical trial. During the year ended December 31, 2016, we recorded a loss
on impairment of $9.1 million related to certain components of the DaxibotulinumtoxinA Topical fill/finish line and other long-lived assets. The Company
assessed the DaxibotulinumtoxinA Topical fill/finish line and these other long-lived assets for impairment indicators and recorded a loss on impairment of
$2.9 million for the year ended December 31, 2017. As of December 31, 2017, the fill/finish line and these other long-lived assets had net book values of $2.4
million and $0.1 million, respectively. There were no indicators of impairment for the year ended December 31, 2018. Under U.S. generally accepted
accounting principles (“GAAP”), long-lived assets, such as our fill/finish line, are required to be reviewed for impairment whenever adverse events or
changes in circumstances indicate a possible impairment. If business conditions or other factors indicate that the carrying value of the asset may not be
recoverable, we may be required to record additional non-cash impairment charges. Additionally, if the carrying value of our capital equipment exceeds
current fair value as determined based on the discounted future cash flows of the related product, the capital equipment would be considered impaired and
would be reduced to fair value by a non-cash charge to earnings, which could negatively affect our operating results. Events and conditions that could result
in impairment in the value of our long-lived assets include adverse clinical trial results, changes in operating plans, unfavorable changes in competitive
landscape, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term sales or profitability. We will evaluate
the recoverability and fair value of our long-lived assets, including those related to other components of the fill/finish line, each reporting period to determine
the extent to which further non-cash charges to earnings are appropriate. Additional impairment in the value of our long-lived assets may materially and
negatively impact our operating results.
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We have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future. Currently,
we have only one product candidate in clinical trials and no commercial sales, which make it difficult to assess our future viability.
We are a clinical-stage biotechnology company. Biotechnology product development is a highly speculative undertaking and involves a substantial
degree of risk. We are not profitable and have incurred losses in each year since we commenced operations in 2002. In addition, we have limited experience
and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and
rapidly evolving fields, particularly in the biotechnology industry. To date, we have not obtained any regulatory approvals for any of our product candidates
or generated any revenue from product sales relating to DAXI, DaxibotulinumtoxinA Topical or biosimilar. We continue to incur significant research and
development and other expenses related to our ongoing clinical trials and operations. We had an accumulated deficit through December 31, 2018 of $684.8
million and a working capital surplus of $176.0 million as of December 31, 2018, primarily as a result of our November 2015 and December 2017 follow-on
public offerings, and ATM offerings in 2015 and 2017. Our recorded net losses were $142.6 million, $120.6 million and $89.3 million, for the year ended
December 31, 2018, 2017, and 2016, respectively. We have funded our operations primarily through the sale and issuance of convertible preferred stock,
common stock, notes payable and convertible notes. The net proceeds from the sale of the shares in our November 2015 and December 2017 follow-on public
offerings and ATM offerings in 2015 and 2017, after deducting the underwriters’ discount, commissions, and other offering expenses related to the respective
offerings, were approximately $126.2 million and $156.9 million, $10.0 million and $38.2 million, respectively. Our capital requirements to implement our
business strategy are substantial, including our capital requirements to develop and commercialize DAXI. We believe that our currently available capital is
sufficient to fund our operations through at least the next 12 months following the filing of this Form 10-K.
We expect to continue to incur losses for the foreseeable future, and we anticipate that these losses will increase as we continue our development of,
seek regulatory approval for and begin to commercialize DAXI. Our ability to achieve revenue and profitability is dependent on our ability to complete the
development of our product candidates, obtain necessary regulatory approvals and manufacture, market and commercialize our products successfully. Even if
we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future
losses, may adversely affect the market price of our common stock and our ability to raise capital and continue operations.
Even if DAXI, DaxibotulinumtoxinA Topical, biosimilar, or any future product candidates obtain regulatory approval, they may never achieve
market acceptance or commercial success.
Even if we obtain FDA or other regulatory approvals, DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates may not
achieve market acceptance among physicians and patients, and may not be commercially successful.
The degree and rate of market acceptance of DAXI, DaxibotulinumtoxinA Topical, biosimilar, or any future product candidates for which we receive
approval depends on a number of factors, including:
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the safety and efficacy of the product as demonstrated in clinical trials;
the clinical indications for which the product is approved;
acceptance by physicians, major operators of clinics and patients of the product as a safe and effective treatment;
the proper training and administration of our products by physicians and medical staff;
the potential and perceived advantages of our products over alternative treatments;
the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of payors and patients;
the willingness of patients to pay for DAXI, DaxibotulinumtoxinA Topical, and other aesthetic treatments in general, relative to other
discretionary items, especially during economically challenging times;
the willingness of third-party payors to reimburse physicians or patients for DAXI and any future products we may commercialize for
therapeutic indications;
the willingness of patients to pay out of pocket for DAXI and any future products we may commercialize for aesthetic indications;
the relative convenience and ease of administration;
the prevalence and severity of adverse events; and
the effectiveness of our sales and marketing efforts.
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Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would materially
adversely affect our results of operations and delay, prevent or limit our ability to generate revenue and continue our business.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be
predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on contract research
organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements governing the
committed activities of our CROs, we have limited influence over their actual performance. A failure of one or more of our clinical trials can occur at any
time during the clinical trial process. The results of preclinical studies and clinical trials of our product candidates may not be predictive of the results of later-
stage clinical trials. Furthermore, final results may differ from interim results. For example, any positive results generated to date in clinical trials for DAXI
do not ensure that later clinical trials, including any DAXI clinical trials for the treatment of glabellar lines, will demonstrate similar results. Product
candidates in later stages of clinical trials may fail to show the desired safety profile and efficacy despite having progressed through preclinical studies and
initial clinical trials.
A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials due to a lack of efficacy or
adverse safety profiles, notwithstanding promising results in earlier clinical trials. We have suffered similar setbacks with the clinical development of
DaxibotulinumtoxinA Topical and we cannot be certain that we will not face other similar setbacks in the future for DAXI or other clinical development
programs. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.
We have in the past and may in the future experience delays in our ongoing clinical trials, and we do not know whether future clinical trials, if any,
will begin on time, need to be redesigned, enroll an adequate number of subjects on time or be completed on schedule, if at all. Clinical trials can be delayed
or aborted for a variety of reasons, including delay or failure to:
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obtain regulatory approval to commence a trial;
reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs and trial sites;
obtain IRB, approval at each site;
recruit suitable subjects to participate in a trial;
have subjects complete a trial or return for post-treatment follow-up;
ensure clinical sites observe trial protocol or continue to participate in a trial;
address any patient safety concerns that arise during the course of a trial;
address any conflicts with new or existing laws or regulations;
add a sufficient number of clinical trial sites; or
• manufacture sufficient quantities of product candidate for use in clinical trials.
Subject enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient
population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’
and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or
treatments that may be approved for the indications we are investigating.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being
conducted, by the data safety monitoring board, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a
clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols,
failure of inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold,
discovery of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or
administrative actions or lack of adequate funding to continue the clinical trial.
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If we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our product
candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in
completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to
commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition,
many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
We have no experience manufacturing our product candidates at full commercial scale. If our product candidates are approved, we will face certain
risks associated with scaling up our manufacturing capabilities to support commercial production.
We have developed an integrated manufacturing, research and development facility located at our corporate headquarters. We manufacture drug
substance and finished dose forms of the drug product at this facility that we use for research and development purposes and clinical trials. We do not have
experience in manufacturing our product candidates at commercial scale. If our product candidates are approved, we may need to expand our manufacturing
facilities, add manufacturing personnel and ensure that validated processes are consistently implemented in our facilities and potentially enter into additional
relationships with third-party manufacturers. The upgrade and expansion of our facilities will require additional regulatory approvals. In addition, it will be
costly and time-consuming to expand our facilities and recruit necessary additional personnel. If we are unable to expand our manufacturing facilities in
compliance with regulatory requirements or to hire additional necessary manufacturing personnel, we may encounter delays or additional costs in achieving
our research, development and commercialization objectives, including obtaining regulatory approvals of our product candidates, which could materially
damage our business and financial position.
We currently contract with third-party manufacturers for certain components and services necessary to produce DAXI and expect to continue to do
so to support further clinical trials and commercial scale production if DAXI is approved. This increases the risk that we will not have sufficient
quantities of DAXI or be able to obtain such quantities at an acceptable cost, which could delay, prevent or impair our development or
commercialization efforts.
We currently rely on third-party manufacturers for certain components such as bulk peptide and services such as fill/finish services, necessary to
produce DAXI for our clinical trials, and we expect to continue to rely on these or other manufacturers to support our commercial requirements if DAXI is
approved. In particular, in March 2017, we entered into the Althea Services Agreement. We plan to utilize our internal and external Althea facility to support
commercial production of DAXI, if approved. Some of our contracts with our manufacturers contain minimum order and pricing provisions and provide for
early termination based on regulatory approval milestones.
Reliance on third-party manufacturers entails additional risks, including the reliance on the third party for regulatory compliance and quality
assurance, the possible breach of the manufacturing agreement by the third party, and the possible termination or nonrenewal of the agreement by the third
party at a time that is costly or inconvenient for us. In addition, third- party manufacturers may not be able to comply with cGMP or Quality System
Regulation, or QSR, or similar regulatory requirements outside the U.S.. Our failure or the failure of our third-party manufacturers to comply with applicable
regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license
revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of
DAXI, or any other product candidates or products that we may develop. Any failure or refusal to supply the components or services for DAXI or any other
product candidates or products that we may develop could delay, prevent or impair our clinical development or commercialization efforts.
We depend on single-source suppliers for the raw materials necessary to produce our product candidates. The loss of these suppliers, or their failure
to supply us with these raw materials, would materially and adversely affect our business.
We and our manufacturers purchase the materials necessary to produce DAXI for our clinical trials from single-source third-party suppliers. There
are a limited number of suppliers for the raw materials that we use to manufacture our product candidates, and we may need to assess alternate suppliers to
prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials and, if approved,
ultimately for commercial sale. In particular, we outsource the manufacture of bulk peptide through American Peptide Company, Inc., or American Peptide,
which was acquired by Bachem.
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We do not have any control over the process or timing of the acquisition of raw materials by our manufacturers. Although we generally do not begin
a clinical trial unless we believe that we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of
DAXI or any future product candidates, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party supplier
could considerably delay completion of our clinical trials, product testing and potential regulatory approval of DAXI or any future product candidates. If we
or our manufacturers are unable to purchase these raw materials on acceptable terms and at sufficient quality levels or in adequate quantities if at all, the
development of DAXI and any future product candidates, or the commercial launch of any approved products, would be delayed or there would be a shortage
in supply, which would impair our ability to meet our development objectives for our product candidates or generate revenues from the sale of any approved
products.
Furthermore, if there is a disruption to our or our third-party suppliers’ relevant operations, we will have no other means of producing DAXI or any
future product candidates until they restore the affected facilities or we or they procure alternative facilities. Additionally, any damage to or destruction of our
or our third party or suppliers’ facilities or equipment may significantly impair our ability to manufacture our product candidates on a timely basis.
We currently have limited marketing and sales capabilities and no field sales organization. If we are unable to establish sales and marketing
capabilities on our own or through third parties, we will be unable to successfully commercialize DAXI or any other future product candidates, if
approved, or generate product revenue.
We currently have limited marketing and sales capabilities and no field sales organization. To commercialize DAXI or any other future product
candidates, if approved, in the U.S., Europe and other jurisdictions we seek to enter, we must build our marketing, sales, distribution, managerial and other
non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If DAXI receives
regulatory approval, we expect to market DAXI as applicable, through our own sales force in North America, and in Europe and other countries through
either our own sales force or a combination of our internal sales force and distributors or partners, which may be expensive and time consuming. We have no
prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales
organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and
marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal
sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third
parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own
sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully
commercialize DAXI or any future product candidates. If we are not successful in commercializing DAXI or any future product candidates, either on our own
or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.
As we evolve from a company primarily involved in research and development to a company potentially involved in commercialization, we will need
to increase the size of our organization and we may experience difficulties in managing this growth.
If we are successful in advancing DAXI through the development stage towards commercialization, we will need to expand our organization,
including adding marketing, managerial, operational and sales capabilities, or contracting with third parties to provide these capabilities for us to manage our
operations and clinical trials, continue our development activities and commercialize DAXI or any other product candidates, if approved. Our management,
personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy
requires that we:
• manage our clinical trials and manufacturing operations effectively;
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identify, recruit, retain, incentivize and integrate additional employees;
• manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and
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continue to improve our operational, financial and management controls, reporting systems and procedures.
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As our operations expand, we expect that we will also need to manage additional relationships with various collaborative partners, suppliers and
other third parties. Future growth will impose significant added responsibilities on our organization, in particular on management. Our future financial
performance and our ability to commercialize DAXI and to compete effectively will depend, in part, on our ability to manage any future growth effectively.
Due to our limited financial resources and our limited experience in managing a company with such anticipated growth, we may not be able to effectively
manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant
costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our development
and strategic objectives, or disrupt our operations.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters and other facilities, including our internal manufacturing facility, are located in the San Francisco Bay Area, which has
experienced severe earthquakes. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have
a material adverse effect on our business, results of operations, financial condition and prospects.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged
critical infrastructure, such as our manufacturing facility, enterprise financial systems or manufacturing resource planning and enterprise quality systems, or
that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. In
particular, because we manufacture botulinum toxin in our facilities, we would be required to obtain further clearance and approval by state, federal or other
applicable authorities to continue or resume manufacturing activities. The disaster recovery and business continuity plans we have in place currently are
limited and may not be adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse
effect on our business.
Furthermore, integral parties in our supply chain are geographically concentrated and operating from single sites, thereby increasing their
vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a
material adverse effect on our business.
We currently rely on third parties and consultants to conduct all our preclinical studies and clinical trials. If these third parties or consultants do not
successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize
DAXI or any future product candidates.
We do not have the ability to independently conduct preclinical studies or clinical trials. We rely on medical institutions, clinical investigators,
contract laboratories, collaborative partners and other third parties, such as CROs and clinical data management organizations, to conduct clinical trials on our
product candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the
subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we have
limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct our preclinical
studies and clinical trials, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its
investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, commonly
referred to as GCPs and good laboratory practices or GLPs, for conducting, monitoring, recording and reporting the results of clinical and preclinical trials to
ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating
in clinical trials. We also rely on consultants to assist in the execution, including data collection and analysis, of our clinical trials.
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In addition, the execution of preclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires
coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate
and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with
us. These third parties may terminate their agreements with us upon as little as 30 days’ prior written notice of a material breach by us that is not cured within
30 days. Many of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency or our failure to
comply with applicable laws. In general, these agreements require such third parties to reasonably cooperate with us at our expense for an orderly winding
down of services of such third parties under the agreements. If the third parties or consultants conducting our clinical trials do not perform their contractual
duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality
or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCP, or for any other reason, we may
need to conduct additional clinical trials or enter into new arrangements, which could be difficult, costly or impossible, and our clinical trials may be
extended, delayed or terminated or may need to be repeated. We may be unable to recover unused funds from these third-parties. If any of the foregoing were
to occur, we may not be able to obtain, or may be delayed in obtaining, regulatory approval for, and will not be able to, or may be delayed in our efforts to,
successfully commercialize the product candidate being tested in such trials.
If any products we develop are not accepted by the market or if regulatory agencies limit our labeling indications, require labeling content that
diminishes market uptake of our products or limits our marketing claims, we may be unable to generate significant revenues, if any.
Even if we obtain regulatory approval for our product candidates and are able to commercialize them, our products may not gain market acceptance
among physicians, patients, healthcare payors and the medical community.
The degree of market acceptance of any of our approved products will depend upon a number of factors, including:
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the indication for which the product is approved and its approved labeling;
the presence of other competing approved treatments and therapies;
the potential advantages of the product over existing and future treatment products;
the relative convenience and ease of administration of the product;
the strength of our sales, marketing and distribution support;
the willingness of third-party payors to provide adequate reimbursement for our approved products, and the willingness of payments to pay for
our approved products in the absence of third-party reimbursement; and
the price and cost-effectiveness of the product.
The FDA or other regulatory agencies could limit the labeling indication for which our product candidates may be marketed or could otherwise limit
marketing efforts for our products. If we are unable to achieve approval or successfully market any of our product candidates, or marketing efforts are
restricted by regulatory limits, our ability to generate revenues could be significantly impaired.
If DAXI is approved for marketing, and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our
products off-label, we may become subject to prohibitions on the sale or marketing of our products, significant fines, penalties, and sanctions,
product liability claims, and our image and reputation within the industry and marketplace could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug products, such as DAXI, if
approved. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies as reflected
in the product’s approved labeling. If we are found to have promoted such off-label uses, we may receive warning letters and become subject to significant
liability, which would materially harm our business. The federal government has levied large civil and criminal fines against companies for alleged improper
promotion and has enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based
on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention
could be diverted from our business operations, significant legal expenses could be incurred, and our reputation could be damaged. The FDA has also
requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are
deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA prohibitions on the sale or marketing of
our products or significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the industry.
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Physicians may also misuse our products or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to
product liability claims. If our products are misused or used with improper technique, we may become subject to costly litigation by our customers or their
patients. Product liability claims could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards
against us that may not be covered by insurance. Furthermore, the use of our products for indications other than those cleared by the FDA may not effectively
treat such conditions, which could harm our reputation in the marketplace among physicians and patients.
Any of these events could harm our business and results of operations and cause our stock price to decline.
Even if DAXI or any future product candidate is approved for commercialization, if there is not sufficient patient demand for such procedures, our
financial results and future prospects will be harmed.
Treatment of glabellar lines or other aesthetic indications with DAXI is an elective procedure, the cost of which must be borne by the patient, and we
do not expect it to be reimbursable through government or private health insurance. The decision by a patient to elect to undergo the treatment of glabellar
lines with DAXI or the treatment of other aesthetic indications we may pursue may be influenced by a number of factors, including:
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the success of any sales and marketing programs that we, or any third parties we engage, undertake, and as to which we have limited experience;
the extent to which physicians recommend DAXI to their patients;
the extent to which DAXI satisfies patient expectations;
our ability to properly train physicians in the use of DAXI or such that their patients do not experience excessive discomfort during treatment or
adverse side effects;
the cost, safety and effectiveness of DAXI versus other treatments;
consumer sentiment about the benefits and risks of aesthetic procedures generally and DAXI in particular;
the success of any direct-to-consumer marketing efforts we may initiate; and
general consumer confidence, which may be impacted by general economic and political conditions.
Our business, financial results and future prospects will be materially harmed if we cannot generate sufficient demand for DAXI or for any other
future product candidate, once approved.
We are subject to uncertainty relating to third-party reimbursement policies which, if not favorable for DAXI or any future product candidates,
could hinder or prevent their commercial success.
Our ability to commercialize DAXI or any future product candidates for therapeutic indications such as cervical dystonia or plantar fasciitis will
depend in part on the coverage and reimbursement levels set by governmental authorities, private health insurers and other third-party payors. As a threshold
for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA. Third-party payors
also are increasingly challenging the effectiveness of and prices charged for medical products and services. We may not obtain adequate third-party coverage
or reimbursement for DAXI or any future product candidates for therapeutic indications, or we may be required to sell them at a discount.
We expect that third-party payors will consider the efficacy, cost effectiveness and safety of DAXI in determining whether to approve reimbursement
for DAXI for therapeutic indications and at what level. Our business would be materially adversely affected if we do not receive coverage and adequate
reimbursement of DAXI for therapeutic indications from private insurers on a timely or satisfactory basis. No uniform policy for coverage and reimbursement
for products exists among third-party payors in the United States; therefore, coverage and reimbursement for products can differ significantly from payor to
payor. Further, coverage under certain government programs, such as Medicare and Medicaid, may not be available for certain of our product candidates. As a
result, the coverage determination process will likely be a time-consuming and costly process, with no assurance that coverage and adequate reimbursement
will be applied consistently or obtained in the first instance. Our business could also be adversely affected if third-party payorslimit the indications for which
DAXI will be reimbursed to a smaller patient set than we believe they are effective in treating.
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In some foreign countries, particularly Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental
control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and
product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical
trial that compares the cost-effectiveness of our products, including DAXI, to other available therapies. If reimbursement for our product is unavailable in any
country in which reimbursement is sought, limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any future
products we develop.
We face an inherent risk of product liability lawsuits as a result of the clinical testing of our product candidates and we will face an even greater risk
if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable
during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in
design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state
consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to
limit commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in:
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decreased demand for DAXI or any future product candidates or products we develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants or cancellation of clinical trials;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue; and
the inability to commercialize any products we develop.
Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential
product liability claims could prevent or inhibit the commercialization of DAXI or any future products we develop. We currently carry product liability
insurance covering our clinical trials in the amount of $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought
against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits
of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which
we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not
covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing DAXI we
intend to expand our insurance coverage to include the sale of DAXI as applicable; however, we may be unable to obtain this liability insurance on
commercially reasonable terms.
We have been, and in the future may be, subject to securities class action and stockholder derivative actions. These, and potential similar or related
litigation, could result in substantial damages and may divert management’s time and attention from our business.
We have been, and may in the future be, the target of securities class actions or stockholder derivative claims. On May 1, 2015, a securities class
action complaint was filed on behalf of City of Warren Police and Fire Retirement System against us and certain of our directors and executive officers at the
time of our follow-on public offering, and the investment banking firms that acted as the underwriters in our follow-on public offering. The Court granted
final approval of the Settlement, as set forth in the Stipulation of Settlement, on July 28, 2017. While the litigation has ended, we may be subject to future
securities class action and shareholder derivation actions, which may adversely impact our business, results of operations, financial position or cash flows and
divert management’s time and attention from the business.
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If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop DAXI,
DaxibotulinumtoxinA Topical, biosimilar or any future product candidates, conduct our clinical trials and commercialize DAXI,
DaxibotulinumtoxinA Topical, biosimilar or any future products we develop.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel.
We believe that our future success is highly dependent upon the contributions of our senior management, particularly L. Daniel Browne, our President and
Chief Executive Officer, Abhay Joshi, Ph.D., our Chief Operating Officer, Caryn G. McDowell, our Senior Vice President, General Counsel & Corporate
Secretary, and Tobin C. Schilke, our Chief Financial Officer and Principal Financial Officer, as well as our senior scientists and other members of our senior
management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, the completion
of our planned clinical trials or the commercialization of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future products we develop.
For example, Lauren P. Silvernail resigned as our Chief Financial Officer and Chief Business Officer, effective as of May 29, 2018. In connection
with the departure of Ms. Silvernail, our Board of Directors, on June 20, 2018 appointed Cyril Allouche, our current Head of Finance and Corporate
Controller, to serve as our Principal Financial Officer and Principal Accounting Officer on an interim basis. On October 10, 2018, our Board of Directors
appointed Tobin C. Schilke to serve as our Chief Financial Officer and Principal Financial Officer effective as of November 5, 2018, which was Mr. Schilke's
employment start date. Mr. Allouche will continue to serve as the Company's Principal Accounting Officer. In addition, Todd Zavodnick resigned as our
Chief Commercial Officer and President, Aesthetics and Therapeutics, effective November 2018. In connection with the departure of Mr. Zavodnick, Dustin
Sjuts was promoted to head of Commercial effective as of November 5, 2018.
Leadership transitions can be inherently difficult to manage. Resignations of executive officers may cause disruption in our business, strategic and
employee relationships, which may significantly delay or prevent the achievement of our business objectives. Leadership changes may also increase the
likelihood of turnover in other key officers and employees and may cause declines in the productivity of existing employees. The search for a replacement
officer may take many months or more, further exacerbating these factors. Identifying and hiring an experienced and qualified executive officer are typically
difficult. Periods of transition in senior management leadership are often difficult as the new executives gain detailed knowledge of our operations and may
result in cultural differences and friction due to changes in strategy and style. During the transition periods, there may be uncertainty among investors,
employees, creditors and others concerning our future direction and performance.
We could experience problems attracting and retaining qualified employees. For example, competition for qualified personnel in the biotechnology
and pharmaceuticals field is intense and the turnover rate can be high due to the limited number of individuals who possess the skills and experience required
by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and
retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they
have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their previous
research output.
If we are not successful in discovering, developing, acquiring and commercializing additional product candidates, our ability to expand our business
and achieve our strategic objectives would be impaired.
Although a substantial amount of our effort will focus on the continued clinical testing and potential approval of DAXI, a key element of our strategy
is to discover, develop and commercialize a portfolio of botulinum toxin products for both aesthetic and therapeutic indications. We are seeking to do so
through our internal research programs and may explore strategic collaborations for the development or acquisition of new products. While DAXI is in the
clinical development stage, DaxibotulinumtoxinA Topical and all of our other potential product candidates remain in the discovery or preclinical stage.
Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are
ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for
clinical development for many reasons, including the following:
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the research methodology used may not be successful in identifying potential product candidates;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;
a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective
or otherwise does not meet applicable regulatory criteria;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;
a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable; and
intellectual property rights of third parties may potentially block our entry into certain geographies or make such entry economically
impracticable.
If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business
will be more vulnerable to problems that we encounter in developing and commercializing DAXI.
The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain
qualified members of our board of directors.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Dodd-Frank Act, the
Nasdaq listing rules and other applicable securities rules and regulations. Compliance with these rules and regulations has increased and will continue to
increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and
resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over
financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet
this standard, significant resources and management oversight may be required. As a result, management's attention may be diverted from other business
concerns, which could harm our business and operating results. Although we have hired additional employees to comply with these requirements, we may
need to hire more employees in the future, which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-
generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be
harmed.
As a public company that is subject to these rules and regulations we may find it is more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more
difficult for us to attract and retain qualified members of our board of directors and qualified executive officers.
We need to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and the failure to
do so could have a material adverse effect on our business and stock price.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and
procedures. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to
report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Beginning
with the 2018 Annual Report on Form 10-K, our independent registered public accounting firm is required to attest to the effectiveness of our internal control
over financial reporting. If we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that
are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to actions or investigations by the SEC,
or other regulatory authorities, which would require additional financial and management resources.
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We may experience difficulties implementing and maintaining our new enterprise resource planning system.
We purchased a new enterprise resource planning (“ERP”) system and are currently implementing the new system. ERP implementations are
complex and time-consuming, and involve substantial expenditures on system software and implementation activities. The ERP system will be critical to our
ability to provide important information to our management, obtain and deliver our products, provide services and customer support, send invoices and track
payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and reliable reports on our financial and operating
results or otherwise operate our business. ERP implementations also require transformation of business and financial processes in order to reap the benefits of
the ERP system; any such transformation involves risks inherent in the conversion to a new computer system, including loss of information and potential
disruption to our normal operations. The implementation and maintenance of the new ERP system has required, and will continue to require, the investment
of significant financial and human resources and the implementation may be subject to delays and cost overruns. In addition, we may not be able to
successfully complete the implementation of the new ERP system without experiencing difficulties. Any disruptions, delays or deficiencies in the design and
implementation or the ongoing maintenance of the new ERP system could adversely affect our ability to process orders, ship products, provide services and
customer support, send invoices and track payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and
reliable reports on our financial and operating results, or otherwise operate our business. Additionally, if we do not effectively implement the ERP system as
planned or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability
to assess it adequately could be delayed.
Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental
laws and regulations, which can be expensive and restrict how we do business.
Our research and development and manufacturing activities and our third-party manufacturers’ and suppliers’ activities involve the controlled
storage, use and disposal of hazardous materials owned by us, including botulinum toxin type A, a key component of our product candidates, and other
hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials. We are licensed with the CDC and with the California Department of Health, Food and Drug Branch for use of
botulinum toxin and to manufacture both the active pharmaceutical ingredient, or API, and the finished product in topical and injectable dose forms. In some
cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal.
We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and
business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage,
handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our third-party
manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot
guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any
resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and
interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more
stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance.
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We may use third-party collaborators to help us develop, validate or commercialize any new products, and our ability to commercialize such
products could be impaired or delayed if these collaborations are unsuccessful.
We may license or selectively pursue strategic collaborations for the development, validation and commercialization of DAXI, DaxibotulinumtoxinA
Topical, biosimilar and any future product candidates. For instance, in February 2018, we and Mylan entered into the Mylan Collaboration, pursuant to which
we and Mylan will collaborate exclusively, on a world-wide basis (excluding Japan), to develop, manufacture and commercialize our product candidates. In
addition, in December 2018, we and Fosun entered into the Fosun License Agreement pursuant to which we have granted Fosun the exclusive rights to
develop and commercialize DAXI in the Fosun Territory and certain sublicense rights. In any third-party collaboration, we would be dependent upon the
success of the collaborators to perform their responsibilities with continued cooperation. Our collaborators may not cooperate with us or perform their
obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to performing their
responsibilities under our agreements with them. Our collaborators may choose to pursue alternative technologies in preference to those being developed in
collaboration with us. The development, validation and commercialization of our product candidates will be delayed if collaborators fail to conduct their
responsibilities in a timely manner or in accordance with applicable regulatory requirements or if they breach or terminate their collaboration agreements with
us. Disputes with our collaborators could also impair our reputation or result in development delays, decreased revenues and litigation expenses. Our
collaboration with Mylan is for the development of a biosimilar product, which is subject to risks inherent with the relatively short history of biosimilar
product approvals in the United States. The biosimilar product would be subject to similar commercial risks as our DAXI and Daxibotulinumtoxin A Topical
product candidates. In February 2019, we and Mylan participated in a Biosimilar Initial Advisory Meeting (“BIAM”) with the FDA to discuss the feasibility
of a 351(k) biosimilar submission and the necessary development pathway for the biosimilar product candidate. While we believe that such a pathway is
viable, the successful development and commercialization of a biosimilar product in any indications of BOTOX® or BOTOX Cosmetic® would be subject to
FDA requirements that would need to be assessed by us and Mylan in determining the development of the biosimilar product candidate. Such requirements
may also limit our ability to begin Phase 3 development of the biosimilar in 2020, as presently planned or at all. Even if successfully developed, the
biosimilar product would be subject to similar commercial risks as our DAXI and Daxibotulinumtoxin A Topical product candidates.
Unfavorable global economic conditions or trade relations could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore,
the demand for aesthetic or therapeutic medical procedures may be particularly vulnerable to unfavorable economic conditions. We do not expect sales of
DAXI for the treatment of glabellar lines to be reimbursed by any government or third-party payor and, as a result, demand for the first indications of each of
our product candidates will be tied to discretionary spending levels of our targeted patient population. Future global financial crises may cause extreme
volatility and disruptions in capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including
weakened demand for DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates, if approved, and our ability to raise additional
capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or
cause our customers to delay making payments for our services.
In addition, changes in U.S. and foreign trade policies could trigger retaliatory actions by affected countries, resulting in “trade wars”, which may
reduce customer demand for goods exported out of the United States if the parties having to pay those tariffs increase their prices, or if trading partners limit
their trade with the United States. If these consequences are realized, the price to the consumer of aesthetic or therapeutic medical procedures from products
exported out of the United States may increase, resulting in a material reduction in the demand for our future product candidates. Such a reduction may
materially and adversely affect our potential sales and our business. In particular, under our Fosun License Agreement, we are responsible for manufacturing
DAXI and supplying it to Fosun, which would then develop commercialize, market and sell it in mainland China, Hong Kong and Macau. If this arrangement
is restricted in any way due to the US-China trade relation, the contingent payments we are entitled to receive under the agreement, which are based on
product sales, among other things, may be adversely affected.
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current or future economic climate and financial
market conditions could adversely impact our business.
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Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our
services and adversely impact our business.
The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax
laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or
disproportionately to services provided over the internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes
would represent and ultimately result in a negative impact on our operating results and cash flows.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly
with retroactive effect), which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties
and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, thereby adversely
impacting our operating results and cash flows.
Further, we have undertaken certain transactions to realize potential tax efficiencies in support of our expected global business expansion. These
transactions are meant to align the global economic ownership of our intellectual property rights with our current and future business operations. We are
uncertain as to whether the tax efficiencies sought by this alignment will materialize and may choose to unwind these transactions in the future.
On December 22, 2017, legislation that significantly revised the Internal Revenue Code of 1986, as amended, was signed into law. The legislation,
among other things, contained significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35 percent to
a flat rate of 21 percent, limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation
of the deduction for net operating losses to 80 percent of current year taxable income and elimination of net operating loss carrybacks, one time taxation of
offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important
exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many
business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the federal tax law changes is uncertain
and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly
enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse.
Significant disruptions of information technology systems or breaches of data security could materially adversely affect our business, results of
operations and financial condition.
We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information
technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit confidential information,
including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the
confidentiality and integrity of such confidential information. We have established physical, electronic and organizational measures to safeguard and secure
our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our
information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of our information
technology infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our internal information
technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants and other third parties on which we
rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or
cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. For
example, in January 2019, we discovered that our e-mail server suffered unauthorized intrusions in which proprietary business information was accessed.
Although we do not believe that we have experienced any material losses related to security breaches, including recent cybersecurity incidents, there can be
no assurance that we will not suffer such losses in the future. Breaches and other inappropriate access can be difficult to detect and any delay in identifying
them could increase their harm. While we have implemented security measures to protect our data security and information technology systems, such
measures may not prevent such events. Any such breaches of security and inappropriate access could disrupt our operations, harm our reputation or otherwise
have a material adverse effect on our business, financial condition and results of operations.
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The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign
governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the
world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which
could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate network security problems, bugs, viruses, worms,
malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security
and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected
interruptions, delays, cessation of service and other harm to our business and our competitive position. If such an event were to occur and cause interruptions
in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical study data from completed or
ongoing or planned clinical studies could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. Moreover, if a computer security breach affects our systems, corrupts our data or results in the unauthorized disclosure or release of personally
identifiable information, our reputation could be materially damaged. In addition, such a breach may require notification to governmental agencies,
supervisory bodies, credit reporting agencies, the media or individuals pursuant to various federal, state and foreign data protection, privacy and security laws,
regulations and guidelines, if applicable. For example, these may include the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as
amended by the Health Information Technology for Clinical Health Act of 2009, and its implementing rules and regulations, U.S. state breach notification
laws and the EU General Data Protection Regulation (EU) 2016/679, or GDPR. We would also be exposed to a risk of loss, enforcement measures, penalties,
fines, indemnification claims or litigation and potential civil or criminal liability, which could materially adversely affect our business, results of operations
and financial condition.
Changes in and failures to comply with U.S. and foreign privacy and data protection laws, regulations and standards may adversely affect our
business, operations and financial performance.
We are subject to or affected by numerous federal, state and foreign laws and regulations, as well as regulatory guidance, governing the collection,
use, disclosure, retention, and security of personal data, such as information that we collect about patients and healthcare providers in connection with clinical
trials in the U.S. and abroad. The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to
remain uncertain for the foreseeable future. This evolution may create uncertainty in our business, affect our or our vendors’ ability to operate in certain
jurisdictions or to collect, store, transfer use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in
liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any
failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing
our processing of personal information could result in negative publicity, diversion of management time and effort and proceedings against us by
governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising.
In the U.S., HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually
identifiable health information. Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent
than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially
complex compliance issues for us and our future customers and strategic partners. In the event that we are subject to HIPAA or other U.S. privacy and data
protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. Our operations abroad
may also be subject to increased scrutiny or attention from data protection authorities. Many countries in these regions have established or are in the process
of establishing privacy and data security legal frameworks with which we, our customers, or our vendors must comply. For example, the EU has adopted the
GDPR, which went into effect in May 2018 and introduces strict requirements for processing the personal information of EU subjects, including clinical trial
data. The GDPR is likely to increase compliance burdens on us, including by mandating potentially burdensome documentation requirements and granting
certain rights to individuals to control how we collect, use, disclose, retain and process information about them. The processing of sensitive personal data,
such as physical health condition, may impose heightened compliance burdens under the GDPR and is a topic of active interest among foreign regulators. In
addition, the GDPR provides for more robust regulatory enforcement and fines of up to €20 million or 4 percent of the annual global revenue of the
noncompliant company, whichever is greater. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws
and regulations that may affect how we conduct business.
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Risks Related to Our Intellectual Property
If our efforts to protect our intellectual property related to DAXI, or any future product candidates, including DaxibotulinumtoxinA Topical and
biosimilar, are not adequate, we may not be able to compete effectively.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to DAXI,
DaxibotulinumtoxinA Topical, biosimilar, and our development programs. Any disclosure to or misappropriation by third parties of our confidential
proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thereby eroding our competitive position.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. This
uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law
in ways affecting the scope or validity of issued patents. The patent applications that we own or license may fail to result in issued patents in the U.S. or
foreign countries. Competitors in the field of cosmetics, pharmaceuticals, and botulinum toxin have created a substantial amount of prior art, including
scientific publications, patents and patent applications. Our ability to obtain and maintain valid and enforceable patents depends on whether the differences
between our technology and the prior art allow our technology to be patentable over the prior art. Even if the patents do successfully issue, third parties may
challenge the validity, enforceability or scope of such issued patents or any other issued patents we own or license, which may result in such patents being
narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within nine months
from the publication of their grant. Our European Patent EP 2 661 276 for “Topical composition comprising botulinum toxin and a dye” was opposed in the
European Patent Office by Allergan plc on May 2, 2018, and although this patent is not material to RT002 injectable, we will continue to take appropriate
measures to defend the patent. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual
property or prevent others from designing around our claims. In addition, recent changes to the patent laws of the U.S. provide additional procedures for third
parties to challenge the validity of issued patents. Patents issued from applications filed after March 15, 2013 may be challenged by third parties using the
post-grant review procedure which allows challenges for a number of reasons, including prior art, sufficiency of disclosure, and subject matter eligibility.
Under the inter partes review procedure, any third party may challenge the validity of any issued U.S. Patent in the U.S. Patent and Trademark
Office, or USPTO, on the basis of prior art. Because of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings as
compared to the evidentiary standard relied on in U.S. federal court, a third party could potentially provide evidence in a USPTO proceeding sufficient for the
USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action.
Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged
by the third party as a defendant in a district court action. If the breadth or strength of protection provided by the patents and patent applications we hold or
pursue with respect to DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates is challenged, then it could threaten our ability to
commercialize DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates, and could threaten our ability to prevent competitive
products from being marketed. Further, if we encounter delays in our clinical trials, the period of time during which we could market DAXI, or any future
product candidates under patent protection would be reduced. The results of our REALISE 1 Phase 3 clinical trial may be relevant to our patent strategy for
our DaxibotulinumtoxinA Topical program.
Since patent applications in the U.S. and most other countries are confidential for a period of time after filing, we cannot be certain that we were the
first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our patents or patent applications.
Furthermore, for applications filed before March 16, 2013, or patents issuing from such applications, an interference proceeding can be provoked by a third
party, or instituted by the USPTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications and
patents. As of March 16, 2013, the U.S. transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent
applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO before us could therefore be
awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. The change to “first-to-file” from
“first-to-invent” is one of the changes to the patent laws of the United States resulting from the Leahy-Smith America Invents Act signed into law on
September 16, 2011. Among some of the other changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and
providing opportunities for third parties to challenge any issued patent in the USPTO.
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Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary
rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors
could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios and financial
resources than we have.
We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for
which patents may be difficult to obtain or enforce and any other elements of our product development processes that involve proprietary know-how,
information or technology that is not covered by patents.
In an effort to protect our trade secrets and other confidential information, we require our employees, consultants, collaborators and advisors to
execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that all confidential information
developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential
information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential
information. A breach of confidentiality could significantly affect our competitive position. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisors have previous employment or consulting
relationships. To the extent that our employees, consultants or contractors use any intellectual property owned by others in their work for us, disputes may
arise as to the rights in any related or resulting know-how and inventions. Also, others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets and other confidential information.
If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed.
Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents
owned or controlled by other parties. Competitors in the field of cosmetics, pharmaceuticals and botulinum toxin have developed large portfolios of patents
and patent applications in fields relating to our business. For example, there are patents held by third parties that relate to the treatment with botulinum toxin-
based products for indications we are currently developing. There may also be patent applications that have been filed but not published that, when issued as
patents, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful
against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay
research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These
licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or
royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property.
Ultimately, we could be prevented from commercializing a product based on our current or future indications, or be forced to cease some aspect of our
business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.
There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. In
addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation or post-
grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our
current or future products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our
competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial
resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material
adverse effect on our business, financial condition or results of operations.
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We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be
expensive and time-consuming.
Competitors may infringe upon our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file
infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming.
In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an
infringer are not satisfied.
An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not issuing.
Interference, derivation, inter partes review, post-grant review or other proceedings brought at the USPTO may be necessary to determine the priority
or patentability of inventions with respect to our patents or patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings
brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent
office proceedings may result in substantial costs and distraction to our management. We may not be able, either alone or with our licensors or collaborators,
to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the U.S.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is
a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the
course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or
developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be
significantly harmed.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S.. In addition, the laws of some foreign countries do
not protect intellectual property rights to the same extent as federal and state laws in the U.S. and in some cases may even force us to grant a compulsory
license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside
the U.S., or from selling or importing products made using our inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in
jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories
where we have patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with our products and our patents or
other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in
violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications
at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and
foreign intellectual property laws.
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Our business and products are subject to extensive government regulation.
Risks Related to Government Regulation
We are subject to extensive, complex, costly and evolving regulation by federal and state governmental authorities in the U.S., principally by the
FDA, the U.S. Drug Enforcement Administration, or DEA, the CDC, and foreign regulatory authorities. Failure to comply with all applicable regulatory
requirements, including those promulgated under the Federal Food, Drug, and Cosmetic Act (“FFDCA”), the PHSA, and Controlled Substances Act, may
subject us to operating restrictions and criminal prosecution, monetary penalties and other disciplinary actions, including, sanctions, warning letters, product
seizures, recalls, fines, injunctions, suspension, revocation of approvals, or exclusion from future participation in the Medicare and Medicaid programs.
After our products receive regulatory approval , we, and our direct and indirect suppliers, will remain subject to the periodic inspection of our plants
and facilities, review of production processes, and testing of our products to confirm that we are in compliance with all applicable regulations. Adverse
findings during regulatory inspections may result in the implementation of Risk Evaluation and Mitigation Strategies (“REMS”) programs, completion of
government mandated clinical trials, and government enforcement action relating to labeling, advertising, marketing and promotion, as well as regulations
governing manufacturing controls noted above.
The regulatory approval process is highly uncertain and we may not obtain regulatory approval for the commercialization of DAXI or any future
product candidates.
The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug and biologic products are subject
to extensive regulation by the FDA and other regulatory authorities in the U.S. and other countries, which regulations differ from country to country. Neither
we nor any collaboration partner are permitted to market DAXI or any future product candidates in the U.S. until we receive approval of a BLA from the
FDA. We have not submitted an application or obtained marketing approval for DAXI anywhere in the world. After we submit a BLA for DAXI, the FDA
may refuse to file the application if it determines that the application is not sufficiently complete to permit substantive review. Even if filed by FDA, our BLA
may receive a Complete Response Letter identifying deficiencies that must be addressed, rather than an approval. Obtaining regulatory approval of a BLA
can be a lengthy, expensive and uncertain process.
In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially
imposed sanctions or other actions, including:
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warning letters;
civil and criminal penalties;
injunctions;
withdrawal of approved products;
product seizure or detention;
product recalls;
total or partial suspension of production; and
refusal to approve pending BLAs or supplements to approved BLAs.
Prior to obtaining approval to commercialize a product candidate in the U.S. or abroad, we or our collaborators must demonstrate with substantial
evidence from well controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such product candidates are safe and
effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical and
clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities.
Administering product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or
other regulatory authorities denying approval of a product candidate for any or all targeted indications.
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Regulatory approval of a BLA or BLA supplement is not guaranteed, and the approval process is expensive and may take several years. The FDA
also has substantial discretion in the approval process. Despite the time and expense expended, failure can occur at any stage, and we could encounter
problems that cause us to abandon or repeat clinical trials, or perform additional preclinical studies and clinical trials. The number of preclinical studies and
clinical trials that will be required for FDA approval varies depending on the product candidate, the disease or the condition that the product candidate is
designed to address and the regulations applicable to any particular product candidate. The FDA can delay, limit or deny approval of a product candidate for
many reasons, including the following:
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a product candidate may not be deemed safe, effective, or of required quality;
FDA officials may not find the data from preclinical studies and clinical trials sufficient;
the FDA might not approve our third-party manufacturers’ processes or facilities; or
the FDA may change its approval policies or adopt new regulations.
If DAXI or any future product candidates fail to demonstrate safety and efficacy in clinical trials or do not gain approval, our business and results of
operations will be materially and adversely harmed.
Even if we receive regulatory approval for DAXI or any future product candidates, we will be subject to ongoing regulatory obligations and
continued regulatory review, which may result in significant additional expense, may limit or delay regulatory approval and may subject us to
penalties if we fail to comply with applicable regulatory requirements.
Once regulatory approval has been granted, DAXI or any approved product will be subject to continual regulatory review by the FDA and/or non-
U.S. regulatory authorities. Additionally, any product candidates, if approved, will be subject to extensive and ongoing regulatory requirements, including
labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience
unanticipated problems with our products.
Any regulatory approvals that we or our collaborators receive for DAXI or any future product candidates may also be subject to limitations on the
approved indications for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing
testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the applicable regulatory
agency approves DAXI or any future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage,
advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include
submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP and cGCP for any clinical
trials that we conduct post-approval. Later discovery of previously unknown problems with DAXI or any future product candidates, including adverse events
of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements,
may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications submitted by us or our strategic collaborators, or
suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; and
injunctions or the imposition of civil or criminal penalties.
Our ongoing regulatory requirements may also change from time to time, potentially harming or making costlier our commercialization efforts. We
cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or
other countries. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which
would adversely affect our business.
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If we fail to obtain regulatory approvals in foreign jurisdictions for DAXI, or any future product candidates including DaxibotulinumtoxinA Topical
or biosimilar, we will be unable to market our products outside of the U.S.
In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing manufacturing, clinical trials, commercial sales
and distribution of our future products. Whether or not we obtain FDA approval for a product candidate, we must obtain approval of the product by the
comparable regulatory authorities of foreign countries before commencing clinical trials or marketing in those countries. The approval procedures vary
among countries and can involve additional clinical testing, or the time required to obtain approval may differ from that required to obtain FDA approval.
Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by
regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in
other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may
not be able to file for regulatory approvals or to do so on a timely basis, and even if we do file, we may not receive the necessary approvals to commercialize
our products in geographies outside of the U.S..
If approved, DAXI or any other products may cause or contribute to adverse medical events that we are required to report to regulatory agencies
and if we fail to do so, we could be subject to sanctions that would materially harm our business.
Some participants in our clinical trials have reported adverse events after being treated with DAXI. If we are successful in commercializing DAXI,
or any other products including DaxibotulinumtoxinA Topical or biosimilar, the FDA and foreign regulatory agency regulations require that we report certain
information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report
would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become
aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not
reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our
reporting obligations, the FDA or a foreign regulatory agency could take action including criminal prosecution, the imposition of civil monetary penalties,
seizure of our products, or delay in approval or clearance of future products.
We may in the future be subject to various U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback, self-
referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.
While we do not expect that DAXI, if approved for the treatment of glabellar lines, will subject us to all of the various U.S. federal and state laws
intended to prevent healthcare fraud and abuse, we may in the future become subject to such laws for treatment of other indications. The federal anti-kickback
statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that
would be paid for in whole or part by Medicare, Medicaid or other federal healthcare programs. Remuneration has been broadly defined to include anything
of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state healthcare
programs as well as private payors. Violations of the anti-kickback laws can result in exclusion from federal healthcare programs and the levying of
substantial civil and criminal penalties.
The federal false claims and civil monetary penalties laws, including the civil False Claims Act, or FCA, imposes liability on persons who, among
other things, present or cause to be presented false or fraudulent claims for payment by a federal healthcare program. The FCA has been used to prosecute
persons submitting claims for payment that are inaccurate or fraudulent, for services not provided as claimed, or for services that are not medically necessary.
The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery
of successful claims. If our marketing or other arrangements were determined to violate anti-kickback or related laws, including the FCA, then our revenues
could be adversely affected, which would likely harm our business, financial condition, and results of operations.
HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud
any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in
connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
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The federal Physician Payments Sunshine Act, and its implementing regulations, require certain manufacturers of drugs, devices, biologics and
medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related
to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching
hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members.
We may also be subject to analogous state laws and regulations, including: state anti-kickback and false claims laws, state laws that require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources, state laws and
regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration
and items of value provided to healthcare professionals and entities, and state and local laws that require the registration of our pharmaceutical sales
representatives
State and federal authorities have aggressively targeted pharmaceutical manufacturers for alleged violations of these anti-fraud statutes, based on
improper research or consulting contracts with physicians and other healthcare professionals, certain marketing arrangements that rely on volume-based
pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the
hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans, and have often become subject to consent decrees
severely restricting the manner in which they conduct business. Further, defending against any such actions can be costly, time-consuming and may require
significant financial and personnel resources. If we become the target of such an investigation or prosecution based on our contractual relationships with
providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. Even if we
are successful in defending against any such actions that may be brought against us, our business may be impaired.
Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from
making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and
procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of
these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations
and reputation.
Legislative or regulatory healthcare reforms in the U.S. may make it more difficult and costly for us to obtain regulatory clearance or approval of
DAXI, topical, or any future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory
clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often
revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. In addition, there have been several recent U.S.
congressional inquiries and proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing,
review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program
reimbursement methodologies for drug products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or
lengthen review times of, or affect the price that we may charge for, DAXI, or any future product candidates including DaxibotulinumtoxinA Topical or
biosimilar. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted
may have on our business in the future. Such changes could require, among other things:
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changes to manufacturing methods;
recall, replacement, or discontinuance of one or more of our products; and
additional recordkeeping.
Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in
receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of
operations.
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Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other
personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from
performing normal functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels,
ability to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency
have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely,
including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government
agencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018, the U.S.
government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other
government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely
review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could
impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
The trading price of our common stock is volatile, and purchasers of our common stock could incur substantial losses.
Risks Related to the Ownership of Our Common Stock
The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are
beyond our control. The stock markets in general and the markets for pharmaceutical biopharmaceutical and biotechnology stocks in particular have
experienced extreme volatility that may have been for reasons that are related or unrelated to the operating performance of the issuer. The market price for our
common stock may be influenced by many factors, including:
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regulatory or legal developments in the U.S. and foreign countries;
results from or delays in clinical trials of our product candidates, including our ongoing SAKURA Phase 3 clinical program in glabellar lines
our ongoing ASPEN Phase 3 clinical program in cervical dystonia and our Phase 2 program in plantar fasciitis all with DAXI;
announcements of regulatory approval or disapproval of DAXI or any future product candidates;
FDA or other U.S. or foreign regulatory actions or guidance affecting us or our industry;
introductions and announcements of new products by us, any commercialization partners or our competitors, and the timing of these
introductions and announcements;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in the structure of healthcare payment systems;
announcements by us or our competitors of significant acquisitions, licenses, strategic partnerships, joint ventures or capital commitments;
• market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ reports or recommendations;
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quarterly variations in our results of operations or those of our future competitors;
changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;
sales of substantial amounts of our stock by insiders and large stockholders, or the expectation that such sales might occur;
general economic, industry and market conditions;
additions or departures of key personnel;
intellectual property, product liability or other litigation against us;
expiration or termination of our potential relationships with customers and strategic partners;
the occurrence of trade wars or barriers, or the perception that trade wars or barriers will occur; and
other factors described in this “Risk Factors” section.
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These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In addition, in the past, stockholders have
initiated class actions against pharmaceutical companies, including us, following periods of volatility in their stock prices. Such litigation instituted against us
could cause us to incur substantial costs and divert management’s attention and resources.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume
could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our
business. Securities and industry analysts may cease to publish research on our company at any time in their discretion. A lack of research coverage may
adversely affect the liquidity and market price of our common stock. We will not have any control of the equity research analysts or the content and opinions
included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable
commentary or research. If one or more equity research analysts ceases coverage of our company, or fails to publish reports on us regularly, demand for our
stock could decrease, which in turn could cause our stock price or trading volume to decline.
Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could cause the market price
of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. We raised net proceeds of approximately
$10.0 million by selling an aggregate of 352,544 shares of our common stock under the 2015 ATM agreement, which was effectively terminated on March 7,
2016, and raised net proceeds of approximately $38.2 million by selling an aggregate of 1,802,651 shares of our common stock under the 2016 ATM
agreement. In March 2018, the Company terminated the 2016 ATM Agreement and entered into the 2018 ATM Agreement. Under the 2018 ATM Agreement,
the Company may offer and sell common stock having aggregate proceeds of up to $125.0 million from time to time through Cantor Fitzgerald as our sales
agent. No sales of our common stock have taken place under the 2018 ATM Agreement as of December 31, 2018.
If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market,
the market price of our common stock could decline significantly. Any sales of securities by stockholders could have a material adverse effect on the trading
price of our common stock.
Provisions in our corporate charter documents and under Delaware law could discourage takeover attempts and lead to management entrenchment,
and the market price of our common stock may be lower as a result.
Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws may make it difficult for a third party to
acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by you and other stockholders. For example, our
board of directors has the authority to issue up to 5,000,000 shares of preferred stock. Our board of directors can fix the price, rights, preferences, privileges,
and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a
change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely
affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, including:
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only one of our three classes of directors will be elected each year;
no cumulative voting in the election of directors;
the ability of our board of directors to issues shares of preferred stock and determine the price and other terms of those shares, including
preferences and voting rights, without stockholder approval;
the exclusive right of our board of directors to elect a director to fill a vacancy or newly created directorship;
stockholders will not be permitted to take actions by written consent;
stockholders cannot call a special meeting of stockholders;
stockholders must give advance notice to nominate directors or submit proposals for consideration at stockholder meetings;
the ability of our board of directors, by a majority vote, to amend the bylaws; and
the requirement for the affirmative vote of at least 66 2/3 percent or more of the outstanding common stock to amend many of the provisions
described above.
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In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate
acquisitions. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also
have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These
provisions may also prevent changes in our management or limit the price that certain investors are willing to pay for our stock.
Our amended and restated certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum
for substantially all disputes between us and our stockholders.
A relatively small number of existing stockholders have substantial control over us, which could limit your ability to influence the outcome of key
transactions, including a change of control.
As of December 31, 2018, our directors, executive officers and each of our stockholders who own greater than 5 percent of our outstanding common
stock and their affiliates, in the aggregate, beneficially owned approximately 54.0 percent of our common stock. As a result, these stockholders, if acting
together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers,
acquisitions or other extraordinary transactions. They may have interests that differ from yours and may vote in a way with which you disagree and that may
be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company,
could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might affect the market
price of our common stock.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may
reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in
each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification
agreements that we have entered into with our directors and officers provide that:
• We will indemnify our directors and officers for serving us in those capacities, or for serving other business enterprises at our request, to the
fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
• We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
• We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such
directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
• We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person
against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to
indemnification.
•
The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with
our directors, officers, employees and agents and to obtain insurance to indemnify such persons.
• We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers,
employees and agents.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole
source of gains.
We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the
development and growth of our business. In addition, the terms of any existing or future debt agreements may preclude us from paying dividends. As a result,
capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
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We recognize revenue in accordance with complex accounting standards and changes in the interpretation or application of generally accepted
accounting principles may materially affect our financial statements.
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard for revenue recognition, Accounting Standards
Update No. 2014-09, Revenue from Contracts with Customers (“ASC 606”). Further, in April 2016, the FASB amended ASC 606 to provide additional
guidance on revenue recognition as it pertains to licenses of intellectual property. We adopted ASC 606 and its related amendments on January 1, 2018.
The nature of our business requires the application of complex revenue recognition rules. Significant judgment is required in the interpretation and
application of complex accounting guidance such as ASC 606. Our judgments and assumptions are based on the facts and circumstances of the underlying
revenue transactions. The SEC, the American Institute of Certified Public Accountants (“AICPA”), the FASB and various other regulatory or accounting
bodies may issue new positions, interpretive views or updated accounting standards on the treatment of complex accounting matters such as revenue
recognition that may materially affect our financial statements.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Our headquarters is located in Newark, California, where we occupy approximately 109,000 square feet of office, laboratory and manufacturing
space. The current term of our lease expires in January 2027. We have an option to extend the lease for two additional terms of seven years, which would
extend our lease through January 2041. We believe that our current facilities are adequate for our needs and for the immediate future and that, should it be
needed, additional space can be leased to accommodate any future growth.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently involved in any known
material legal proceedings. We may, however, be involved in material legal proceedings in the future. Such matters are subject to uncertainty and there can be
no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.
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ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock has been trading on The Nasdaq Global Market under the symbol “RVNC” since our IPO on February 6, 2014. Prior to this date,
there was no public market for our common stock.
Holders of Record
As of February 22, 2019, there were approximately 25 holders of record of our common stock, one of which was Cede & Co., a nominee for
Depository Trust Company (“DTC”). All of the shares of our common stock held by brokerage firms, banks and other financial institutions as nominees for
beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co. as one stockholder.
Dividend Policy
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the
development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any
determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent on a number of factors, including our
earnings, capital requirements, overall financial conditions, business prospects, contractual restrictions and other factors our board of directors may deem
relevant.
Stock Price Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our
filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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This graph compares, for the period ended December 31, 2018, the cumulative total return on our common stock, the Nasdaq Biotechnology Index
(“NBI”) and the Nasdaq Composite Index (“CCMP”). The graph assumes $100 was invested on February 6, 2014, in our common stock, the NBI and CCMP,
and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price
performance.
Company/Index
Revance Therapeutics,
Inc.
Nasdaq Biotechnology
Index
Nasdaq Composite
Index
2/6/2014
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
$100.00
$105.88
$213.50
$129.38
$223.44
$125.81
$100.00
$128.67
$143.81
$113.11
$137.58
$125.39
$100.00
$117.98
$126.20
$137.39
$178.11
$173.05
Recent Sales of Unregistered Securities
During the year ended December 31, 2018, there were no sales of unregistered securities.
Issuer Purchases of Equity Securities
We have not and do not currently intend to retire or repurchase any of our shares other than providing our employees with the option to withhold
shares to satisfy tax withholding amounts due from employees upon the vesting of restricted stock awards in connection with our 2014 Equity Incentive Plan
(“2014 EIP”) and 2014 Inducement Plan (“2014 IN”).
Period
October 1 through October 31, 2018
November 1 through November 30, 2018
December 1 through December 31, 2018
Total
Total Number of
Shares Purchased (i)
Weighted-Average
Price Paid per Share
(ii)
Total Number of Share
Purchased as Part of
Publicly Announced
Plan or Programs
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plan or
Programs
(in thousands)
7,732 $
1,199
4,841
13,772 $
23.94
21.19
19.91
22.40
—
—
—
— $
—
—
—
—
(i) Consists solely of shares that were withheld to satisfy tax withholding amounts due from employees upon the vesting of previously issued restricted stock awards.
(ii) The weighted-average price paid per share is the weighted-average of the fair market prices at which we calculated the number of shares withheld to cover tax withholdings for the employees.
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ITEM 6. SELECTED FINANCIAL DATA
The information set forth below for the five years ended December 31, 2018 is not necessarily indicative of results of future operations, and should
be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial
Statements and related notes thereto included in Item 8, Consolidated Financial Statements and Supplementary Data, of this Form 10-K to fully understand
the factors that may affect the comparability of the information presented below.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenue
Total operating expenses
Loss from operations
Interest expense
Net loss
Basic and Diluted net loss attributable to
common stockholders
Basic and Diluted net loss per share attributable
to common stockholders
Basic and Diluted weighted-average number of
shares used in computing net loss per share
attributable to common stockholders
Consolidated Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital surplus
Total Assets
Financing obligation, net of current portion
Accumulated deficit
$
$
$
$
$
$
$
$
$
$
$
$
$
2018
2017
2016
2015
2014
Year Ended December 31,
3,729 $
146,363 $
(142,634) $
(44) $
262 $
120,686 $
(120,424) $
(457) $
(142,568) $
(120,587) $
300 $
88,515 $
(88,215) $
(1,082) $
(89,270) $
300 $
72,617 $
(72,317) $
(1,190) $
(73,476) $
383
52,433
(52,050)
(10,672)
(62,917)
(142,568) $
(120,587) $
(89,270) $
(73,476) $
(62,917)
(3.94) $
(4.01) $
(3.18) $
(3.02) $
(3.24)
36,171,582
30,101,125
28,114,784
24,340,466
19,391,523
2018
2017
2016
2015
2014
As of December 31,
73,256 $
102,556 $
175,952 $
226,348 $
— $
282,896 $
— $
264,309 $
295,699 $
— $
63,502 $
122,026 $
173,048 $
204,360 $
1,872 $
201,615 $
52,439 $
241,926 $
275,822 $
5,346 $
171,032
—
162,495
192,469
598
(684,775) $
(542,167) $
(421,543) $
(332,273) $
(258,797)
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader
understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our audited
Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements and other disclosures included in this Annual
Report on this Form 10-K (including the disclosures under “Item 1A. Risk Factors”). Our Consolidated Financial Statements have been prepared in
accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.
Overview
We are a clinical-stage biotechnology company focused on the development, manufacturing, and commercialization of novel neuromodulators for
multiple aesthetic and therapeutic indications. We are leveraging our proprietary portfolio of botulinum toxin type A compounds, formulated with our
patented and proprietary peptide excipient technology, to address unmet needs in large and growing neuromodular markets. Our initial focus is on developing
daxibotulinumtoxinA, our highly purified botulinum toxin Type A, for a broad spectrum of aesthetic and therapeutic indications, including facial wrinkles,
muscle disorders, and chronic migraine.
Our lead drug candidate is DAXI. We used our unique proprietary peptide excipient technology to formulate DAXI. The noncovalent bond formed
between the proprietary peptide excipient technology and the botulinum toxin may enable longer residence time of botulinum toxin Type A, which could
explain DAXI’s long duration of effect. The process binds a highly purified botulinum toxin Type A with a unique proprietary stabilizing excipient peptide.
We do not use human serum albumin and other animal-sourced ingredients, which carry the risk of transmission of pathogens, to stabilize our product.
We are currently studying DAXI for the treatment of facial wrinkles, cervical dystonia, plantar fasciitis, adult upper limb spasticity and chronic
migraine. We believe DAXI has the potential to expand into additional aesthetic and therapeutic indications in the future. We also are developing a topically
applied neuromodulator for aesthetic and therapeutic indications, DaxibotulinumtoxinA Topical, and have a collaboration and license agreement with Mylan
to develop and commercialize a biosimilar to BOTOX®.
DAXI
We are developing an injectable formulation of botulinum toxin type A, which we refer to as DAXI, for indications where a long-lasting effect is
desired. We believe, and our preclinical and clinical studies using DAXI indicate, that daxibotulinumtoxinA combined with our novel peptide may safely
achieve enhanced clinical efficacy and duration without an increase in associated adverse events. We are currently focusing on developing DAXI for the
treatment of both aesthetic and therapeutic indications.
Glabellar Lines
The glabella is the area between the eyebrows and above the nose. Glabellar lines, often called “frown lines,” are vertical lines that develop
between the eyebrows and may appear as a single vertical line or as two or more lines. When one frowns, the muscles of the glabella contract causing vertical
creases to form between the eyebrows. Botulinum toxin is used to temporarily block the ability of nerves to trigger contraction of injected muscle, inhibiting
movement of the muscles that cause the frown lines, giving the skin a smoother, more refreshed appearance.
In 2015, we reported results from BELMONT, a Phase 2 active comparator, placebo-controlled clinical trial for the treatment of glabellar lines
against BOTOX® Cosmetic. The 24-week data showed that DAXI achieved its primary efficacy measurement for all doses of DAXI, and that such efficacy
was highly statistically significant as compared to placebo. In addition, the 40 Unit dose of DAXI demonstrated a 23.6-week median duration versus
BOTOX® Cosmetic with an 18.8-week median duration. Across all cohorts, DAXI appeared to be generally safe and well-tolerated.
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The Phase 3 clinical program includes a) SAKURA 1 and SAKURA 2, two randomized, double-blind, placebo-controlled pivotal trials to evaluate
the safety and efficacy of a single administration of DAXI for the treatment of moderate to severe glabellar lines in adults and b) SAKURA 3, a long-term,
open-label safety trial designed to evaluate the long-term safety of DAXI for the treatment of moderate to severe glabellar lines in adults following both
single and repeat treatment administration. In December 2017, we announced top-line results for the SAKURA 1 and SAKURA 2 pivotal trials. Both
SAKURA 1 and SAKURA 2 met the primary composite endpoint by delivering highly statistically significant improvement against placebo in reducing the
severity of glabellar lines. The percentage of DAXI-treated patients who had none or mild wrinkles and achieved at least a two-point improvement from
baseline on both validated physician and patient assessments was 73.6 percent in SAKURA 1 and 74.0 percent in SAKURA 2 compared to placebo
(p<0.0001) at Week 4. Also, at that time point, 88 percent of DAXI-treated patients in SAKURA 1 and 91 percent of DAXI patients in SAKURA 2 said they
were very satisfied or satisfied with their treatment experience.
There were several secondary endpoints used to evaluate duration of effect, including the proportion of patients achieving none or mild response
on IGA-FWS compared to placebo, median duration for time to loss of none or mild wrinkle severity on both IGA-FWS and PFWS, and median duration for
time to return to baseline on both IGA-FWS and PFWS. The percentage of DAXI-treated patients who achieved a none or mild response on IGA-FWS was
35.3 percent in SAKURA 1 and 29.4 percent at SAKURA 2 compared to placebo (p<0.0001) at Week 24. The median duration for time to loss of none or
mild wrinkle severity on both IGA-FWS and PFWS for DAXI-treated patients was 24.0 weeks for SAKURA 1 and 23.9 weeks for SAKURA 2. The median
duration for time to return to baseline wrinkle severity on both IGA-FWS and PFWS for DAXI-treated patients was 27.7 weeks for SAKURA 1 and 26.0
weeks for SAKURA 2. For comparison, an additional exploratory duration endpoint was evaluated, which mirrors the duration measure used in the
BELMONT Phase 2 study. This endpoint, was the median duration of greater or equal to 1 point improvement from baseline on IGA-FWS for DAXI-treated
patients, and the results were 24.1 weeks for both SAKURA 1 and SAKURA 2, and 23.6 weeks for BELMONT.
In December 2018, we announced top-line results for the SAKURA 3 open-label, long-term safety study. DAXI appeared to be generally well-
tolerated, with no new tolerability or safety concerns reported. As was seen in the SAKURA 1 and SAKURA 2 pivotal trials, adverse events were mild,
localized and transient. The rate of treatment-related adverse events decreased over successive treatments. The most common treatment-related adverse events
per treatment of DAXI were headache (3.3 percent of treatments), injection site pain (2.7 percent), injection site erythema (2.5 percent), and injection site
oedema (2.2 percent). There were no treatment-related serious adverse events. Eyelid ptosis was reported in 0.9 percent of treatments, decreased in frequency
with successive treatments and was substantially lower than the rate observed in SAKURA 1 and SAKURA 2 (2.2 percent of treatments). The majority of
ptosis events were characterized as mild in severity (85 percent) and transient. A high degree of efficacy was seen consistently across all three treatment
cycles. Results were consistent with SAKURA 1 and SAKURA 2 based on the IGA-FWS and PFWS scales. As early as Week 1, over 90 percent of subjects
across all three treatments had none or mild wrinkles on the IGA-FWS. At Week 4, the percentage of DAXI-treated patients who achieved a none or mild
response on IGA-FWS was 95.8 percent, 96.6 percent, and 97.7 percent for first, second and third treatment for SAKURA 3, respectively, and 97.5 percent
for SAKURA 2 and SAKURA 1. On the more stringent 2-point composite endpoint, which was the primary efficacy endpoint in SAKURA 1 and 2, efficacy
improved with successive treatment cycles: 73.2 percent, 77.7 percent, and 79.6 percent for first, second and third treatment of SAKURA 3, respectively, and
73.6 percent and 74.0 percent for SAKURA 1 and 2, respectively.
As in the SAKURA 1 and SAKURA 2 pivotal trials, there were several secondary endpoints used to evaluate duration of effect, including median
time to loss of none or mild wrinkle severity on both IGA-FWS and PFWS, and median duration for time to return to baseline wrinkle severity on both IGA-
FWS and PFWS. Duration was evaluated in the first two 36-week treatment cycles; the third treatment cycle was not evaluated for duration as the observation
period ended at twelve weeks for the purpose of this study. Median time to return to baseline wrinkle severity on both IGA-FWS and PFWS is 28.0 weeks and
28.1 weeks for first and second treatment of SAKURA 3, respectively, 27.7 weeks for SAKURA 1, and 26.0 weeks for SAKURA 2. Median time to loss of
none or mild wrinkle severity on both IGA-FWS and PFWS is 24.0 weeks and 24.1 weeks for first and second treatment of SAKURA 3, respectively, 24.0
weeks for SAKURA 1, and 23.9 weeks for SAKURA 2. We held a pre-BLA meeting with U.S. Food and Drug Administration (“FDA”) in December 2018,
to agree upon the content and format of the BLA, which we plan to submit in first half of 2019. We plan to file marketing applications in the European Union,
Canada, and certain Latin American and Asian countries after filing in the U.S.
We held a pre-BLA meeting with the FDA in December 2018, to agree upon the content and format of the BLA, which we plan to submit in first half
of 2019.
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Forehead Lines
Forehead lines are produced by the action of the frontalis muscle, a large, thin, vertically-oriented muscle which lifts the eyebrows. The frontalis
muscle serves as an antagonist to the glabellar musculature, a natural depressor that is responsible for frowning and associated eyebrow movement. As the
eyebrow is considered the aesthetic center of the upper face, forehead lines can significantly impact the aesthetic appearance of the face, contribute to
increased signs of aging and convey unwanted social signals. However, both men and women have identified internal factors, such as wanting to look good
for their age or having a more youthful appearance as very important and have prioritized forehead lines as bothersome areas for potential treatment
regardless of age or available income. We initiated a Phase 2 study in forehead lines in January 2019.
Lateral Canthal Lines
LCL, or "crow’s feet," are the spider-like fine lines around the outside corners of the eyes that become more obvious when someone smiles. These
lines (also referred to as periorbital wrinkles, laugh lines or smile lines), fan out across the skin from the outer corner of each eye. Sometimes they extend
down across the cheekbones to the lower cheeks. Repetitive motions, such as squinting and smiling, can lead to the increase of wrinkles and contribute to the
severity and onset of crow’s feet. Age and exposure to sun also play significant roles in development of these lines, which can deepen over time. Current
treatments include anti-wrinkle eye creams and moisturizers, topical tretinoins, botulinum toxin injections, dermal fillers and laser treatments. BOTOX®
Cosmetic was approved to treat LCL in 2013, and is currently the only toxin approved for that use, though other toxins are used off-label. We plan to initiate a
Phase 2 study in LCL in the first quarter of 2019.
Cervical Dystonia
We have been developing DAXI for the treatment of cervical dystonia, a muscle movement disorder. Muscle movement disorders are neurological
conditions that affect a person's ability to control muscle activity in one or more areas of the body. In 2015, we initiated a Phase 2 dose-escalating, open-label
clinical study of DAXI to evaluate the safety, preliminary efficacy, and duration of effect of DAXI in subjects with moderate to severe isolated cervical
dystonia.
In May 2017, we announced positive 24 week topline results in all three cohorts from the Phase 2 trial. The topline data demonstrated a median
duration of at least 24 weeks for each of the three cohorts. The topline data also displayed a clinically significant impact on cervical dystonia signs and
symptoms. At Week 4, DAXI showed a clinically significant mean reduction of 38% from baseline across all three cohorts. This reduction continued to
increase to 50% at Week 6 for all subjects, was 42% at Week 12 and was maintained at or above 30% through Week 24. The topline data also showed that
DAXI appeared to be generally safe and well-tolerated through Week 24 in all three cohorts. There were no serious adverse events and no dose-dependent
increase in adverse events. The treatment-related adverse events were generally transient and mild to moderate in severity, with one case of neck pain reported
as severe. The most common adverse events were dysphagia, or difficulty in swallowing (14 percent), of which all cases were mild in severity, injection site
redness (8 percent), injection site bruising (5 percent), injection site pain (5 percent), muscle tightness (5 percent) and muscle weakness (5 percent).
In November 2017, the FDA granted orphan drug status to DAXI for the treatment of cervical dystonia in adults. Additionally, in November 2017,
we completed our End-of-Phase 2 meeting with the FDA and received scientific advice from the EMA regarding DAXI for the treatment of cervical dystonia.
In June 2018, we announced the initiation of patient dosing in our ASPEN Phase 3 clinical program based on the Phase 2 safety and efficacy results
and guidance from the FDA and EMA. The ASPEN Phase 3 clinical program consists of two trials to evaluate the safety and efficacy of DAXI for the
treatment of cervical dystonia in adults including: a randomized, double-blind, placebo-controlled, parallel group trial, and an open-label, long-term safety
trial. The program is expected to enroll approximately 300 patients in the pivotal trial and 350 patients in the open-label trial at multiple sites in the U.S.,
Canada, and Europe. The program is expected to complete enrollment by early 2020, and we expect to release topline results in the second half of 2020.
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Plantar Fasciitis
In 2016, we initiated a Phase 2 prospective, randomized, double-blinded, placebo-controlled trial of DAXI in the therapeutic indication of plantar
fasciitis. This study evaluated the safety and efficacy of a single administration of DAXI in reducing the signs and symptoms of plantar fasciitis. The study
completed enrollment of 59 subjects in the U.S. in October 2017. The study's primary efficacy endpoint is the improvement in the AOFAS.
In January 2018, we announced the interim 8-week Phase 2a results for the plantar fasciitis trial. The trial’s primary endpoint, the reduction in the
patient-reported VAS for pain at Week 8, showed a robust impact on pain, with a greater than 50 percent reduction for patients treated with DAXI. In the
intent-to-treat population, a mean reduction in the VAS score of 54.2 percent from baseline was achieved with DAXI, compared with a 42.6 percent reduction
in the placebo group, which upon further subgroup analysis, was driven primarily by a strong placebo response in the control group at three of the five study
sites. While the results are not statistically significant (p=0.39), DAXI provided patients with considerable pain relief. Similar numeric trends were seen in the
secondary and exploratory endpoints. DAXI appeared to be generally safe and well-tolerated through Week 8. The majority of adverse events in both
treatment groups were mild in severity. There were no treatment-related serious adverse events. The most common treatment-related adverse events for DAXI
and placebo were injection site pain (10.0 percent and 10.3 percent) and muscle weakness (3.3 percent and 3.4 percent), both respectively, all of which were
classified as mild in severity We completed the 16-week trial which showed a 58 percent reduction of pain from baseline along with a strong placebo
response, with the difference between the treatment groups not being statistically significant.
In September 2018, we completed a Type C meeting with FDA discussing the design of the Phase 2 dose-finding study. We initiated another Phase 2
trial in December 2018. The Phase 2 prospective, randomized, double-blind, multi-center, placebo-controlled study will evaluate the safety and efficacy of
two doses of administration of our investigational drug candidate DAXI in reducing the signs and symptoms of plantar fasciitis. The study is expected to
enroll approximately 150 adult patients with unilateral plantar fasciitis, from approximately 20 study centers in the U.S.. Patients will be randomized (1:1:1)
to receive an injection of a low dose, high dose or placebo. The study’s primary efficacy endpoint is the change from baseline in NPRS score at Week 8.
Patients will be followed for up to 24 weeks post treatment to assess treatment response, tolerability and safety. We expect to complete enrollment in this
Phase 2 trial during the second half of 2019 and release topline results in the second half of 2020.
Adult Upper Limb Spasticity
Adult upper limb spasticity is a chronic movement disorder (an inability to produce and control bodily movements), that presents as increased tone
or stiffness of the muscles. Spasticity results from neurological insults (e.g., stroke, multiple sclerosis, spinal cord injury and traumatic brain injury) to the
brain that control voluntary movement of the body, arms and legs. According to GIA, the global opportunity for botulinum toxin for the treatment of muscle
movement disorders, which includes cervical dystonia and upper limb spasticity, was estimated to be over $1.0 billion in 2017. We initiated a Phase 2b study
(JUNIPER) in adult upper limb spasticity in December 2018, and we expect to release topline results in the second half of 2020.
Chronic Migraine
Migraine headache is a central nervous system disorder characterized as moderate to severe headache and often includes other symptoms such as
nausea and vomiting. Migraine headache affects more than 38 million people in the U.S., of which more than 3 million of whom suffer from chronic migraine
headache. Chronic migraine headache is both undertreated and underdiagnosed, and is defined as more than fifteen headache days per month over a three-
month period of which more than eight are migrainous, in the absence of medication overuse. According to GIA, the global opportunity for botulinum toxin
for the treatment of chronic migraine was estimated to be approximately $600 million in 2017. We are in the process of finalizing our Chronic Migraine
Clinical Development strategy. We plan to study DAXI for the treatment of chronic migraine in 2019 or 2020.
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OnabotulinumtoxinA Biosimilar
In February 2018, we entered into a collaboration and license agreement with Mylan, pursuant to which we will collaborate with Mylan exclusively,
on a world-wide basis (excluding Japan), to develop, manufacture and commercialize a biosimilar to BOTOX®. As part of the agreement Mylan agreed to
pay a non-refundable upfront payment of $25 million with additional contingent payments of up to $100 million, in the aggregate, upon the achievement of
specified clinical and regulatory (i.e. biosimilar biological pathway) milestones and of specified, tiered sales milestones of up to $225 million. In addition,
Mylan would pay us low to mid-double digit royalties on any sales of the biosimilar in the U.S., mid-double digit royalties on any sales in Europe, and high
single digit royalties on any sales in other ex-U.S. Mylan territories. However, we agreed to waive royalties for U.S. sales, up to a limit of $50 million in
annual sales, during the first approximately four years after commercialization to defray launch costs. In February 2019, we and Mylan recently had a
Biosimilar Initial Advisory Meeting with the FDA on a proposed biosimilar to BOTOX®. In this meeting, the FDA provided guidance on their expectations
for a development program to establish biosimilarity to BOTOX®. Based on the agency’s feedback, we and Mylan believe that a 351(k) pathway for the
development of a biosimilar to onabotulinumtoxinA is viable and provides the opportunity to develop and commercialize the first biosimilar product for all
eleven currently approved indications of BOTOX® and BOTOX® Cosmetic.
DaxibotulinumtoxinA Topical
DaxibotulinumtoxinA Topical presents several potential advantages, including painless topical administration, no bruising, ease of use and limited
dependence on administration technique by physicians and medical staff. We believe these potential advantages may improve the experience of patients
undergoing botulinum toxin procedures and could make DaxibotulinumtoxinA Topical suitable for multiple indications in the future. We are planning to
conduct additional preclinical work for DaxibotulinumtoxinA Topical in therapeutic and aesthetic applications where botulinum toxin has shown efficacy and
is particularly well suited for injection-free treatments.
Fosun License Agreement
In December 2018, we and Fosun entered into the Fosun License Agreement, whereby we have granted Fosun the exclusive rights to develop and
commercialize our proprietary DAXI in the Fosun Territory and certain sublicense rights. Additionally, our proprietary peptide excipient technology can be
used for molecules other than botulinum toxin. We plan to partner or license the peptide excipient technology opportunistically to monetize our technology
platform.
Under the Fosun License Agreement, we are eligible to receive a non-refundable upfront payment of $30.0 million within 30 business days of the
date of the Fosun License Agreement, which was received in January 2019 net of foreign withholding tax of $3.0 million. We are also eligible to receive
(i) additional contingent payments of up to $230.5 million upon the achievement of specified milestones based on (a) the submission and approval of BLAs
for certain aesthetic and therapeutic indications and (b) first time calendar year net sales, and (ii) tiered royalty payments in low double digit to high teen
percentages on annual net sales. The royalty percentages are subject to reduction in the event that (i) we do not have any valid and unexpired patent claims
that cover the product in the Fosun Territory, (ii) biosimilars of the product are sold in the Fosun Territory or (iii) Fosun needs to pay compensation to third
parties to either avoid patent infringement or market the product in the Fosun Territory.
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Results of Operations
Revenue
The following table presents our revenue for the periods indicated and related changes from the prior period:
Milestone
Relastin Royalty
Total revenue
Years Ended December 31,
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
%
%
(In thousands, except percentages)
$
$
3,729 $
—
3,729 $
— $
262
262 $
—
300
300
— %
(100)%
1,323 %
— %
(13)%
(13)%
Our total revenue for the year ended December 31, 2018 increased compared to the same period in 2017 and 2016, primarily due to revenue
recognized from the collaboration and license agreement with Mylan.
In February 2018, we entered into the Mylan Collaboration, pursuant to which we will collaborate with Mylan exclusively, on a world-wide basis
(excluding Japan) to develop, manufacture, and commercialize a biosimilar to BOTOX®. As part of the Mylan Collaboration, Mylan paid us a non-
refundable upfront payment of $25 million with additional contingent payments of up to $100 million, in the aggregate, upon the achievement of specified
clinical and regulatory (i.e., biosimilar biological pathway) milestones and of specified, tiered sales milestones of up to $225 million. We recognized revenue
based on the estimated cost of services incurred over the estimated cost of services to be provided for the development period.
We recognized royalty revenue during the years ended December 31, 2017 and 2016 related to the Relastin asset purchase and royalty agreement. In
August 2011, we entered into the Relastin asset purchase and royalty agreement to sell the business related to our Relastin product line to PDI. The Relastin
asset purchase and royalty agreement provided for a minimum royalty payment of $0.3 million per year, to be paid quarterly for up to 15 years from the
execution date. PDI was subsequently acquired by Valeant in July 2014. On April 23, 2015, we received notice from Valeant terminating the asset purchase
and royalty agreement effective as of July 23, 2015. We were entitled to the minimum royalty payment until Valeant returned the Relastin® intellectual
property rights to us. In November 2017, we and Valeant entered into an asset transfer agreement to finalize the termination of the asset purchase and royalty
agreement and Valeant returned the Relastin® intellectual property rights to us. We do not have any current plans for future developments of Relastin® and
our primary focus is on the development of DAXI.
Operating Expenses
Our operating expenses consist of research and development expenses and general and administrative expenses. The largest component of our
operating expenses is our personnel costs including stock-based compensation. We expect our expenses to increase in the near term as we initiate and
complete additional clinical trials and associated programs related to DAXI for the treatment of glabellar lines and indications in muscle movement and other
disorders, such as cervical dystonia, plantar fasciitis, upper limb spasticity, chronic migraine, and our biosimilar product candidate.
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Research and Development Expenses
We recognize research and development expenses as they are incurred. Since our inception, we have focused on our clinical development programs
and the related research and development. We have been developing DAXI, DaxibotulinumtoxinA Topical, and our biosimilar product candidate since 2002
and we have typically shared our employees, consultants and infrastructure resources across both programs. Our research and development expenses consist
primarily of:
•
•
•
•
•
•
•
•
•
•
salaries and related expenses for personnel in research and development functions, including stock-based compensation;
expenses related to the initiation and completion of clinical trials for DAXI and DaxibotulinumtoxinA Topical, including expenses related to
production of clinical supplies;
fees paid to clinical consultants, CROs and other vendors, including all related fees for investigator grants, patient screening fees, laboratory
work and statistical compilation and analysis;
other consulting fees paid to third parties;
expenses related to establishment and maintenance of our own manufacturing facilities;
expenses related to the manufacture of drug substance and drug product supplies for ongoing and future preclinical and clinical trials and other
pre-commercial supplies;
expenses to support our product development and establish manufacturing capabilities to support potential future commercialization of any
products for which we may obtain regulatory approval;
expenses related to license fees and milestone payments under in-licensing agreements;
expenses related to compliance with drug development regulatory requirements in the U.S., the European Union and other foreign jurisdictions;
and
depreciation and other allocated expenses.
Our research and development expenditures are subject to numerous uncertainties primarily related to the timing and cost needed to complete our
respective projects. Further, the development timelines, probability of success and development expenses can differ materially from expectations and the
completion of clinical trials may take several years or more depending on the type, complexity, novelty and intended use of a product candidate. Accordingly,
the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development. We expect our research
and development expenses to maintain or increase as we continue our clinical development of DAXI for the treatment of facial wrinkles and other
neuroscience indications, such as cervical dystonia, plantar fasciitis, adult upper limb spasticity, and chronic migraine, any future new indications, and our
biosimilar product candidate or if the FDA requires us to conduct additional clinical trials for approval.
Our research and development expenses fluctuate as projects transition from one development phase to the next. Depending on the stage of
completion and level of effort related to each development phase undertaken, we may reflect variations in our research and development expense. We expense
both internal and external research and development expenses as they are incurred. We typically share employees, consultants and infrastructure resources
among the programs related to DAXI, our biosimilar product candidate, and DaxibotulinumtoxinA Topical. We believe that the strict allocation of costs by
product candidate would not be meaningful. As such, we generally do not track these costs by product candidate.
Our research and development expenses are summarized as follows:
Year Ended December 31,
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
%
%
(In thousands, except percentages)
Clinical and regulatory
Manufacturing and quality efforts
Stock-based compensation
Other research and development expenses
Total research and development expenses
$
$
47,777 $
43,915 $
25,857
7,480
11,386
21,545
5,902
8,999
92,500 $
80,361 $
15,060
19,956
5,557
9,808
50,381
9%
20%
27%
27%
15%
192 %
8 %
6 %
(8)%
60 %
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Clinical and regulatory
Clinical expenses include personnel costs, and external clinical trial costs for clinical sites, clinical research organizations, central laboratories, data
management, contractors and regulatory activities associated with the development of DAXI and DaxibotulinumtoxinA Topical, including clinical trials of
DAXI for the improvement of glabellar lines, cervical dystonia and plantar fasciitis. For the years ended December 31, 2018, 2017, and 2016, clinical and
regulatory costs totaled $47.8 million, or 52%, $43.9 million, or 55%, and $15.1 million, or 30% of the total research and development expenses in 2018,
2017, and 2016, respectively.
Clinical and regulatory costs for the year ended December 31, 2018 increased by 9%, compared to the same period in 2017, primarily due to
increased costs related to hiring additional personnel and outside services to address compliance requirements and infrastructure build-out as well as studies
related to cervical dystonia, adult upper limb spasticity, plantar fasciitis, forehead lines and lateral canthal lines, offset by a decrease in clinical trial costs
related to glabellar lines as the SAKURA trials wind down. Clinical and regulatory costs for the year ended December 31, 2017 increased by 192%, compared
to the same period in 2016, primarily due to the ongoing clinical trials for DAXI for the treatment of glabellar lines, cervical dystonia, and plantar fasciitis.
We expect to maintain or increase our clinical and regulatory costs in the near term as we initiate and complete clinical trials and other associated
programs related to DAXI for the treatment of glabellar lines, forehead lines, lateral canthal lines, cervical dystonia, plantar fasciitis, adult upper limb
spasticity, chronic migraine, and other indications, and our anticipated BLA submission upon the completion and success of the clinical trials for the DAXI
glabellar lines indication.
Manufacturing and quality efforts
Manufacturing and quality efforts include personnel and occupancy expenses, external contract manufacturing costs and pre-approval manufacturing
of drug product used in research and our development of DAXI. Manufacturing and quality efforts also include raw materials, lab supplies, and storage and
shipment of our product to support quality control and assurance activities. These costs do not include clinical costs associated with the development of
DAXI.
For the years ended December 31, 2018, 2017, and 2016, costs associated with our manufacturing and quality efforts for both DAXI and
DaxibotulinumtoxinA Topical development totaled $25.9 million, or 28%, $21.5 million, or 27%, and $20.0 million, or 40% of the total research and
development expenses in 2018, 2017, and 2016, respectively.
Manufacturing and quality efforts for the year ended December 31, 2018 increased by 20%, compared to the same period in 2017, primarily due to
increased costs related to hiring additional personnel and outside services to address compliance requirements and infrastructure build-out. Manufacturing and
quality efforts for the year ended December 31, 2017 increased by 8%, compared to the same period in 2016, primarily due to increased costs related to hiring
additional personnel as well as an increase in outside services and consulting for compliance requirements. We expect our manufacturing and quality efforts
to continue to increase as we approach commercialization.
Stock-based compensation
Stock-based compensation for research and development increased by $1.6 million for the year ended December 31, 2018 compared to the same
period in 2017, and increased by $0.3 million for the year ended December 31, 2017 compared to the same period in 2016, primarily due to increased
employee headcount and an average increase in fair value of stock option granted during those periods.
Other research and development expenses
Other research and development expenses include expenses for personnel, contract research organizations, consultants, raw materials, and lab
supplies used to conduct preclinical research and development of DAXI, our DaxibotulinumtoxinA Topical, and biosimilar product candidates. Other research
and development expenses represented $11.4 million, or 12%, $9.0 million, or 11%, and $9.8 million, or 19% for the years end on December 31, 2018, 2017,
and 2016, respectively.
Other research and development expenses for the year ended December 31, 2018 increased by 27%, compared to the same period in 2017, primarily
due to increased consulting costs on preclinical research and development of DAXI, our DaxibotulinumtoxinA Topical, and biosimilar product candidates.
Other research and development expenses for the year ended December 31, 2017 decreased by 8%, compared to the same period in 2016, primarily due to a
milestone payment of $2.0 million to BTRX to acquire a portfolio of patents.
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General and Administrative Expenses
General and administrative expenses consist primarily the following:
•
•
•
personnel and service costs in our finance, information technology, investor relations, legal, human resources, and other administrative
functions;
professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents and litigation; and
pre-commercial activities including market research, public relations, promotion and advertising,
We expect that our general and administrative expenses will maintain or increase with the continued development of, and if approved, the
commercialization of DAXI. The following table presents our general and administration expenses for the periods indicated and related changes from the
prior period.
Year Ended December 31,
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
%
%
(In thousands, except percentages)
General and administrative expenses before
stock-based compensation
Stock-based compensation
Total general and administrative expenses
$
$
45,070 $
8,793
53,863 $
30,070 $
7,328
37,398 $
22,679
6,396
29,075
50%
20%
44%
33%
15%
29%
General and administrative expenses before stock-based compensation
General and administrative expenses for the year ended December 31, 2018 increased by 50%, compared to the same period in 2017. General and
administrative expenses for the year ended December 31, 2017 increased by 33%, compared to the same period in 2016. For both periods presented, the
increases are primarily due to i) increased personnel in information technology, accounting, legal, and other administrative functions; ii) cost related to pre-
commercial initiatives to support our future product launch following our anticipated BLA submission upon the completion and success of the clinical trials
for the DAXI glabellar lines indication, iii) costs related to accounting and legal services, and iv) other costs related to infrastructure build-out.
Stock-based compensation
Stock-based compensation for general and administrative expenses increased for the periods presented primarily due to an increase in employee
headcount and an average increase in the fair value of stock option granted during those periods.
Loss on Impairment
The following table presents our loss on impairment for the periods indicated and related changes from the prior period:
Year Ended December 31,
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
%
%
(In thousands, except percentages)
Loss on impairment
$
— $
2,927 $
9,059
(100)%
(68)%
We constructed a large capacity fill/finish line dedicated to the manufacturing of DaxibotulinumtoxinA Topical and to support our regulatory license
applications. In June 2016, we discontinued clinical development of DaxibotulinumtoxinA Topical for the treatment of crow’s feet and axillary hyperhidrosis.
As a result, we recorded a loss on impairment of $9.1 million and $2.9 million, respectively, related to our DaxibotulinumtoxinA Topical fill/finish line and
certain other assets, during the years ended December 31, 2017, and 2016. No impairment loss was recorded during the year ended December 31, 2018.
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Net Non-Operating Income and Expense
Interest Income
Interest income consists primarily of interest income earned on our deposit, money market fund, and short-term investment balances. We expect
interest income to vary each reporting period depending on our average deposit, money market fund, and short-term investment balances during the period
and market interest rates.
Interest Expense
Interest expense primarily consists of the interest charges associated with our financing obligations and capitalized interest. Interest expense includes
cash and non-cash components with the non-cash components consisting of effective interest recognized on the financing obligations and interest capitalized
for assets constructed for use in operations.
Change in Fair Value of Derivative liability associated with the Medicis settlement
The product approval payment associated with the Medicis settlement is classified as a liability on our Consolidated Balance Sheet. This liability is
remeasured to fair value at each balance sheet date with the corresponding gain or loss from the adjustment recorded in the Consolidated Statements of
Operations and Comprehensive Loss. We will continue to record adjustments to the fair value of the Medicis settlement derivative liability until the product
approval payment has been paid. The decrease recorded during the year ended December 31, 2018 reflects an increase to the valuation of the derivative
liability based on assumptions related to the development of DAXI for glabellar lines.
Other Expense, net
Other expense, net is comprised of miscellaneous tax and other expense items.
The following table presents our net non-operating income and expense for the periods indicated and related changes from the prior period:
Interest income
Interest expense
$
Changes in fair value of derivative liability
associated with the Medicis settlement
Other expense, net
Total net non-operating income (expenses) $
*NM - not meaningful
Years Ended December 31,
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
%
%
(In thousands, except percentages)
4,023 $
(44)
(140)
(773)
3,066 $
1,410 $
(457)
(591)
(525)
(163) $
1,170
(1,082)
(608)
(535)
(1,055)
185%
(90)%
(76)%
47 %
21%
(58)%
(3)%
(2)%
N/M*
N/M*
Our total net non-operating income for the year ended December 31, 2018 increased by $3.2 million, compared to the same period in 2017, primarily
due to an increase in interest income from our short-term investments. Our total net non-operating expense for the year ended December 31, 2017 decreased
by $0.9 million, compared to the same period in 2016, primarily due to lower interest expense resulting from the declining principal balance on the Essex
Capital Lease offset by an increase in the interest income from a stronger investment portfolio.
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Income Taxes
Since inception, we have incurred net losses and have not recorded any U.S. federal or state income tax and the tax benefits of our operating losses
have been fully offset by valuation allowances.
Tax provision for the year ended December 31, 2018 is $3.0 million. The tax provision is related to foreign withholding taxes. There was no
provision or benefit from income taxes during the years ended December 31, 2017 and 2016.
In December 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act includes but is not limited
to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, allowing for federal net operating losses (“NOL”) to be carried over indefinitely
for NOL generated after December 31, 2017, and creating a new limitation on deductible interest expense.
In March 2018, the SEC staff issued SAB 118 which provides guidance on accounting for the tax effects of the Tax Reform Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Tax Reform Act enactment date for companies to complete the accounting under ASC
740, Income Taxes. We completed our assessment of the accounting impact resulting from the Tax Reform Act in December 2018. The impact of the Tax
Reform Act includes:
•
•
•
a decrease in deferred tax assets resulting from the change in tax rate in the amount of $62.9 million;
an increase of net operating loss of $43.5 million as a result of the reversal of the intra-entity transfer of certain intellectual properties, refer below
for further information related to this transaction;
a decrease in net operating loss of $3.8 million related to a research and development credit adjustment.
The aggregated impact resulting from the Tax Reform Act to deferred taxes is $68.1 million, which continues to be fully offset by a valuation
allowance.
We follow the provisions of the FASB’s guidance for accounting for uncertain tax positions. The guidance indicates a comprehensive model for the
recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a
tax return. No liability related to uncertain tax positions is recorded in the financial statements due to the fact that the liabilities have been netted against
deferred attribute carryovers. It is our policy to include penalties and interest related to income tax matters in income tax expense.
Liquidity and Capital Resources
Our financial condition is summarized as follows:
Cash, cash equivalents, and short-term investments
$
175,812 $
282,896 $
Year Ended December 31,
2018
2017
Financing obligations
Working Capital
Stockholders' Equity
Sources and Uses of Cash
—
175,952
145,622
1,872
264,309
268,845
Increase (Decrease)
(107,084)
(1,872)
(88,357)
(123,223)
We hold our cash, cash equivalents, and short-term investments in a variety of non-interest bearing bank accounts and interest-bearing instruments
subject to investment guidelines allowing for holdings in U.S. government and agency securities and money market accounts. Our investment portfolio is
structured to provide for investment maturities and access to cash to fund our anticipated working capital needs.
Our cash, cash equivalents and short-term investments totaled $175.8 million at December 31, 2018 compared to $282.9 million at December 31,
2017, representing a decrease of $107.1 million, which was primarily due to cash used in operations, purchase of property and equipment of $7.0 million, and
purchases of short-term investments of $314.9 million. These decreases were primarily offset by the proceeds from maturities of short-term investments of
$146.0 million and the proceeds from sales of short-term investments of $67.4 million.
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Through December 31, 2018, we have funded substantially all of our operations through the sale and issuance of our common stock, preferred stock,
venture debt, and convertible debt. Due to our substantial research and development expenditures, we have generated significant operating losses since our
inception. Our expenditures are primarily related to research and development activities. We expect to continue to incur net operating losses for at least the
next several years as we advance DAXI through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization.
As a result, we will need additional capital to fund our operations which we may obtain from additional financings, public offerings, or other sources. As of
December 31, 2018, we had available cash and cash equivalents and short-term investments of $175.8 million.
We derived the following summary of our Consolidated Statement of Cash Flows for the periods indicated from our audited Consolidated Financial
Statements included elsewhere in this Form 10-K:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Cash Flows from Operating Activities
Year Ended December 31,
2018
2017
2016
$
(104,246) $
(95,342) $
(107,026)
1,782
118,792
195,944
(59,827)
(75,499)
(2,642)
Our cash used in operating activities is primarily driven by personnel, manufacturing costs, clinical development, and facility related expenditures.
The changes in net cash used in operating activities are primarily related to our net loss, working capital fluctuations and changes in our non-cash expenses,
all which are highly variable. Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the
extent to which we increase spending on personnel and research and development activities as our business grows.
Net cash used in operating activities for the year ended December 31, 2018 of $104.2 million was primarily due to clinical spend of approximately
$38.5 million to advance our clinical programs toward commercialization; investing in our personnel and talent retention, which represents approximately
$31.0 million; and professional services and consulting of approximately $32.0 million, offset by the $25.0 million upfront payment received from the Mylan
Collaboration. The remaining balance of operating activities related primarily to rent, utilities, and other supplies.
Net cash used in operating activities for the year ended December 31, 2017 of $95.3 million was primarily due to clinical spend of more than $30
million to advance our clinical programs toward commercialization; investing in our personnel and talent retention, which represents approximately $25
million; and professional services and consulting of approximately $15 million. The remaining balance of operating activities related primarily to rent,
utilities, and other supplies.
Net cash used in operating activities of $59.8 million in the year ended December 31, 2016 was largely due to ongoing clinical trial activities for our
DAXI program and DaxibotulinumtoxinA Topical, including more than $10 million for payments to clinical trial vendors; investing in our personnel,
including those that support the clinical programs, and talent retention, which represents more than $20 million; and professional services and consulting of
approximately $10 million. The remaining balance of operating activities related primarily to rent, utilities, and other supplies.
Cash Flows from Investing Activities
Net cash provided by or used in investing activities for the years ended December 31, 2018, 2017 and 2016 was primarily due to purchases of
property and equipment, proceeds from sale of assets, and fluctuations in the timing of purchases and maturities of short-term investments.
Cash Flows from Financing Activities
Net cash provided by or used in financing activities are primarily driven by proceeds from the issuance of our common stock in connection with
follow-on offerings (as described below), ATM offerings (as described below), stock option exercises and employee stock plan purchases. Decreases in our
cash flows from financing activities are primarily due to payments to settle employee tax obligations resulting from net settlement of restricted stock awards.
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Follow-On Public Offerings
In December 2017, we completed a follow-on public offering, or the 2017 follow-on offering, pursuant to which we issued 5,389,515 shares of
common stock at $31.00 per share, including the exercise of the underwriters' over-allotment option to purchase 550,806 additional shares of common stock,
for net proceeds of $156.9 million, after underwriting discounts, commissions and other offering expenses.
In January 2019, we completed a follow-on public offering, or the 2019 follow-on offering, pursuant to which we issued 6,764,705 shares of
common stock at $17.00 per share, including the exercise of the underwriters' over-allotment option to purchase 882,352 additional shares of common stock,
for net proceeds of $107.6 million, after underwriting discounts, commissions and other offering expenses.
ATM Offering
In March 2016, we entered into an At-the-market Issuance Sales Agreement with Cowen and Company, LLC (“Cowen”) (the “2016 ATM
agreement”). Under the 2016 ATM agreement, we may offer and sell common stock having aggregate proceeds of up to $75.0 million from time to time
through Cowen as our sales agent. During the year ended December 31, 2017, we sold 1,802,651 shares of common stock under the 2016 ATM Agreement at
a weighted average price of $22.17 per share resulting in gross proceeds of $40.0 million, and net proceeds of $38.2 million, after underwriting discounts,
commissions, and offering expenses.
In March 2018, we terminated the 2016 ATM Agreement and entered into the 2018 ATM Agreement. Under 2018 ATM Agreement, we may offer
and sell common stock having aggregate proceeds of up to $125.0 million from time to time through Cantor Fitzgerald as our sales agent. No sales of our
common stock have taken place under the 2018 ATM Agreement as of December 31, 2018.
Common Stock and Common Stock Equivalents
As of February 22, 2019, the number of shares outstanding of our common stock is 44,028,590, which includes restricted stock awards. We had
outstanding common stock options of 4,363,688, outstanding common stock warrants of 34,113, unvested restricted stock awards of 843,853, and shares
expected to be purchased on June 30, 2019 under the 2014 ESPP of 10,405 as of February 22, 2019.
Operating and Capital Expenditure Requirements
We have not achieved profitability on a quarterly or annual basis since our inception and we expect to continue to incur net losses for the foreseeable
future. We expect to make additional capital outlays to increase operating expenditures over the next several years to support the completion of the clinical
trials and other associated programs relating to DAXI for the treatment of glabellar lines, cervical dystonia, plantar fasciitis, upper limb spasticity, migraine
headache, and other indications, seek regulatory approval, prepare for and, if approved, proceed to commercialization. We believe that our existing capital
resources will be sufficient to fund our operations for at least the next 12 months following the filing of this Form 10-K. However, we anticipate that we will
need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell
additional equity or issue debt, convertible debt or other securities that may result in dilution to our stockholders. If we raise additional funds through the
issuance of debt or convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict
our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Debt financing,
if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take
specific actions such as incurring debt, making capital expenditures or declaring dividends. 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.
If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay clinical trials or other development
activities for DAXI, our biosimilar product candidate and DaxibotulinumtoxinA Topical, and any future product candidates, or delay our establishment of
sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, if we obtain marketing approval. We may
elect to raise additional funds even before we need them if the conditions for raising capital are favorable. Our future capital requirements depend on many
factors, including:
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the results of our clinical trials for DAXI and preclinical trials of DaxibotulinumtoxinA Topical, biosimilar or any future product candidates;
the timing of, and the costs involved in, obtaining regulatory approvals for DAXI, or any future product candidates including DaxibotulinumtoxinA
Topical or biosimilar;
the number and characteristics of any additional product candidates we develop or acquire;
the scope, progress, results and costs of researching and developing and conducting preclinical and clinical trials of DAXI, DaxibotulinumtoxinA
Topical, biosimilar or any future product candidates;
the cost of commercialization activities if DAXI or any future product candidates including DaxibotulinumtoxinA Topical or biosimilar are
approved for sale, including marketing, sales and distribution costs;
the cost of manufacturing DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates and any products we successfully
commercialize and maintaining our related facilities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements including the Mylan collaboration, Fosun licensing,
and the terms of and timing such arrangements;
the degree and rate of market acceptance of any future approved products;
the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products
or treatments;
any product liability or other lawsuits related to our products;
the expenses needed to attract and retain skilled personnel;
any litigation, including litigation costs and the outcome of such litigation;
the costs associated with being a public company;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome
of such litigation; and
the timing, receipt and amount of sales of, or royalties on, future approved products, if any.
Please see Part I, Item 1A. “Risk Factors” in this Form 10-K for additional risks associated with our substantial capital requirements.
Since inception, we have devoted substantially all of our efforts to identifying and developing product candidates for the aesthetic and therapeutic
pharmaceutical markets, recruiting personnel, raising capital, conducting preclinical and clinical development of, and manufacturing development for DAXI
and DaxibotulinumtoxinA Topical. We have incurred losses and negative cash flows from operations. We have not yet commenced commercial operations,
have not generated product revenue to date, and will continue to incur significant research and development and other expenses related to our ongoing
operations. We have recorded net losses of $142.6 million, $120.6 million, and $89.3 million for the years ended December 31, 2018, 2017, and 2016,
respectively. As of December 31, 2018, we had a working capital surplus of $176.0 million and an accumulated deficit of $684.8 million. We have funded our
operations primarily through the sale and issuance of common stock, convertible preferred stock, notes payable, and convertible notes. As of December 31,
2018, we had capital resources consisting of cash, cash equivalents, and short-term investments of $175.8 million. In January 2019, we completed the 2019
follow-on offering for net proceeds of $107.6 million after underwriting discounts, commissions and other offering expenses. In January 2019, we received
$27.0 million for an upfront payment net of foreign withholding tax from Fosun. We believe that our existing cash and cash equivalents will allow us to fund
our operating plan through at least the next 12 months following the issuance of this Form 10-K, and may identify additional capital resources to fund our
operations.
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Critical Accounting Policies and Estimates
Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of these Consolidated Financial Statements requires
our management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenue and expenses during the applicable periods. We base
our estimates, assumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances.
Different assumptions and judgments would change the estimates used in the preparation of our Consolidated Financial Statements, which, in turn, could
change the results from those reported. We evaluate our estimates, assumptions and judgments on an ongoing basis.
The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our Consolidated Financial
Statements are described below.
Revenue
Effective January 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), using the
full retrospective transition method. We evaluated our prior contractual revenue arrangement with PDI, which was acquired by Valeant in 2014. After Valeant
notified us that it intended to terminate the asset purchase and royalty agreement in 2015, we continued to receive royalties of $75,000 each quarter until
November 2017 when Valeant and us entered into an asset transfer agreement to finalize the termination of the asset purchase and royalty agreement and
Valeant returned the Relastin® intellectual property rights to us. Based on its evaluation, we determined that the new guidance had no impact to the revenue
recognized prior to January 1, 2018 and, accordingly, had no impact on the accumulated deficit as of January 1, 2018.
We elected to use certain practical expedients permitted related to adoption (Part IV, Item 15. “Exhibits and Financial Statement Schedules—Notes
to Consolidated Financial Statements—Note 3—Revenue” in this Form 10-K.) and the adoption of ASC 606 had no impact on our financial position, results
of operations or liquidity. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as
leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, we recognize revenue when our customer obtains control of
promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.
To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfied a performance obligation. We only apply
the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to
the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each
contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Clinical Trial Accruals
Clinical trial costs are charged to research and development expense as incurred. We accrue for expenses resulting from contracts with clinical
research organizations (“CROs”), investigators and consultants, and under certain other agreements in connection with conducting clinical trials. The
financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the
periods over which materials or services are provided. Our objective is to reflect the appropriate trial expense in the Consolidated Financial Statements by
matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the
payments will be recorded as a prepaid asset, which will be amortized as services are rendered.
The CRO contracts generally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, travel costs and other
miscellaneous costs, including shipping and printing fees. We estimate our clinical accruals based on reports from and discussion with clinical personnel and
outside services providers as to the progress or state of completion of trials, or the services completed. We estimate accrued expenses as of each balance sheet
date based on the facts and circumstances known at that time. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting
from the CROs and other third-party vendors. As of December 31, 2018, there have not been any material adjustments to our estimated accrued clinical
expenses.
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Stock-Based Compensation
We recognize compensation costs related to stock options granted to employees, non-employee consultants, and non-employee directors based on the
estimated fair value of the awards on the date of grant, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is
recognized over the requisite service period, which is generally the vesting period of the respective awards. Stock-based compensation expenses are classified
in the Consolidated Statements of Operations and Comprehensive Loss based on the functional area to which the related recipients belong.
The estimated grant date fair values of the option awards granted to employees and non-employee directors during the years ended December 31,
2018, 2017, and 2016 were calculated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend rate
Year Ended December 31,
2018
2017
2016
6.0
60.2%
2.7%
0.0%
6.0
67.7%
2.1%
0.0%
6.0
61.9%
1.4%
0.0%
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions that determine the fair value of options.
These assumptions are as follows:
•
•
•
•
Expected term — The expected term represents the period that our options are expected to be outstanding and is calculated using the simplified
method. We qualify for the simplified method as our stock options have the following characteristics: (i) granted at-the-money; (ii) exercisability
is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period
following termination of service; and (v) options are non-transferable and non-hedgeable, or “plain vanilla” options, and we have limited history
of exercise data.
Expected volatility — Beginning on January 1, 2017, the expected volatility is based on the historical volatility of a group of similar entities
combined with the historical volatility of us, whereas prior to 2017, the expected volatility was based solely on the historical volatility of a group
of similar entities. In evaluating similarity, we considered factors such as industry, stage of life cycle, capital structure, and size.
Risk-free interest rate — The risk-free interest rate is based on the U.S. Treasury constant maturity rates with terms similar to the option’s
expected term.
Dividend rate — The expected dividend was assumed to be zero as we have never paid dividends and have no current plans to do so.
As of January 1, 2017, we began accounting for forfeitures as they occur, which was an acceptable change in accordance with ASU 2016-09. In
connection with changing the forfeiture rate methodology, we recorded a cumulative charge of less than $0.1 million to the Accumulated Deficit balance as of
January 1, 2017.
As of July 1, 2018, we adopted ASU 2018-07 and began accounting for share-based payment transactions for acquiring goods and services from
non-employees (excluding non-employee directors) using a retroactive approach. Under ASU 2018-07, equity-classified non-employee share-based payment
awards are measured at the fair value on the grant date, and expense is recognized in the same period and in the same manner as if we had paid cash for the
goods or services received. With the adoption of ASU 2018-07, we recorded a cumulative charge of less than $0.1 million to the Accumulated Deficit balance
as of January 1, 2018.
We will continue to use judgment in evaluating the expected term and expected volatility related to our stock-based compensation calculations on a
prospective basis. As we continue to accumulate additional data related to our common stock, we may make refinements to the estimates of our expected
terms and expected volatility that could materially impact our future stock-based compensation.
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Derivative Liabilities
We bifurcated and separately accounted for derivative instruments related to payment provisions underlying the Medicis settlement. This derivative
is accounted for as a liability, which will be remeasured to fair value as of each balance sheet date, with changes in fair value recognized in the Consolidated
Statements of Operations and Comprehensive Loss. We will continue to record adjustments to the fair value of the derivative liability associated with the
Medicis settlement until the remaining settlement payment has been paid.
The fair value of the product approval payment derivative was determined by estimating the timing and probability of the related approval and
multiplying the payment amount by this probability percentage then applying a discount factor. As of December 31, 2017, the fair value of the product
approval payment derivative of $2.6 million was determined by updating the timing and probability estimate of the related approval and applying a discount
factor assuming a term of 2.5 years, a risk-free rate of 2.0% and a credit risk adjustment of 6.5%. As of December 31, 2018, we determined the fair value of
its liability for the product approval payment was $2.7 million, which was measured by assuming a term of 1.5 years, a risk-free rate of 2.6% and a credit risk
adjustment of 8.0%. Our assumption for the expected term is based on an expected BLA approval in 2020. We did not make any payments under the product
approval payment during the years ended December 31, 2018 and 2017. As a result of the fair value remeasurements during the years ended December 31,
2018, 2017, and 2016, we recognized aggregate losses of $0.1 million, $0.6 million, and $0.6 million, respectively.
Impairment of Long-Lived Assets
We evaluate long-lived assets, such as property and equipment subject to depreciation, for impairment whenever events or changes in circumstances
indicate that the carrying value of long-lived assets may not be recoverable. Events and changes in circumstances considered important that could result in an
impairment review of long-lived assets include (i) a significant decrease in the market price of a long-lived asset; (ii) a significant adverse change in the
extent or manner in which a long-lived asset is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in
excess of the amount originally expected for the acquisition or construction of a long-lived asset; (v) a current-period operating or cash flow loss combined
with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and
(vi) a current expectation that, more likely than not (more than 50 percent), a long-lived asset will be sold or otherwise disposed of significantly before the
end of its previously estimated useful life. The impairment evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash
flows expected to be generated by the long-lived assets over their remaining estimated useful lives. If the estimate of future undiscounted net cash flows is
insufficient to recover the carrying value of the long-lived assets over the remaining estimated useful lives, we record an impairment loss in the amount by
which the carrying value of the long-lived assets exceeds the fair value. Fair value is generally measured based on discounted cash flow analysis.
We constructed a fill/finish line for the future commercial manufacturing of our DaxibotulinumtoxinA Topical and to support its clinical trials and
regulatory license applications. In 2016, following the results of the REALISE 1 Phase 3 clinical trial for crow's feet, we discontinued our
DaxibotulinumtoxinA Topical clinical development programs for the treatment of crow’s feet and for the treatment of primary axillary hyperhidrosis. We
performed an impairment analysis of the DaxibotulinumtoxinA Topical fill/finish line and other fixed assets to determine fair value based on highest and best
use. We concluded that only certain equipment comprising the DaxibotulinumtoxinA Topical fill/finish line would be repurposed for commercial-scale
manufacturing of DAXI. As a result, we determined fair value based on its highest and best use and that for certain components of the fill/finish line and other
fixed assets, the carrying value of the assets was not entirely recoverable and the fair value, which was calculated using the market or cost approach
depending on the specific asset, was lower than the carrying value. Accordingly, during the year ended December 31, 2017, we recorded a loss on impairment
of $2.9 million.
During the year ended December 31, 2018, we sold certain component relating to the fill/finish line manufacturing equipment and recognized a gain
of $1.5 million, which is included in Research and Development expenses in the Consolidated Statements of Operations and Comprehensive Loss. There was
no impairment of long-lived assets during the year ended December 31, 2018.
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Income Taxes
We account for income taxes under the asset and liability method. We estimate actual current tax exposure together with assessing temporary
differences resulting from differences in accounting for reporting purposes and tax purposes for certain items, such as accruals and allowances not currently
deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the our Consolidated Balance
Sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our Consolidated
Statements of Operations and comprehensive loss become deductible expenses under applicable income tax laws or when NOL or credit carryforwards are
utilized. Accordingly, realization of our deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be
utilized.
We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is
not likely, we establish a valuation allowance. Based on the available evidence, we are unable, at this time, to support the determination that it is more likely
than not that its deferred tax assets will be utilized in the future. Accordingly, we recorded a full valuation allowance as of December 31, 2018 and 2017. We
intend to maintain valuation allowances until sufficient evidence exists to support its reversal.
As of December 31, 2018, we had NOL carryforwards available to reduce future taxable income, if any, for federal, California, and other states
income tax purposes of $638.6 million, $179.1 million, and $703.9 million, respectively. The California NOL carryforwards began to expire in 2010. The
federal NOL carryforwards will begin expiring in 2020, and the other states NOL carryforwards will begin expiring in 2030 if they are not utilized. As a
result of the Tax Reform Act, the federal NOL generated after December 31, 2017 will carryover indefinitely with statutory limitations to the annual
utilization.
As of December 31, 2018, we had research and development credit carryforwards of $7.3 million and $6.7 million available to reduce future taxable
income, if any, for federal and California income tax purposes, respectively.
The federal research and development credit carryforwards will begin expiring in 2023 if they are not utilized, and the California research and development
credit carryforwards have no expiration date.
In general, if we experience a greater than 50 percentage point aggregate change in ownership over a 3-year period (a Section 382 ownership
change), utilization of its pre-change NOL carryforwards are subject to an annual limitation under Internal Revenue Code Section 382 (California and other
states have similar laws). The annual limitation generally is determined by multiplying the value of our stock at the time of such ownership change (subject to
certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before
utilization. We determined that an ownership change occurred on April 7, 2004 but that all carryforwards can be utilized prior to the expiration. We also
determined that an ownership change occurred in February 2014, and as a result, we reduced the deferred tax assets and the corresponding valuation
allowance to account for this limitation. Since the research and development credits for California carry over indefinitely, there was no change to the
California research and development credits. We reviewed our Internal Revenue Code Section 382 limitation through December 31, 2018 and have not
identified any ownership changes resulting in a limitation.
Our ability to use our remaining NOL carryforwards may be further limited if we experience a Section 382 ownership change as a result of future
changes in its stock ownership.
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Contractual Obligations
Our contractual commitments will have an impact on our future liquidity. The following table, which summarizes our contractual obligations as of
December 31, 2018, represents material expected or contractually committed future obligations, with terms in excess of one year. We believe that we will be
able to fund these obligations through cash generated funding activities and from our existing cash balances.
Contractual Obligations
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Operating lease obligations
Total
$
$
48,995 $
48,995 $
6,339 $
6,339 $
13,677 $
13,677 $
11,021 $
11,021 $
17,958
17,958
( In thousands)
Payment due by period
This table does not include any milestone or royalty payments, which may become payable to third parties under agreements, as the timing and
likelihood of such payments are not known.
• We are obligated to pay milestone and royalties to List Laboratories on future sales of botulinum toxin products.
• We also have one remaining future milestone payment of $4.0 million due and payable to Valeant upon the achievement of regulatory approval for
DAXI or DaxibotulinumtoxinA Topical.
•
•
•
In June 2016, we entered into BTRX Purchase Agreement in which we agreed to pay up to an additional $16.0 million in aggregate upon the
satisfaction of specified milestones relating to our sales revenue, intellectual property, and clinical and regulatory events. In exchange, we acquired
all rights, title and interest in a portfolio of botulinum toxin-related patents and patent applications from BTRX and was granted the right of first
negotiation and first refusal with respect to other botulinum toxin-related patents owned or controlled by BTRX.
In April 2016, we entered into an agreement with BioSentinel, Inc. to in-license their technology and expertise for research and development and
manufacturing purposes. In addition to minimum quarterly use fees, we are obligated to make a one-time future milestone payment of $0.3 million
payable to BioSentinel, Inc. upon the achievement of regulatory approval.
In March 2017, we entered into the Althea Services Agreement, under which Althea has agreed to provide us with a future source of commercial
fill/finish services for our neuromodulator products. The Althea Services Agreement has an initial term that will expire in 2024, unless terminated
sooner by either party. In accordance with the Althea Services Agreement, we will have minimum purchase obligations based on its production
forecasts. As of December 31, 2018, we made non-refundable advanced payments of $1.9 million in accordance with the terms of the Althea
Services Agreement. The remaining services are cancellable at any time, with the costs we are required to pay that incurred through the cancellation
date.
This table does not include a liability for unrecognized tax benefits related to various federal and state income tax matters of $4.2 million at
December 31, 2018. The timing of the settlement of these amounts was not reasonably estimable at December 31, 2018. We do not expect payment of
amounts related to the unrecognized tax benefits within the next twelve months.
Off-Balance Sheet Arrangements
As of December 31, 2018, we did not have any off-balance sheet arrangements or any relationships with any entities or financial partnerships, such
as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
Recent Accounting Pronouncements
Refer to Part IV, Item 15. “Exhibits and Financial Statement Schedules—Notes to Consolidated Financial Statements—Note 2—Summary of
Significant Accounting Policies” in this Form 10-K.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates
and interest rates. We do not hold or issue financial instruments for trading purposes.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our cash, cash equivalents, and short-term investments. We had cash,
cash equivalents, and short-term investments of $175.8 million and $282.9 million as of December 31, 2018 and 2017, respectively. As of December 31,
2018, our cash, cash equivalents, and short-term investments were held in deposit, money market funds, U.S. treasury securities and U.S. government agency
obligations. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of the interest rates in the
U.S. A hypothetical 10% movement in interest rates would not be expected to have a material impact on our Consolidated Financial Statements. We mitigate
market risk for changes in interest rates by holding our short-term investments in U.S. treasury and government agency obligations to maturity.
Foreign Exchange
Our operations are primarily conducted in the U.S. using the U.S. Dollar. However, we conduct limited operations in foreign countries, primarily for
clinical and regulatory services, whereby settlement of our obligations are denominated in the local currency. Transactional exposure arises when transactions
occur in currencies other than the U.S. Dollar. Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the date of the
transaction with the resulting liabilities being translated into the U.S. Dollar at exchange rates prevailing at the balance sheet date. The resulting gains and
losses, which were insignificant for the years ended December 31, 2018, 2017 and 2016, are included in other expense in the Consolidated Statements of
Operations and Comprehensive Loss. We do not use currency forward exchange contracts to offset the related effect on the underlying transactions
denominated in a foreign currency.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth beginning on page F-3 of this Annual Report on this Form 10-K and are incorporated
herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer, our
principal financial officer and our principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.
Based on our management’s evaluation (with the participation of our principal executive officer, our principal financial officer, and our principal
accounting officer) of our disclosure controls and procedures as required by Rule 13a-15 under the Exchange Act, our principal executive officer, our
principal financial officer, and our principal accounting officer have concluded that our disclosure controls and procedures were effective to achieve their
stated purpose as of December 31, 2018, the end of the period covered by this report.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over
financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and
directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer, principal financial officer, and
principal accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018 based
on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO. Based on our evaluation under the criteria set forth in Internal Control - Integrated Framework (2013) issued by the COSO, our
management concluded our internal control over financial reporting was effective as of December 31, 2018.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report on page F-2 in Part IV, Item 15 of this Form 10-K and is incorporated herein
by reference.
(c) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item will be included in the Company's proxy statement for the 2019 Annual Meeting of the Stockholders (“2019
Proxy Statement”), under the sections labeled “Proposal 1 - Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”,
“Information Regarding the Board of Directors and Corporate Governance” and “Executive Officers of the Company” and is incorporated by reference. The
2019 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates.
Code of Business Conduct. Our board of directors adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers,
including our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions and
agents and representatives, including directors and consultants. The full text of our Code of Business Conduct and Ethics is posted on our website at
www.revance.com. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of such provisions
applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and
our directors, on our website identified above.
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in the sections labeled “Executive Compensation”, “Information Regarding the Board of
Directors and Corporate Governance - Non-Employee Director Compensation”, “Information Regarding the Board of Directors and Corporate Governance -
Compensation Committee Interlocks and Insider Participation” and “Information Regarding the Board of Directors and Corporate Governance -
Compensation Committee Report” appearing in our 2019 Proxy Statement, and is incorporated herein.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item will be included in the sections labeled “Security Ownership of Certain Beneficial Owners and Management”
and “Equity Compensation Plan Information” appearing in our 2019 Proxy Statement, and is incorporated by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be included in the sections labeled “Transactions with Related Persons" and "Information Regarding the
Board of Directors and Corporate Governance” appearing in our 2019 Proxy Statement, and is incorporated by reference.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item will be included in the section labeled “Proposal 2 - Ratification of Selection of Independent Registered Public
Accounting Firm” appearing in our 2019 Proxy Statement, and is incorporated by reference.
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ITEM 15. EXHIBITS AND FINANCIALS STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on this Form 10-K:
PART IV
(1) Financial Statements. The financial statements required by this item are set forth beginning at F-1 of this Annual Report on this Form 10-K and
are incorporated herein by reference.
(2) Financial Statement Schedules. None. Financial statement schedules have been omitted because they are not applicable.
(3) Exhibits: See Item 15(b) below.
(b) Exhibits. The following exhibits are included herein or incorporated herein by reference:
EXHIBIT INDEX
Incorporated by Reference
Exhibit
Number
3.1
Exhibit Description
Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Form of Common Stock Certificate
S-1/A
333-193154
3.2
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
Revance Therapeutics, Inc. 2002 Equity Incentive
Plan
Form of Stock Option Agreement and Option Grant
Notice for Revance Therapeutics, Inc. 2002 Equity
Incentive Plan
Revance Therapeutics, Inc. Amended and Restated
2012 Equity Incentive Plan
Form of Stock Option Agreement and Option Grant
Notice for Revance Therapeutics, Inc. Amended and
Restated 2012 Equity Incentive Plan
Revance Therapeutics, Inc. 2014 Equity Incentive
Plan
Form of Restricted Stock Unit Award Agreement
and Grant Notice for Revance Therapeutics, Inc.
2014 Equity Incentive Plan
Form of Stock Option Agreement and Grant Notice
for Revance Therapeutics, Inc. 2014 Equity
Incentive Plan
Form of Restricted Stock Bonus Agreement and
Grant Notice for Revance Therapeutics, Inc. 2014
Equity Incentive Plan
Revance Therapeutics, Inc. 2014 Employee Stock
Purchase Plan
Form of Indemnity Agreement by and between
Revance Therapeutics, Inc. and each of its officers
and directors
Lease Agreement dated March 31, 2008 by and
between Revance Therapeutics, Inc. and BMR-
Gateway Boulevard LLC
Form
8-K
S-1
File No.
001-36297
333-193154
S-1
S-1
S-1
S-1
333-193154
333-193154
333-193154
333-193154
S-1/A
333-193154
10-K
001-36297
Filed
Herewith
Exhibit
3.1
3.4
4.4
10.1
10.2
10.3
10.4
10.5
10.6
Filing Date
February 11, 2014
December 31, 2013
February 3, 2014
December 31, 2013
December 31, 2013
December 31, 2013
December 31, 2013
January 27, 2014
March 4, 2016
10-Q
001-36297
10.3
November 10, 2015
10-K
001-36297
10.8
March 4, 2016
S-1/A
333-193154
S-1/A
333-193154
10.7
10.8
January 27, 2014
January 27, 2014
S-1
333-193154
10.9
December 31, 2013
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Exhibit
Number
10.12
10.13
10.14
10.15
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22
10.23
10.24
10.25
Exhibit Description
First Amendment to Office Lease dated April 7,
2008 by and between Revance Therapeutics, Inc.
and BMR-Gateway Boulevard LLC
Second Amendment to Office Lease and Lease dated
May 17, 2010 by and between Revance
Therapeutics, Inc. and BMR-Gateway Boulevard
LLC
Third Amendment to Lease, dated February 26, 2014
by and between Revance Therapeutics, Inc. and
BMR-Gateway Boulevard LLC
Fourth Amendment to Lease, dated May 10, 2018,
by and between Revance Therapeutics, Inc. and
BMR-Pacific Research Center LP.
License and Service Agreement dated February 8,
2007 between Revance Therapeutics, Inc. and List
Biological Laboratories, Inc.
First Addendum to the License and Service
Agreement dated April 21, 2009 between Revance
Therapeutics, Inc. and List Biological Laboratories,
Inc.
Development and Supply Agreement dated
December 11, 2009 between Revance Therapeutics,
Inc. and Hospira Worldwide, Inc.
First Amendment to Development and Supply
Agreement dated May 29, 2013 between Revance
Therapeutics, Inc. and Hospira Worldwide, Inc
Second Amendment to Development and Supply
Agreement dated August 31, 2015 between Revance
Therapeutics, Inc. and Hospira Worldwide, Inc.
Manufacture and Development Agreement dated
May 20, 2013 between Revance Therapeutics, Inc.
and American Peptide Company, Inc.
First Amendment to Manufacture and Development
Agreement dated April 13, 2018 between Revance
Therapeutics, Inc. and Bachem Americas, Inc.
Loan and Lease Agreement dated as of December
20, 2013 by and between Revance Therapeutics, Inc.
and Essex Capital Corporation
First Amendment to Loan and Lease Agreement,
dated December 17, 2014, by and between Revance
Therapeutics, Inc. and Essex Capital Corporation
Second Amendment to Loan and Lease Agreement,
dated February 26, 2015, by and between Revance
Therapeutics, Inc. and Essex Capital Corporation
Incorporated by Reference
Form
S-1
File No.
333-193154
Exhibit
10.10
Filing Date
December 31, 2013
Filed
Herewith
S-1
333-193154
10.11
December 31, 2013
8-K
001-36297
10.35
March 4, 2014
8-K
001-36297
10.1
May 11, 2018
S-1
333-193154
10.15
December 31, 2013
S-1
333-193154
10.16
December 31, 2013
S-1
333-193154
10.18
December 31, 2013
S-1
333-193154
10.20
December 31, 2013
10-Q
001-36297
10.1
November 10, 2015
S-1
333-193154
10.19
December 31, 2013
10-Q
001-36297
10.3
August 3, 2018
S-1
333-193154
10.21
December 31, 2013
8-K
001-36297
10.1
December 22, 2014
10-K
001-36297
10.25
March 4, 2015
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Exhibit
Number
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39
10.40
10.41+
Exhibit Description
Revance Therapeutics, Inc. Third Amended and
Restated Executive Severance Benefit Plan
Revance Therapeutics, Inc. Amended and Restated
Non-Employee Director Compensation Policy
Revance Therapeutics, Inc. 2019 Management
Bonus Plan
Revance Therapeutics, Inc. Amended and Restated
2014 Inducement Plan
Form of Stock Option Agreement and Grant Notice
under Amended and Restated Revance Therapeutics,
Inc. 2014 Inducement Plan
Form of Restricted Stock Agreement and Grant
Notice under Amended and Restated Revance
Therapeutics, Inc. 2014 Inducement Plan
Executive Employment Agreement dated December
30, 2013 by and between Revance Therapeutics, Inc.
and L. Daniel Browne
Executive Employment Agreement dated December
31, 2013 by and between Revance Therapeutics, Inc.
and Lauren Silvernail
Executive Employment Agreement dated December
14, 2015 by and between Revance Therapeutics, Inc.
and Abhay Joshi.
Executive Employment Agreement dated September
18, 2017 by and between Revance Therapeutics, Inc.
and Todd Zavodnick.
Executive Employment Agreement dated May 1,
2018 by and between Company and Caryn G.
McDowell
Executive Employment Agreement dated November
5, 2018 by and between Revance Therapeutics, Inc.
and Tobin Schilke
Employment Agreement dated November 7, 2018 by
and between Revance Therapeutics, Inc. and Cyril
Allouche
Technology Transfer, Validation and Commercial
Fill/Finish Services Agreement dated March 14,
2017 between Revance Therapeutics, Inc. and
Ajinomoto Althea, Inc.
Controlled Equity OfferingSM Sales Agreement,
dated March 13, 2018, by and between Revance
Therapeutics, Inc. and Cantor Fitzgerald & Co.
Collaboration and License Agreement, dated
February 28, 2018, by and between Revance
Therapeutics, Inc. and Mylan Ireland Ltd
Incorporated by Reference
Form
10-K
File No.
001-36297
Exhibit
10.24
Filing Date
March 2, 2018
—
—
—
—
8-K
001-36297
10-Q
001-36297
—
—
99.1
10.5
—
—
December 14, 2015
November 10, 2015
Filed
Herewith
X
X
10-K
001-36297
10.31
March 4, 2016
S-1/A
333-193154
10.25
January 27, 2014
S-1/A
333-193154
10.27
January 27, 2014
10-K
001-36297
10.34
March 4, 2016
10-Q
001-36297
10.1
November 3, 2017
10-Q
001-36297
10.1
August 3, 2018
—
—
—
—
—
—
—
—
X
X
10-Q
001-36297
10.4
May 9, 2017
8-K
001-36297
99.1
March 13, 2018
10-Q
001-36297
10.1
May 9, 2018
93
Table of Contents
Exhibit
Number
10.42++
21.1
23.1
24.1
31.1
31.2
32.1†
32.2†
Exhibit Description
License Agreement, dated December 4, 2018, by and
between Revance Therapeutics, Inc. and Shanghai
Fosun Pharmaceutical Industrial Development Co.,
Ltd.
Incorporated by Reference
Form
—
File No.
—
Exhibit
—
Filing Date
—
Filed
Herewith
X
List of Subsidiaries of the Registrant
—
Consent of Independent Registered Public
Accounting Firm
Power of Attorney (contained in the signature page
to this Annual Report on Form 10-K)
Certification of Principal Executive Officer pursuant
to Rule 13a-14(a) and 15d-14(a) promulgated under
the Exchange Act
Certification of Principal Financial Officer pursuant
to Rule 13a-14(a) and 15d-14(a) promulgated under
the Exchange Act
Certification of the Chief Executive Officer pursuant
to18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
—
—
—
—
—
—
101.INS XBRL Instance Document
—
101.SCH XBRL Taxonomy Extension Schema Document
—
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
XBRL Taxonomy Extension Labels Linkbase
Document
XBRL Taxonomy Extension Presentation Linkbase
Document
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
X
X
X
X
X
X
X
X
X
X
X
X
X
Indicates a management contract or compensatory plan or arrangement.
*
+ Confidential treatment has been granted for portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange
Commission.
++ Confidential treatment has been requested for certain portions of this exhibit.
†
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and
Exchange Commission and are not to be incorporated by reference into any filing of Revance Therapeutics, Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general
incorporation language contained in such filing.
ITEM 16. FORM 10-K SUMMARY
None.
94
Table of Contents
REVANCE THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-8
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Revance Therapeutics, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Revance Therapeutics, Inc. and its subsidiaries (the “Company”) as of December 31, 2018
and 2017, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years
in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited
the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-2
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
February 28, 2019
We have served as the Company’s auditor since 2005.
F-3
Table of Contents
REVANCE THERAPEUTICS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
ASSETS
As of December 31,
2018
2017
$
73,256 $
282,896
CURRENT ASSETS
Cash and cash equivalents
Short-term investments
Accounts and other receivables
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Other non-current assets
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
Accruals and other current liabilities
Deferred revenue, current portion
Financing obligations
Total current liabilities
Derivative liability associated with the Medicis settlement
Deferred revenue, net of current portion
Deferred rent
TOTAL LIABILITIES
Commitments and Contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share — 95,000,000 shares authorized both as of December 31, 2018 and
2017; 36,975,203 and 36,516,075 shares issued and outstanding as of December 31, 2018 and 2017,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
102,556
27,000
5,110
207,922
14,449
730
3,247
—
48
2,267
285,211
9,250
580
658
226,348 $
295,699
8,434 $
14,948
8,588
—
31,970
2,753
42,684
3,319
80,726
37
830,368
(8)
(684,775)
145,622
6,805
12,225
—
1,872
20,902
2,613
—
3,339
26,854
37
810,975
—
(542,167)
268,845
295,699
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
226,348 $
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4
Table of Contents
Revenue
Operating expenses:
Research and development
General and administrative
Loss on impairment
Total operating expenses
Loss from operations
Interest income
Interest expense
REVANCE THERAPEUTICS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Year Ended December 31,
2018
2017
2016
$
3,729 $
262 $
300
92,500
53,863
—
146,363
(142,634)
4,023
(44)
(140)
(773)
(139,568)
(3,000)
(142,568)
(8)
(142,576) $
(142,568) $
(3.94) $
80,361
37,398
2,927
120,686
(120,424)
1,410
(457)
(591)
(525)
(120,587)
—
(120,587)
45
(120,542) $
(120,587) $
(4.01) $
50,381
29,075
9,059
88,515
(88,215)
1,170
(1,082)
(608)
(535)
(89,270)
—
(89,270)
(5)
(89,275)
(89,270)
(3.18)
Changes in fair value of derivative liability associated with the Medicis settlement
Other expense, net
Loss before income taxes
Income tax provision
Net loss
Unrealized gain (loss) and adjustment on securities included in net loss
Comprehensive loss
Basic and Diluted net loss attributable to common stockholders
Basic and Diluted net loss per share attributable to common stockholders
$
$
$
Basic and Diluted weighted-average number of shares used in computing net loss per share
attributable to common stockholders
36,171,582
30,101,125
28,114,784
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
REVANCE THERAPEUTICS, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share and per share amounts)
Additional
Paid-In Capital
Other
Accumulated
Comprehensive
Gain (Loss)
Total
Stockholders’
Equity
Accumulated
Deficit
(332,273) $
Common Stock
Amount
Balance — December 31, 2015
Issuance of common stock relating to employee stock purchase plan
Stock-based compensation expense
Issuance of common stock upon exercise of stock options
Issuance of restricted stock awards, net of cancellation
Net settlement of restricted stock awards for employee taxes
Unrealized loss and adjustment on securities included in net loss
Net loss
Balance — December 31, 2016
Cumulative-effect adjustment from adoption of ASU 2016-09
Issuance of common stock relating to employee stock purchase plan
Stock-based compensation expense
Issuance of common stock in connection with at-the-market offering,
net of issuance costs of $603
Issuance of common stock in connection with the 2017 follow-on
offering, net of issuance costs of $535
Issuance of common stock upon net exercise of warrants
Issuance of common stock upon exercise of stock options
Issuance of restricted stock awards, net of cancellation
Net settlement of restricted stock awards for employee taxes
Unrealized gain and adjustment on securities included in net loss
Net loss
Balance — December 31, 2017
Cumulative-effect adjustment from adoption of ASU 2018-07
Issuance of common stock relating to employee stock purchase plan
Stock-based compensation expense
Issuance of common stock upon exercise of stock options
Issuance of restricted stock awards, net of cancellation
Net settlement of restricted stock awards for employee taxes
Unrealized loss and adjustment on securities included in net loss
Net loss
Balance — December 31, 2018
Shares
28,288,464 $
21,064
—
131,752
234,567
(26,893)
—
—
28,648,954
—
28,135
—
1,802,651
5,389,515
9,878
309,341
353,620
(26,019)
—
—
36,516,075
—
37,894
—
293,100
201,032
(72,898)
—
—
36,975,203 $
28 $
—
—
—
1
—
—
—
29
—
—
—
585,537 $
243
11,953
1,405
(1)
(507)
—
—
598,630
37
583
13,230
2
38,155
5
—
1
—
—
—
—
37
—
—
—
—
—
—
—
—
37 $
156,928
—
3,985
—
(573)
—
—
810,975
40
765
16,273
4,527
—
(2,212)
—
—
830,368 $
(40) $
—
—
—
—
—
(5)
—
(45)
—
—
—
—
—
—
—
—
45
—
—
—
—
—
—
—
—
(8)
—
(8) $
—
—
—
—
—
—
(89,270)
(421,543)
(37)
—
—
—
—
—
—
—
—
—
(120,587)
(542,167)
(40)
—
—
—
—
—
—
(142,568)
(684,775) $
253,252
243
11,953
1,405
—
(507)
(5)
(89,270)
177,071
—
583
13,230
38,157
156,933
—
3,986
—
(573)
45
(120,587)
268,845
—
765
16,273
4,527
—
(2,212)
(8)
(142,568)
145,622
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
REVANCE THERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2018
2017
2016
$
(142,568) $
(120,587) $
(89,270)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Amortization of premium (discount) on investments
Stock-based compensation expense
Gain on disposal of fixed assets
Impairment of long-lived assets
Acquisition of in-process research and development
Other non-cash operating activities
Changes in operating assets and liabilities:
Accounts and other receivables
Prepaid expenses and other current assets
Other non-current assets
Accounts payable
Accruals and other liabilities
Deferred revenue
Deferred rent
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
Proceeds from sale of property and equipment
Purchases of short-term investments
Proceeds from maturity of short-term investments
Proceeds from sale of short-term investments
Purchase of in-process research and development
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock in connection with the 2017 follow-on offering, net of
commissions and discount
Proceeds from issuance of common stock in connection with at-the-market offerings, net of commissions
Proceeds from the exercise of stock options and common stock warrants, and purchases under the
employee stock purchase plan
Principal payments made on financing obligations
Net settlement of restricted stock awards for employee taxes
Payment of offering costs
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
INFORMATION:
Deferred offering costs
$
$
$
Property and equipment purchases included in accounts payable and accruals and other current liabilities $
Holdback related to acquisition of in-process research and development
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-7
1,726
(1,103)
16,273
(1,466)
—
—
175
(26,952)
(2,911)
(1,871)
1,691
1,609
51,272
(121)
(104,246)
(6,991)
1,541
(314,911)
146,000
67,435
(100)
(107,026)
—
—
5,292
(932)
(2,212)
(366)
1,782
(209,490)
283,476
73,986 $
1,468
410
13,230
—
2,927
—
767
80
4,849
(403)
2,607
(565)
—
(125)
(95,342)
(2,525)
—
(36,028)
157,445
—
(100)
118,792
157,468
38,760
4,569
(3,636)
(573)
(644)
195,944
219,394
64,082
283,476 $
16 $
299 $
354 $
642 $
— $
251 $
718 $
— $
1,445
1,212
11,953
—
9,059
2,000
1,013
30
(5,621)
(151)
953
7,502
—
48
(59,827)
(1,670)
2
(280,681)
207,650
1,000
(1,800)
(75,499)
—
—
1,649
(3,541)
(507)
(243)
(2,642)
(137,968)
202,050
64,082
676
134
200
200
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements
1. The Company and Basis of Presentation
Revance Therapeutics, Inc. (“the Company”) is a clinical-stage biotechnology company focused on the development, manufacturing, and
commercialization of novel neuromodulators for multiple aesthetic and therapeutic indications. The Company is leveraging its proprietary portfolio of
botulinum toxin type A compounds, formulated with its patented and proprietary peptide excipient technology, to address unmet needs in large and growing
neuromodular markets. The Company's initial focus is on developing daxibotulinumtoxinA, our highly purified botulinum toxin Type A, for a broad spectrum
of aesthetic and therapeutic indications, including facial wrinkles, muscle disorders, and chronic migraine.
The Company's lead drug candidate is DaxibotulinumtoxinA for Injection (“DAXI”). The Company used its unique proprietary peptide excipient
technology to formulate DAXI. The noncovalent bond formed between the proprietary peptide excipient technology and the botulinum toxin may enable
longer residence time of botulinum toxin Type A, which could explain DAXI’s long duration of effect. The process binds a highly purified botulinum toxin
Type A with a unique proprietary stabilizing excipient peptide. The Company does not use human serum albumin (“HSA”) and other animal-sourced
ingredients, which carry the risk of transmission of pathogens, to stabilize our product.
The Company is currently studying DAXI for the treatment of facial wrinkles, cervical dystonia, plantar fasciitis, adult upper limb spasticity, and
chronic migraine. The Company believes DAXI has the potential to expand into additional aesthetic and therapeutic indications. The Company also is
developing a topically applied neuromodulator for aesthetic and therapeutic indications, DaxibotulinumtoxinA Topical, and have a collaboration and license
agreement with Mylan Ireland Limited, a wholly-owned indirect subsidiary of Mylan N.V. (“Mylan”), to develop and commercialize a biosimilar to
BOTOX®.
Since inception, the Company has devoted substantially all of its efforts to identifying and developing product candidates for the aesthetic and
therapeutic pharmaceutical markets, recruiting personnel, raising capital, conducting preclinical and clinical development of, and manufacturing development
for DAXI and DaxibotulinumtoxinA Topical. The Company has incurred losses and negative cash flows from operations. The Company has not yet
commenced commercial operations, has not generated product revenue to date, and will continue to incur significant research and development and other
expenses related to its ongoing operations. The Company has recorded net losses of $142.6 million, $120.6 million, and $89.3 million for the years ended
December 31, 2018, 2017, and 2016, respectively. As of December 31, 2018, the Company had a working capital surplus of $176.0 million and an
accumulated deficit of $684.8 million. The Company has funded its operations primarily through the sale and issuance of common stock, convertible
preferred stock, notes payable, and convertible notes. As of December 31, 2018, the Company had capital resources consisting of cash, cash equivalents, and
short-term investments of $175.8 million. In January 2019, the Company completed a follow-on public offering (the “2019 follow-on offering”) for net
proceeds of $107.6 million after underwriting discounts, commissions and other offering expenses (Note 11). In January 2019, the Company received $27.0
million for an upfront payment net of foreign withholding tax from Shanghai Fosun Pharmaceutical (Group) Co., Ltd (“Fosun”) (Note 3). The Company
believes that its existing cash and cash equivalents will allow the Company to fund its operating plan through at least the next 12 months following the
issuance of this Form 10-K and may identify additional capital resources to fund its operations.
Basis of Presentation
The Consolidated Financial Statements of the Company include the Company’s accounts and those of its wholly-owned subsidiaries, Revance
Therapeutics Limited and Revance International Limited, and have been prepared in conformity with U.S. generally accepted accounting principles
(“GAAP”). The Company operates in one segment.
2. Summary of Significant Accounting Policies
Principles of consolidation
The Consolidated Financial Statements include the accounts of the company and its wholly-owned subsidiaries. All intercompany transactions have
been eliminated.
F-8
Table of Contents
Use of Estimates
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the Consolidated Financial Statements and accompanying notes. Such management estimates include revenue recognition, deferred
revenue, accruals including clinical trial accruals, stock-based compensation, fair value of derivative liability, impairment of long-lived assets and the
valuation of deferred tax assets. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable; however,
actual results could significantly differ from those estimates.
Risks and Uncertainties
The product candidates developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory
agencies prior to commercial sales. There can be no assurance that the Company’s current and future product candidates will meet desired efficacy and safety
requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its
Consolidated Financial Statements.
The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on the clinical and
commercial success of its product candidates, ability to obtain regulatory approval of its product candidates, the need for substantial additional financing to
achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, significant competition and untested
manufacturing capabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of short-term investments. Under the Company's
investment policy, the Company limits its credit exposure by investing in highly liquid funds and debt obligations of the United States (“U.S.”) government
and its agencies with high credit quality. The Company’s cash, cash equivalents, and short-term investments are held in the U.S. Such deposits may, at times,
exceed federally insured limits. The Company has not experienced any significant losses on its deposits of cash, cash equivalents, and short-term investments.
Cash and Cash Equivalents
The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash
equivalents. Cash and cash equivalents may include deposit, money market funds, and debt securities.
Restricted Cash
As of December 31, 2018 and 2017, a deposit totaling $0.7 million was restricted from withdrawal. The Company has a deposit balance of
approximately $0.5 million that relates to securing the Company’s facility lease and will remain until the end of the lease. The remaining $0.2 million deposit
balance relates to a letter of credit. These balances are included in restricted cash on the accompanying Consolidated Balance Sheets and within the cash, cash
equivalents, and restricted cash balance on the Consolidated Statement of Cash Flows.
Investments
Investments generally consist of securities with original maturities greater than three months and remaining maturities of less than one year, while
long-term investments generally consist of securities with remaining maturities greater than one year. The Company determines the appropriate classification
of its investments at the time of purchase and reevaluates such determination at each balance sheet date. All of its investments are classified as available-for-
sale and carried at fair value, with the change in unrealized gains and losses reported as a separate component of other comprehensive income (loss) on the
Consolidated Statements of Operations and Comprehensive Loss and accumulated as a separate component of stockholders' equity on the Consolidated
Balance Sheets. Interest income, net includes interest, dividends, amortization of purchase premiums and discounts, realized gains and losses on sales of
securities and other-than-temporary declines in the fair value of investments, if any. The cost of securities sold is based on the specific-identification method.
The Company monitors its investment portfolio for potential impairment on a quarterly basis. If the carrying amount of an investment in debt securities
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REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
exceeds its fair value and the decline in value is determined to be other-than-temporary, the carrying amount of the security is reduced to fair value and a loss
is recognized in operating results for the amount of such decline. In order to determine whether a decline in value is other-than-temporary, the Company
evaluates, among other factors, the cause of the decline in value, including the creditworthiness of the security issuers, the number of securities in an
unrealized loss position, the severity and duration of the unrealized losses, and its intent and ability to hold the security to maturity or forecast recovery. The
Company mitigates its credit risk by investing in money market funds, U.S. treasury securities, and U.S. government agency obligations which limits the
amount of investment exposure as to credit quality and maturity.
Of the Company's total cash, cash equivalents, and short-term investments of $175.8 million and $282.9 million as of December 31, 2018 and 2017,
respectively, the Company held cash, cash equivalents, and short-term investments with a total fair value of $87.7 million and $150.7 million as of
December 31, 2018 and 2017, respectively, in an investment account with a related party, J.P. Morgan Securities LLC. As of December 31, 2018 and 2017,
JPMorgan Chase & Co. and its wholly owned subsidiaries JPMorgan Chase Bank, National Association (NA), J.P. Morgan Investment Management Inc., and
JPMorgan Asset Management (UK) Limited held approximately 3.8 million shares and 3.6 million shares, respectively, of the Company's common stock,
which represents approximately 10.30% and 9.75% of the Company's outstanding common stock, respectively. J.P. Morgan Securities LLC, who acts as a
custodian and trustee for certain Company investments, is an affiliate of JPMorgan Chase Bank, NA.
Fair Value of Financial Instruments
The Company uses fair value measurements to record fair value adjustments to certain financial and non-financial assets and liabilities to determine
fair value disclosures. The accounting standards define fair value, establish a framework for measuring fair value, and require disclosures about fair value
measurements. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the
principal or most advantageous market in which the Company would transact are considered along with assumptions that market participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The accounting standard for fair value establishes a fair
value hierarchy based on three levels of inputs, the first two of which are considered observable and the last unobservable, that requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair
value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The three levels of inputs that may be used to measure fair value are as follows:
Level 1
Level 2
Level 3
—
—
—
Property and Equipment
Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Valuations based on unobservable inputs to the valuation methodology and including data about assumptions
market participants would use in pricing the asset or liability based on the best information available under the
circumstances.
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Computer equipment, lab equipment and furniture and fixtures, and manufacturing equipment is depreciated generally
over 3, 5, and 7 years, respectively. Repairs and maintenance that do not extend the life or improve an asset are expensed in the period incurred.
Leasehold improvements are depreciated over the lesser of 15 years or the term of the lease. Repairs and maintenance are charged to operations as
incurred. When assets are retired or otherwise disposed of, the costs and accumulated depreciation are removed from the Consolidated Balance Sheets and
any resulting gain or loss is reflected in the Consolidated Statements of Operations and Comprehensive Loss in the period realized.
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REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
Impairment of Long-Lived Assets
The Company evaluates long-lived assets, such as property and equipment subject to depreciation, for impairment whenever events or changes in
circumstances indicate that the carrying value of long-lived assets may not be recoverable. Events and changes in circumstances considered important that
could result in an impairment review of long-lived assets include (i) a significant decrease in the market price of a long-lived asset; (ii) a significant adverse
change in the extent or manner in which a long-lived asset is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the
business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator; (iv) an accumulation of costs
significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; (v) a current-period operating or cash flow
loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-
lived asset; and (vi) a current expectation that, more likely than not (more than 50 percent), a long-lived asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life. The impairment evaluation of long-lived assets includes an analysis of estimated future
undiscounted net cash flows expected to be generated by the long-lived assets over their remaining estimated useful lives. If the estimate of future
undiscounted net cash flows is insufficient to recover the carrying value of the long-lived assets over the remaining estimated useful lives, the Company
records an impairment loss in the amount by which the carrying value of the long-lived assets exceeds the fair value. Fair value is generally measured based
on discounted cash flow analysis.
Clinical Trial Accruals
Clinical trial costs are charged to research and development expense as incurred. The Company accrues for expenses resulting from contracts with
clinical research organizations (CROs), consultants, and clinical site agreements in connection with conducting clinical trials. The financial terms of these
contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials
or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate expense in the Consolidated Financial
Statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a
CRO, the payments will be recorded as a prepaid expense, which will be amortized as services are rendered.
The CRO contracts generally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, travel costs and other
miscellaneous costs. The Company determines accrual estimates through reports from and discussion with clinical personnel and outside services providers as
to the progress or state of completion of trials, or the services completed. The Company estimates accrued expenses as of each balance sheet date based on the
facts and circumstances known to the Company at that time. The Company’s clinical trial accrual is dependent, in part, upon the receipt of timely and accurate
reporting from the CROs and other third-party vendors.
Revenue
Effective January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606),
using the full retrospective transition method. The Company evaluated its prior contractual revenue arrangement with Precision Dermatology, Inc., which was
acquired by Valeant Pharmaceuticals International Inc. (“Valeant”) in 2014. After Valeant notified the Company that it intended to terminate the asset
purchase and royalty agreement in 2015, the Company continued to receive royalties of $75,000 each quarter until November 2017 when the Company and
Valeant entered into an asset transfer agreement to finalize the termination of the asset purchase and royalty agreement and Valeant returned the Relastin®
intellectual property rights to the Company. Based on its evaluation, the Company determined that the new guidance had no impact to the revenue recognized
prior to January 1, 2018 and, accordingly, had no impact on the accumulated deficit as of January 1, 2018.
The Company elected to use certain practical expedients permitted related to adoption (Note 3) and the adoption of ASC 606 had no impact on the
Company’s financial position, results of operations or liquidity. This standard applies to all contracts with customers, except for contracts that are within the
scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, the Company recognizes revenue
when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in
exchange for those goods or services.
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Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the
following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance
obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in
exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the
Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each
promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective
performance obligation when (or as) the performance obligation is satisfied.
Licenses of intellectual property
If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the
arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and
the customer is able to use and benefit from the license. For licenses that are determined to not represent distinct performance obligations, the Company
utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over
time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-
refundable, up-front fees. The Company evaluates the measure of proportional performance each reporting period and, if necessary, adjusts the measure of
performance and related revenue recognition.
Milestone payments
At the inception of each arrangement that includes development, regulatory or commercial milestone payments, the Company evaluates whether the
milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606 provides two alternatives to
use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method,
an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity
considers the single most likely amount in a range of possible consideration amounts. Whichever method is used should be consistently applied throughout
the life of the contract; however, it is not necessary for the Company to use the same approach for all contracts. If it is probable that a significant revenue
reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the
Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price
is then allocated to each performance obligation (as determined to be appropriate) on a relative stand-alone selling price basis. The Company recognizes
revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the
probability of achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such
adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the
predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance
obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Up-front payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future
period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the
Company’s right to consideration is unconditional. As a practical expedient, the Company does not assess whether a contract has a significant financing
component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services
to the customer will be one year or less.
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Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
Research and Development Expenditures
Research and development expenditures are charged to operations as incurred. Research and development expenditures include, but are not limited
to, personnel expenses, clinical trial supplies, fees for clinical trial services, manufacturing costs, consulting costs and allocated overhead, including rent,
equipment, depreciation, and utilities.
Income Taxes
The Company accounts for income taxes under the asset and liability method. The Company estimates actual current tax exposure together with
assessing temporary differences resulting from differences in accounting for reporting purposes and tax purposes for certain items, such as accruals and
allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the
Company’s Consolidated Balance Sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously
recognized in the Company’s Consolidated Statements of Operations and comprehensive loss become deductible expenses under applicable income tax laws
or when net operating loss or credit carryforwards are utilized. Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable
income against which these deductions, losses and credits can be utilized.
The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the
Company believes that recovery is not likely, the Company establishes a valuation allowance. Based on the available evidence, the Company is unable, at this
time, to support the determination that it is more likely than not that its deferred tax assets will be utilized in the future. Accordingly, the Company recorded a
full valuation allowance as of December 31, 2018 and 2017. The Company intends to maintain valuation allowances until sufficient evidence exists to support
its reversal.
Stock-Based Compensation
The Company has equity incentive plans under which various types of equity-based awards including, but not limited to, incentive stock options,
non-qualified stock options, and restricted stock awards, may be granted to employees, non-employee directors, and non-employee consultants. The Company
also has an inducement plan under which various types of equity-based awards, including non-qualified stock options and restricted stock awards, may be
granted to new employees.
For all equity-based awards granted to employees, non-employee directors, and non-employee consultants, the Company recognizes compensation
expense based on the estimated grant-date fair values. The grant-date fair value of stock options is determined using the Black-Scholes option pricing model.
The grant-date fair value of restricted stock awards is based on the closing price of the Company's common stock on the date of grant. As of January 1, 2017,
the Company adopted the forfeiture rate methodology change in accordance with ASU 2016-09 to account for forfeitures as they occur. Prior to the adoption
of ASU 2016-09, the Company was required to estimate forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures
differed from those estimates. The Company used historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only
for those awards that were expected to vest. To the extent actual forfeitures differed from the estimates, the difference was recorded as a cumulative
adjustment in the period that the estimates were revised.
For employees and non-employee directors, the value of the portion of the equity-based award that is ultimately expected to vest is recognized as
expense ratably over the requisite service period. The value of the portion of the equity-based award for non-employee consultants prior to July 1, 2018 that is
ultimately expected to vest was recognized in the same period and in the same manner as if the Company had paid cash for the goods or services received,
which is generally over the period the Company expects to receive services from the non-employee consultant. As of July 1, 2018, the Company adopted
ASU 2018-07, under which the equity-classified share-based payment awards to non-employees are measured at fair value on the grant date.
Warrants
The Company has issued freestanding warrants to purchase shares of common stock in connection with certain debt and lease transactions. The
warrants are recorded at fair value using the Black-Scholes option pricing model. Common stock warrants classified as equity at inception are recorded to
additional paid-in capital at fair value upon issuance.
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Derivative Liability
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The Company bifurcated and separately accounted for derivative instruments related to payment provisions underlying the Medicis settlement. This
derivative is accounted for as a liability, which will be remeasured to fair value as of each balance sheet date, with changes in fair value recognized in the
Consolidated Statements of Operations and Comprehensive Loss. The Company will continue to record adjustments to the fair value of the derivative liability
associated with the Medicis settlement until the remaining settlement payment has been paid.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues
a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company
expects that contingencies related to regulatory approval milestones will only become probable once such regulatory outcome is achieved. The Company is
not subject to any known current pending legal matters or claims that would have a material adverse effect on its financial position, results of operations or
cash flows.
Comprehensive Loss
Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources.
For the years ended December 31, 2018, 2017 and 2016, the other comprehensive gain or loss in the Consolidated Statements of Operations and
Comprehensive Loss was the immaterial unrealized gain or loss on its short-term investments.
Net Loss per Share Attributable to Common Stockholders
The Company’s basic net loss per share attributable to common stockholders is calculated by dividing the net loss by the weighted average number
of shares of common stock outstanding for the period, which includes vested restricted stock awards. The diluted net loss per share attributable to common
stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. The diluted net loss per share
attributable to common stockholders also includes vested restricted stock awards and, if the effect is not anti-dilutive, unvested restricted stock awards. For
purposes of this calculation, options to purchase common stock, unvested restricted stock, and common stock warrants are considered common stock
equivalents.
The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because
including them would have been antidilutive:
Outstanding common stock options
Outstanding common stock warrants
Unvested restricted stock awards
Interest Expense
As of December 31,
2018
3,605,333
34,113
605,012
2017
3,210,400
34,113
639,287
2016
2,790,646
61,595
416,229
Interest expense includes cash and non-cash components with the non-cash components consisting of interest capitalized for assets constructed for
use in operations and effective interest recognized on the financing obligation.
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Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which sets forth a single, comprehensive revenue
recognition model for all contracts with customers to improve comparability. Subsequently, the FASB issued several standards related to ASU 2014-
09 (collectively, the “New Revenue Standard”), including the most recent ASU, ASU 2017-14, Income Statement - Reporting Comprehensive Income (Topic
220), and Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), which was issued in November 2017. Under the New
Revenue Standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that the
entity expects to receive in exchange for those goods or services. In addition, the New Revenue Standard requires expanded disclosures. This New Revenue
Standard permits the use of either the retrospective or cumulative effect transition method when adopted. As of January 1, 2018, the Company adopted the
New Revenue Standard on a retrospective basis and determined there was no material impact to the Company's Consolidated Financial Statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to
recognize income tax consequences of intra-entity transfer of assets other than inventory when the transfer occurs. The amendments in ASU 2016-16 are
effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods and
require a modified retrospective method of adoption. As of January 1, 2018, the Company adopted ASU 2016-16 and determined that the adoption of this
standard did not have a material impact on the Company's Consolidated Financial Statements as the Company has a full valuation allowance.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting (Topic 718), which amends the scope of modification accounting
for share-based payment arrangements. The amendment provides guidance about which changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, with early adoption
permitted. The adoption of this standard on January 1, 2018 had no material impact to the Company's Consolidated Financial Statements.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118 (“SAB 118”). This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting
for the tax effects of the Tax Cuts and Jobs Act passed in December 2017 (the “Tax Reform Act”) pursuant to SAB 118, which allows companies to complete
the accounting under ASC 740 within a one-year measurement period from the Tax Reform Act enactment date. This standard is effective upon issuance. The
Company has completed its assessment of the accounting impact resulting from the Tax Reform Act in December 2018. The impact of the Tax Reform Act
includes:
•
•
•
a decrease in deferred tax assets resulting from the change in tax rate in the amount of $62.9 million;
an increase of net operating loss of $43.5 million as a result of the reversal of the intra-entity transfer of certain intellectual properties, refer to Note
12. Income Taxes for further information related to this transaction;
a decrease in net operating loss of $3.8 million related to a research and development credit adjustment.
The aggregated impact resulting from the Tax Reform Act to deferred taxes is $68.1 million, which continues to be fully offset by a valuation
allowance.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees.
Under ASU 2018-07, equity-classified share-based payment awards to non-employees are measured at fair value on the grant date and the probability of
satisfying performance conditions must be considered for equity-classified non-employee share-based payment awards with such conditions. ASU 2018-07
does not specify the period(s) or manner of expense recognition for share-based payment awards to non-employees other than to require that recognition
occur in the same period(s) and in the same manner as if the grantor had paid cash for the goods or services. ASU 2018-07 is effective for fiscal years
beginning after December 15, 2018, with early adoption permitted. The Company early adopted ASU 2018-07 as of July 1, 2018, and remeasured all
outstanding equity-classified non-employee share-based payment awards at fair value as of the adoption date, and also recognized a cumulative-effect
increase to the Company's opening 2018 accumulated deficit balance of less than $0.1 million in connection with the adoption and remeasurement.
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REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in ASU 2018-09 affect a wide variety of Topics in the
FASB Codification and apply to all reporting entities within the scope of the affected accounting guidance. The Company has evaluated ASU 2018-09 in its
entirety and determined that the amendments related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, are the only provisions that
currently apply to the Company. The amendments in ASU 2018-09 related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, clarify that
an entity should recognize excess tax benefits related to stock compensation transactions in the period in which the amount of the deduction is determined.
This is consistent with how the Company has historically reported and accounted for windfall/shortfall amounts. The amendments in ASU 2018-09 related to
Topic 718-740 are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard and
determined it has no impact to the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements in Topic 820 based on the
objectives of the FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements which aims to
improve the effectiveness of notes to financial statements while allowing for the appropriate exercise of discretion by reporting entities based on materiality.
The main provisions of ASU 2018-13 include the removal or modification of certain non-essential disclosure requirements and the addition of new disclosure
requirements for public companies related to the changes in unrealized gains and losses for the period included in other comprehensive income for recurring
Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to
develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The
Company adopted ASU 2018-13 and determined it has no material impact to the Company's Consolidated Financial Statements.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which requires an entity to recognize right-of-use asset and lease liabilities
arising from a lease for both financing and operating leases with terms greater than 12 months. In July 2018, the FASB issued ASU 2018-10, Leases (Topic
842), Codification Improvements and ASU 2018-11, Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic
842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment
of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU 2018-11 provides an
alternative transition method to allow entities initially applying Topic 842 at the adoption date, rather than at the beginning of the earliest comparative period
presented, and recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while
continuing to present all prior periods under previous lease accounting guidance. ASU 2018-11 also provides a number of optional practical expedients in
transition. ASU 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, “the new lease standards”) are effective for fiscal years beginning after December
15, 2018, with early adoption permitted. The Company has elected the transition method under ASU 2018-11 at the adoption date of January 1, 2019 on a
modified retrospective basis and will not restate comparative periods. The Company has also elected all of the available practical expedients except the
practical expedient allowing the use of hindsight in determining the lease term and assessing impairment of right-of-use assets based on all facts and
circumstances through the effective date of the new standard. The Company currently estimates that approximately $25 million and $28 million would be
recognized as total right-of-use assets and total lease liabilities, respectively, on its Consolidated Balance Sheet as of January 1, 2019 for its existing operating
lease agreements for the office and manufacturing spaces in Newark, California. The existing deferred rent liabilities of $3.5 million associated with the same
lease agreements will also be reversed as of January 1, 2019. Other than disclosed, the Company does not expect the new standards to have a material impact
on its other consolidated financial statements.
In February 2019, the Additional Premises under the Amended Lease commenced operation (Note 10). Based on the new lease standards adopted as
of January 1, 2019, the Additional Premises under the Amended Lease is an operating lease. Under the terms of the Amended Lease, the payments escalate
over the term of the Amended Lease to January 2027. The Company currently estimates that approximately $4 million would be recognized as additional
right-of-use assets and total lease liabilities on its consolidated balance sheet as of commencement date.
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REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in ASU 2018-15 align the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to
determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 is effective for fiscal
years beginning after December 15, 2019 with early adoption permitted. The Company is evaluating the impact of this standard on its Consolidated Financial
Statements and disclosures.
3. Revenue
Mylan Collaboration and License Agreement
Agreement Terms
On February 28, 2018, the Company and Mylan Ireland Limited ("Mylan"), a wholly-owned indirect subsidiary of Mylan N.V., entered into a
collaboration agreement or the Mylan Collaboration, pursuant to which the Company and Mylan will collaborate exclusively, on a world-wide basis
(excluding Japan), to develop, manufacture, and commercialize a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®.
Under the Mylan Collaboration, the Company is responsible for conducting initial non-clinical development activities with the goal of preparing for
and conducting a scientific advice meeting with the FDA to receive feedback as to whether a biosimilar biological pathway is feasible for BOTOX®. The
Company is solely responsible for these initial activities and the related costs. Upon completion of the initial activities, Mylan will decide whether to continue
the development of the biosimilar. If the development is continued, the Company will be primarily responsible for (a) non-clinical development activities, (b)
clinical development activities in North America, and (c) manufacturing and supply of clinical drug substance and drug product; and Mylan will be primarily
responsible for (a) clinical development activities outside of North America (excluding Japan) (the “ex-U.S. Mylan territories”), (b) regulatory activities, and
(c) commercialization for any approved product. The Company will be solely responsible for an initial portion of non-clinical development costs. The
remaining portion of any non-clinical development costs and clinical development costs for obtaining approval in the U.S. and Europe will be shared equally
between the parties, and Mylan will be responsible for all other clinical development costs and commercialization expenses. The Company and Mylan will
form a joint steering committee, consisting of an equal number of members from the Company and Mylan, to oversee and manage the development,
manufacturing and commercialization of the biosimilar. The parties expect to enter into a separate agreement covering supply of drug substance and drug
product. In addition, Mylan may elect to have the drug product manufactured by another party, including a third-party contract manufacturing organization or
a Mylan affiliate; however, Mylan may not manufacture or have manufactured the drug substance, rights to which are retained by the Company.
Under the Mylan Collaboration, the Company granted Mylan an exclusive, world-wide license (excluding Japan) to the Company’s intellectual
property rights for the development and commercialization of the biosimilar. The Company retained all rights in Japan and has retained rights in the U.S. and
ex-U.S. Mylan territories to develop and manufacture the biosimilar for Mylan to commercialize.
Mylan paid the Company a non-refundable upfront payment of $25 million with additional contingent payments of up to $100 million in the
aggregate, upon the achievement of specified clinical and regulatory (i.e. biosimilar biological pathway) milestones and of specified, tiered sales milestones
of up to $225 million. The upfront payment does not represent a financing component for the transfer of goods or services. The contingent payments would be
payable following Mylan's decision to continue development services for Initial Phase and Phase 3 clinical trials and upon meeting certain milestones. In
addition, Mylan would pay the Company low to mid-double digit royalties on any sales of the biosimilar in the U.S., mid-double digit royalties on any sales
in Europe, and high single digit royalties on any sales in other ex-U.S. Mylan territories. However, the Company agreed to waive royalties for U.S. sales, up
to a limit of $50 million in annual sales, during the first approximately four years after commercialization to defray launch costs.
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REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The term of the collaboration will continue, on a country-by-country basis, in perpetuity until terminated by either party pursuant to the terms of the
Mylan Collaboration. Either party may terminate the agreement for breach by, or bankruptcy of, the other party. Mylan may terminate the Mylan
Collaboration if a biosimilar development pathway is not deemed viable, with such determination only occurring after an advisory meeting with the FDA.
Further, Mylan may terminate the Collaboration in its entirety or on a region-by-region basis. All rights, including licenses, and obligations terminate in the
country or countries for which termination applies, with limited exceptions for royalty-bearing licenses to certain intellectual property rights, and rights to
certain data, for the continued development and sale of the biosimilar in the country or countries for which termination applies.
Revenue Recognition
The Company identified the following material promises within the Mylan Collaboration: (1) intellectual property (“IP”) license for technology and
know-how related to the biosimilar, (2) the performance of initial development services for the biosimilar prior to the FDA advisory meeting, (3) the
performance of development services, during the Initial Phase and Phase 3 clinical trials for the biosimilar through the filing of an Investigational New Drug
(“IND”) application by the Company, and (4) manufacturing services to provide drug substance or drug product during the initial development, development,
and commercialization periods.
The Company considered that the license has standalone functionality and is capable of being distinct. However, the Company determined that the
license is not distinct from the development and manufacturing services within the context of the agreement because the development and manufacturing
services significantly increase the utility of the intellectual property.
Specifically, the Company’s development, manufacturing and commercialization license can only provide benefit to Mylan in combination with the
Company’s development services during initial development, the Initial Phase study, and the Phase 3 study. The IP related to the biosimilar platform, which is
proprietary to the Company, is the foundation for the development activities related to the treatment for all indications. The manufacturing services are a
necessary and integral part of the development services as they could only be conducted utilizing the outcomes of these services. Given the development
services under the Mylan Collaboration are expected to involve significant further development of the initial IP, the Company has concluded that the
development and compound supply services are not distinct from the license, and thus the license, development services and compound supply services are
combined into a single performance obligation. The nature of the combined performance obligation is to provide development and manufacturing services to
Mylan under the arrangement.
The Company, following an evaluation, determined that Mylan’s option to decide whether to continue the development after the FDA feedback is
received represents a material right, because it includes consideration for the IP license, and provides economic value for the duration of the entire
development period, defined as the initial development through regulatory approval. Further, in accordance with ASC 606, the Company elected to use a
practical alternative to estimate the standalone fair value selling price of the material right, which is based on the cost of expected services to be provided for
the duration of the contract.
In accordance with ASC 606, transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for
promised goods or services to a customer. The Company estimated the transaction price for the Mylan Collaboration using the most likely amount method. In
order to determine the transaction price, the Company evaluated all of the payments to be received during the duration of the contract, which included
milestones and consideration payable by Mylan. Other than the upfront payment, all other milestones and consideration the Company may earn under the
Mylan Collaboration are subject to uncertainties related to development achievements, Mylan’s rights to terminate the agreement, and estimated effort for
cost-sharing payments. Components of such estimated effort for cost-sharing payments include both internal and external costs. Consequently, the transaction
price does not include any milestones and considerations that, if included, could result in a probable significant reversal of revenue when related uncertainties
become resolved. Sales-based milestones and royalties are not included in the transaction price until the sales occur because as the underlying value relate to
the license, the license is the predominant feature in the Mylan Collaboration. The initial estimated transaction price of $81.0 million included the $25.0
million upfront payment, $40.0 million of development milestones, and estimated variable consideration for cost-sharing payments from Mylan. The
Company re-evaluates the transaction price at each reporting period. As of December 31, 2018, the transaction price allocated to the unfulfilled performance
obligations is $76.7 million.
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REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The Company recognizes revenue and estimates deferred revenue based on the cost of services incurred over the total estimated cost of services to be
provided for the development period. For revenue recognition purposes, the development period is estimated to extend through 2022. However, it is possible
that this period will change and is assessed at each reporting date.
For the year ended December 31, 2018, the Company recognized revenue related to development services rendered of $3.7 million. As
of December 31, 2018, the Company estimated short-term and long-term deferred revenue of $8.6 million and $12.7 million, respectively. The Company
estimates that, if the option is exercised, long-term deferred revenue will be recognized over the completion of the Initial Phase and Phase 3 study
development period. Nonetheless, it is reasonably possible that our estimated cost of total services to be provided could change.
Fosun License Agreement
Agreement Terms
In December 2018, the Company and Shanghai Fosun Pharmaceutical Industrial Development Co., Ltd., a wholly-owned subsidiary of Shanghai
Fosun Pharmaceutical (Group) Co., Ltd (“Fosun”), entered into a license agreement (the “Fosun License Agreement”) whereby Revance has granted Fosun
the exclusive rights to develop and commercialize the Company’s proprietary DAXI in mainland China, Hong Kong and Macau (the “Fosun Territory”) and
certain sublicense rights.
Under the Fosun License Agreement, the Company is eligible to receive a non-refundable upfront payment of $30.0 million within 30 business days
of the date of the Fosun License Agreement, which was received in January 2019 net of foreign withholding tax of $3.0 million. The Company is also eligible
to receive (i) additional contingent payments of up to $230.5 million upon the achievement of specified milestones based on (a) the submission and approval
of biologics license applications (BLAs) for certain aesthetic and therapeutic indications and (b) first calendar year net sales, and (ii) tiered royalty payments
in low double digit to high teen percentages on annual net sales. The royalty percentages are subject to reduction in the event that (i) the Company does not
have any valid and unexpired patent claims that cover the product in the Fosun Territory, (ii) biosimilars of the product are sold in the Fosun Territory or
(iii) Fosun needs to pay compensation to third parties to either avoid patent infringement or market the product in the Fosun Territory.
Under the Fosun License Agreement, Fosun will have the right to import, develop, commercialize, market and sell the product in the Fosun Territory
or engage service providers for such activities, and the Company will be responsible for manufacturing the product and supplying it to Fosun for its clinical
and commercial activities in the Fosun Territory, subject to the terms of a supply agreement and a quality assurance agreement, each to be entered into
between the parties in the six months following the date of the Fosun License Agreement. Except as provided in the Fosun License Agreement, each party has
retained all of its intellectual property rights.
During the term of the Fosun License Agreement and an additional two years from the termination date if Fosun terminates the Fosun License
Agreement, Fosun will not engage in any research, development, manufacture or commercialization of any product competitive with the product; provided
that such non-compete restrictions will expire if the Company fails to submit a BLA for the product in the U.S. by the end of 2020. Under the Fosun License
Agreement, Fosun and the Company will also establish a joint development committee, which will oversee the development and commercialization of the
product as well as all clinical and pre-clinical studies to be conducted by Fosun for the product in the Fosun Territory.
The term of the Fosun License Agreement will continue until Fosun’s payment obligations have been performed or have expired, unless sooner
terminated by either party pursuant to the terms of the Fosun License Agreement. Either party may terminate the Fosun License Agreement for material
breach by, or bankruptcy of, the other party. In addition, the Company may terminate the Fosun License Agreement if Fosun challenges the Company's
patents, and Fosun may terminate the Fosun License Agreement upon 120 days notice. In the event of a change of control of the Company, the Company's
successor will have the option to terminate the Agreement by paying Fosun a variable payment that depends on the stage of development of the product.
F-19
Table of Contents
Revenue Recognition
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The Company identified the following material promises within the Fosun License Agreement: (1) license to certain intellectual property and know-
how related to DAXI, (2) development supplies to achieve regulatory approvals in the Fosun Territory, and (3) future commercial product supplies. The
Company retained all manufacturing rights and know-how due to complexities associated with the risks and management of toxins and transferability of the
underlying technology. Since the manufacturing rights and know-how, which are highly specialized and complex, do not transfer, Fosun cannot benefit from
the license on its own or together with other readily available resources without the supplies provided by Revance. Accordingly, the license is not distinct
from the other material promises and are bundled into a single performance obligation.
In accordance with ASC 606, transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for
promised goods or services to a customer. The Company estimated the transaction price for the Fosun License Agreement using the most likely amount
method. The Company evaluated all of the variable payments to be received during the duration of the contract, which included payments from specified
milestones, royalties, and estimated supplies to be delivered, and concluded only a certain milestone of $1.0 million was included in the transaction price. The
Company will re-evaluate the transaction price at each reporting period and upon a change in circumstances. As of December 31, 2018, the transaction price
allocated to unfulfilled performance obligation is $31.0 million.
The Company will recognize revenue on the single performance obligation as control of the manufactured product is supplied to Fosun. As of
December 31, 2018, the full $31.0 million transaction price is deferred as no supply has been provided under the agreement. Upon commencement of the
transfer of control, revenue will be recognized in a pattern consistent with estimated deliveries of the product through the term of the arrangement, which is
estimated to extend through 2039. However, it is possible that this period will change and is assessed at each reporting date. The estimated contract term for
revenue recognition purposes is not limited or impacted by Fosun's ability to terminate the agreement to due to a substantive significant termination penalty
from non-refundable payments.
No revenue has been recognized from the Fosun License Agreement for the year ended December 31, 2018. The $30 million non-refundable upfront
payment is included in long-term deferred revenue as of December 31, 2018.
4. In-Process Research and Development
In June 2016, the Company and Botulinum Toxin Research Associates, Inc. (“BTRX”) entered into an asset purchase agreement (the “BTRX
Purchase Agreement”). Under the BTRX Purchase Agreement, the Company acquired all rights, title and interest in a portfolio of botulinum toxin-related
patents and patent applications from BTRX and was granted the right of first negotiation and first refusal with respect to other botulinum toxin-related patents
owned or controlled by BTRX. In exchange, the Company agreed to an upfront expenditure of $2.0 million of which $1.8 million was paid immediately, $0.1
million was paid in June 2017, and the remaining $0.1 million was paid in May 2018. The Company also agreed to pay up to an additional $16.0 million in
aggregate upon satisfaction of milestones relating to the Company’s product revenue, intellectual property, and clinical and regulatory events. As of
December 31, 2018, a one-time intellectual property development milestone liability of $1.0 million has been recorded in accruals and other current liabilities.
Pursuant to the guidance prescribed in Accounting Standards Codification Topic 805, Business Combinations, the Company concluded that the
BTRX Purchase Agreement did not meet the criteria of a business combination. During 2016, the Company accounted for the initial $2.0 million expenditure
as research and development expense, as future alternative use of the acquired assets was deemed contingent upon the successful outcome of existing research
and development activities as of the transaction date.
F-20
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5. Medicis Settlement
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
In July 2009, the Company and Medicis Pharmaceutical Corporation (“Medicis”) entered into a license agreement granting Medicis worldwide
aesthetic and dermatological rights to the Company’s investigational, injectable botulinum toxin type A product candidate. In October 2012, the Company
entered into a settlement and termination agreement with Medicis. The terms of the settlement provided for the reacquisition of the rights related to all
territories of DAXI and DaxibotulinumtoxinA Topical from Medicis and for consideration payable by the Company to Medicis of up to $25.0 million,
comprised of (i) an upfront payment of $7.0 million, which was paid in 2012, (ii) a proceeds sharing arrangement payment of $14.0 million due upon
specified capital raising achievements by the Company, of which $6.9 million was paid in 2013 and $7.1 million in 2014, and (iii) a product approval
payment of $4.0 million to be paid upon the achievement of regulatory approval for DAXI or DaxibotulinumtoxinA Topical by the Company. Medicis was
subsequently acquired by Valeant in December 2012.
The Company determined that the settlement provisions related to the proceeds sharing arrangement payment in (ii) above and product approval
payment in (iii) above were derivative instruments that require fair value accounting as a liability and periodic fair value remeasurements until settled.
The fair value of the product approval payment derivative was determined by estimating the timing and probability of the related approval and
multiplying the payment amount by this probability percentage then applying a discount factor. As of December 31, 2017, the fair value of the product
approval payment derivative of $2.6 million was determined by updating the timing and probability estimate of the related approval and applying a discount
factor assuming a term of 2.5 years, a risk-free rate of 2.0% and a credit risk adjustment of 6.5%. As of December 31, 2018, the Company determined the fair
value of its liability for the product approval payment was $2.7 million, which was measured by assuming a term of 1.5 years, a risk-free rate of 2.6% and a
credit risk adjustment of 8.0%. The Company’s assumption for the expected term is based on an expected BLA approval in 2020. The Company did not make
any payments under the product approval payment during the years ended December 31, 2018 and 2017.
As a result of the fair value remeasurements during the years ended December 31, 2018, 2017, and 2016, the Company recognized aggregate losses
of $0.1 million, $0.6 million, and $0.6 million, respectively.
F-21
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
6. Cash Equivalents and Short-term Investments
The Company's cash equivalents and short-term investments consist of money market funds, U.S. treasury securities, and U.S. government agency
obligations, which are classified as available-for-sale securities.
The following table is a summary of amortized cost, unrealized gain and loss, and fair value:
(in thousands)
Money market funds
U.S. treasury securities
U.S. government agency
obligations
Total cash equivalents and
available-for-sale securities
Classified as:
Cash equivalents
Short-term investments
Total cash equivalents and
available-for-sale securities
December 31, 2018
Unrealized
$
Cost
38,354 $
80,844
Gains
Losses
Fair Value
— $
5
— $
38,354 $
(5)
80,844
52,586
—
(8)
52,578
December 31, 2017
Unrealized
Gains
Losses
— $
—
— $
—
—
—
Fair Value
236,744
—
—
Cost
236,744 $
—
—
$
171,784 $
5 $
(13) $
171,776 $
236,744 $
— $
— $
236,744
$
69,220
102,556
$
171,776
$
236,744
—
$
236,744
There have been no significant realized gains or losses on available-for-sale securities for the periods presented. There were no significant available-
for-sale securities held as of December 31, 2018 that have been in a continuous unrealized loss position for more than 12 months. The unrealized gains and
losses are included in "accumulated other comprehensive loss" within stockholders' equity on the Consolidated Balance Sheets as of December 31, 2018. The
unrealized losses on available-for-sale investments are not attributed to credit risk and are considered temporary. The Company believes that it is more-likely-
than-not that investments in an unrealized loss position will be held until maturity or the cost basis of the investment is recovered. The Company believes it
has no other-than-temporary impairments on its securities as it does not intend to sell these securities and does not believe it is more-likely-than not that it will
be required to sell these securities before the recovery of their amortized cost basis. To date, the Company has not recorded any impairment charges on
marketable securities related to other-than-temporary declines in fair value. The Company's cash equivalent and short-term investments are due within one
year.
F-22
Table of Contents
7. Fair Value Measurements
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The carrying values of cash, prepaid expenses and other current assets, accounts payable, and accruals and other current liabilities approximate fair
value due to the short maturities of these instruments.
The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The fair value of these
instruments was as follows:
(in thousands)
Assets
Money market funds
U.S. treasury securities
U.S. government agency obligations
Total assets measured at fair value
Liabilities
Derivative liability associated with the Medicis settlement
Total liabilities measured at fair value
(in thousands)
Assets
Money market funds
Total assets measured at fair value
Liabilities
Derivative liability associated with the Medicis settlement
Total liabilities measured at fair value
Fair Value
Level 1
Level 2
Level 3
As of December 31, 2018
38,354 $
80,844
52,578
38,354 $
80,844
—
171,776 $
119,198 $
— $
—
52,578 $
52,578 $
—
—
—
—
2,753 $
2,753 $
— $
— $
— $
— $
2,753
2,753
Fair Value
Level 1
Level 2
Level 3
As of December 31, 2017
236,744 $
236,744 $
236,744 $
236,744 $
2,613 $
2,613 $
— $
— $
— $
— $
— $
— $
—
—
2,613
2,613
$
$
$
$
$
$
$
$
The fair value of the investments classified under U.S. government agency obligations is estimated by taking into consideration valuations obtained
from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for
which all significant inputs are observable, either directly or indirectly, to estimate fair value. The primary inputs include reported trades of and broker/dealer
quotes on the same or similar securities. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within
the fair value hierarchy. The Company did not transfer any assets or liabilities measured at fair value on a recurring basis to or from Level 1 and Level 2
during the years ended December 31, 2018 and 2017.
F-23
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows:
(in thousands)
Fair value as of December 31, 2017
Change in fair value
Fair value as of December 31, 2018
Derivative liability
associated with the
Medicis settlement
2,613
140
2,753
$
$
The fair value of the derivative liability resulting from the Medicis litigation settlement was determined by estimating the timing and probability of
the related regulatory approval and multiplying the payment amount by this probability percentage and a discount factor based primarily on the estimated
timing of the payment and a credit risk adjustment (Note 5). Generally, increases or decreases in these unobservable inputs would result in a directionally
similar impact to the fair value measurement of these derivative instruments. The significant unobservable inputs used in the fair value measurement of the
product approval payment derivative are the expected timing and probability of the payments at the valuation date and the credit risk adjustment.
8. Balance Sheet Components
Property and Equipment, net
Property and equipment, net consists of the following:
(in thousands)
Manufacturing equipment
Construction in progress
Leasehold improvements
Computer equipment and software
Furniture and fixtures
Total property and equipment
Less: Accumulated depreciation
Property and equipment, net
Loss on Impairment
As of December 31,
2018
2017
$
11,307 $
8,925
4,752
2,650
787
28,421
(13,972)
$
14,449 $
11,989
4,335
4,255
1,567
635
22,781
(13,531)
9,250
The Company constructed a fill/finish line for the future commercial manufacturing of its DaxibotulinumtoxinA Topical product candidate and to
support its clinical trials and regulatory license applications.
During the year ended December 31, 2016, following the results of the REALISE 1 Phase 3 clinical trial for crow's feet, the Company discontinued
its DaxibotulinumtoxinA Topical clinical development programs for the treatment of crow’s feet and for the treatment of primary axillary hyperhidrosis. The
Company performed an impairment analysis of the DaxibotulinumtoxinA Topical fill/finish line and other fixed assets to determine fair value based on
highest and best use. The Company concluded that only certain equipment comprising the DaxibotulinumtoxinA Topical fill/finish line would be repurposed
for commercial-scale manufacturing of DAXI. As a result, the Company determined fair value based on its highest and best use and that for certain
components of the fill/finish line and other fixed assets, the carrying value of the assets was not entirely recoverable and the fair value, which was calculated
using the market or cost approach depending on the specific asset, was lower than the carrying value. Accordingly, during the year ended December 31, 2016,
the Company recorded a loss on impairment of $9.1 million. As of December 31, 2016, the fill/finish line and other fixed assets had net book values of $5.1
million and $0.2 million, respectively.
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Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
During the year ended December 31, 2017, the Company identified a subsequent indicator of impairment, an adverse change in the market value
resulting from further negotiations with a potential buyer during the year, for the DaxibotulinumtoxinA Topical fill/finish line and other fixed assets. The
Company continues to believe that certain equipment comprising the DaxibotulinumtoxinA Topical fill/finish line with a net book value of $2.4 million will
be repurposed for commercial-scale manufacturing of DAXI. As a result, the Company determined fair value based on its highest and best use and that for
certain components of the fill/finish line and other fixed assets, the carrying value of the assets was not entirely recoverable and the fair value, which was
calculated using the market or cost approach depending on the specific asset, was lower than the carrying value. Accordingly, the Company recorded a loss on
impairment of $2.9 million during the year ended December 31, 2017. Nonetheless, it is reasonably possible that our estimate of the recoverability of the
equipment's carrying value could change, and may result in the need to further write down the assets to fair value.
During the year ended December 31, 2018, the Company sold certain components relating to the fill/finish line manufacturing equipment and
recognized a gain of $1.5 million, which is recorded in research and development expenses in the Consolidated Statements of Operations and Comprehensive
Loss. There was no impairment of long-lived assets during the year ended December 31, 2018.
Accruals and Other Current Liabilities
Accruals and other current liabilities consist of the following:
(in thousands)
Accruals related to:
Compensation (1)
Clinical trial expenses
Professional service fees
Nonrecurring milestone payment
Manufacturing and quality control costs
Fixed assets and construction-in-progress obligations
Other current liabilities
Total accruals and other current liabilities
As of December 31,
2018
2017
$
6,743 $
4,021
2,272
1,000
260
111
541
5,763
3,189
1,773
—
488
302
710
$
14,948 $
12,225
(1) The Company recorded $1.3 million and $0.9 million for vacation accruals as of December 31, 2018 and 2017, respectively.
9. Notes Payable
Essex Capital Notes
On December 20, 2013, the Company signed a Loan and Lease Agreement (“Original Agreement”) to borrow up to $10.8 million in the form of
Secured Promissory Notes from Essex Capital, or the Essex Notes, to finance the completion and installation of the Company’s DaxibotulinumtoxinA Topical
commercial fill/finish line, or the Fill/Finish Line. In December 2013 and January 2014, the Company withdrew a total of $5.0 million under the terms of the
Original Agreement. In May 2014, pursuant to the terms of the Original Agreement, the Company sold equipment to Essex Capital, resulting in partial
settlement of the outstanding loan balance of $1.1 million, and leased the equipment back for fixed monthly payments to be paid over 3 years.
On December 17, 2014, the Company entered into the First Amendment to the Loan and Lease Agreement (“First Amendment”) with Essex Capital.
Under the terms of the First Amendment, the Company agreed to repay the outstanding debt balance of $3.9 million and issued a warrant to
purchase 44,753 shares of common stock.
F-25
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
In February 2015, the Company executed the Second Amendment to the Loan and Lease Agreement, under which the term of the facility was
extended to April 15, 2015 and the purchase price for the remainder of the equipment was increased by $0.1 million to approximately $9.8 million.
Concurrently with this sale, the Company leased the equipment back from Essex Capital for a fixed monthly payment to be paid monthly over 3 years.
None of the leases qualified for sale-leaseback accounting due to the Company’s continuing involvement in the equipment. Therefore, the Company
accounted for these transactions as financing obligations using the effective interest rate method.
The leases provide for the option to purchase the leased equipment for 10% of the original purchase amount and, in June 2015, the Company
exercised its option to purchase the remainder of the equipment sold and leased back from Essex Capital for 10% of the original purchase amount, or
approximately $1.1 million, at the conclusion of the lease terms. In May 2017, the Company paid $0.1 million to purchase the equipment sold and leased back
from Essex Capital in May 2014.
The Company paid principal and interest payments on the Essex Capital Lease of $0.9 million during the first quarter of 2018. In April 2018, the
Company paid $1.0 million to purchase the remaining equipment sold and leased back, which excludes sales and use taxes paid, from Essex Capital and there
are no remaining commitments or liabilities payable to Essex Capital.
10. Commitments and Contingencies
Leases
In January 2010, the Company entered into a non-cancelable facility lease (the “Lease”) that requires monthly payments through January 2022. We
use this facility for research, manufacturing, commercial and administrative functions. In February 2014, the Company extended the term of the Lease by 36
months to January 2025. In May 2018, the Company further extended the term of the Lease for its existing facility by 24 months to January 2027 and
amended the Lease to expand the existing premises by approximately 19,000 square feet (“Additional Premises”), commencing in February 2019 (the
"Amended Lease"). The Lease is an operating lease. Under the terms of the amended lease agreements, the payments escalate over the term of the Lease with
the exception of a decrease in payments at the beginning of 2022. The Company recognizes the expense on a straight-line basis over the life of the lease. Rent
expense was $5.5 million for the year ended December 31, 2018 and $5.3 million for each of the years ended December 31, 2017 and 2016. The Company
also has insignificant non-cancelable equipment operating leases.
As of December 31, 2018, the aggregate total future minimum lease payments under non-cancelable operating leases were as follows:
Year Ending December 31,
2019
2020
2021
2022
2023 and thereafter
Total payments
(in thousands)
5,826
6,011
6,196
4,696
20,173
42,902
$
$
The total future minimum lease payments for the Additional Premises are $6.1 million, of which $0.5 million, $0.7 million, $0.8 million, and $0.8
million is for the years ended December 31, 2019, 2020, 2021, and 2022, respectively, and $3.3 million is for the years ended December 31, 2023 and
thereafter.
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Table of Contents
Purchase Commitments
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
In March 2017, the Company entered into a Technology Transfer, Validation and Commercial Fill/Finish Services Agreement (the “Althea Services
Agreement”) with Ajinomoto Althea, Inc.(“Althea”), a contract development and manufacturing organization, to provide us with expanded capacity and a
second source for drug product manufacturing to support a global launch of DAXI. The Althea Services Agreement has an initial term that will expire in
2024, unless terminated sooner by either party. In accordance with the Althea Services Agreement, the Company will have minimum purchase obligations
based on its production forecasts. As of December 31, 2018, the Company made non-refundable advanced payments of $1.9 million in accordance with the
terms of the Althea Services Agreement. The remaining services are cancellable at any time, with the Company required to pay costs incurred through the
cancellation date.
Contingencies
The Company has one remaining future milestone payment to List Biological Laboratories, Inc. (“List Laboratories”), a developer of botulinum
toxin, of $2.0 million due and payable on the achievement of a certain regulatory milestone. The milestone has not yet been achieved. The Company is also
obligated to pay royalties to List Laboratories on future sales of botulinum toxin products.
The Company has obligations to pay BTRX up to a remaining $16.0 million in the aggregate upon the satisfaction of milestones relating to the Company’s
product revenue, intellectual property, and clinical and regulatory events (Note 4). As of December 31, 2018, a one-time intellectual property development
milestone liability of $1.0 million has been recorded in accruals and other current liabilities.
In April 2016, the Company entered into an agreement with BioSentinel, Inc. to in-license their technology and expertise for research and
development and manufacturing purposes. In addition to minimum quarterly use fees, the Company has a one-time future milestone payment of $0.3 million
payable to BioSentinel, Inc. upon the achievement of regulatory approval. The milestone has not yet been achieved.
Indemnification
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these arrangements, the Company
indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any
trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these
indemnification agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments the Company
could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but
have not yet been made. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify them against
liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
No amounts associated with such indemnifications have been recorded for the year ended December 31, 2018.
11. Stockholders' Equity
Convertible Preferred Stock
The par value of convertible preferred stock is $0.001 per share. As of December 31, 2018 and 2017, the Company had 5,000,000 shares authorized
and no preferred stock issued and outstanding.
F-27
Table of Contents
Warrants
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
During the year ended December 31, 2016, no warrants were exercised. As of December 31, 2016, the Company had warrants to
purchase 61,595 shares of common stock outstanding with a weighted average exercise price of $16.78 and with exercise prices ranging
from $14.40 to $31.50. During the year ended in December 31, 2017, warrants to purchase 27,482 shares were net exercised for 9,878 shares of common
stock with exercise price per share ranging from $14.95 to $31.50 in accordance with the terms of the warrant agreement. During the year ended
December 31, 2018, no warrants were exercised. As of both December 31, 2018 and December 31, 2017, the Company had outstanding warrants to purchase
34,113 shares of common stock at weighted average exercise price per share of $14.95 and expire in 2020.
Stock Option Plan
Equity Incentive Plans
On January 23, 2014, the stockholders' approved the adoption of the 2014 Equity Incentive Plan (“2014 EIP”). The number of shares of common
stock reserved for issuance under the Company’s 2014 EIP will automatically increase on January 1 of each year, beginning on January 1, 2015, and
continuing through and including January 1, 2024, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the
preceding calendar year or a lesser number of shares determined by the Company’s Board of Directors. The maximum number of shares that may be issued
upon the exercise of incentive stock options, or ISOs, under the Company’s 2014 EIP is 2,000,000 shares. The 2014 EIP provides for the grant of ISOs, non-
statutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other
forms of equity compensation, all of which may be granted to employees, including officers, non-employee directors and consultants of the Company and its
affiliates. Additionally, the 2014 EIP provides for the grant of performance cash awards. ISOs may be granted only to employees. All other awards may be
granted to employees, including officers, and to non-employee directors and consultants. Under the 2014 EIP, options may be granted with different vesting
terms from time to time, but not to exceed 10 years from the date of grant. Upon the effectiveness of the 2014 EIP, the Company ceased granting any equity
awards under the 2012 Equity Incentive Plan and any cancelled or forfeited shares under the 2012 and 2002 Equity Incentive Plans will be retired.
On January 1, 2018, the number of shares of common stock reserved for issuance under the 2014 EIP, automatically increased by 4% of the total
number of shares of the Company’s common stock outstanding on December 31, 2017, or 1,460,643 shares. During the year ended December 31, 2018, the
Company granted stock options for 926,650 shares of common stock and 339,500 restricted stock awards under the 2014 EIP. These grants included non-
employee directors' stock option grants for 36,000 shares and restricted stock award grants of 18,000 shares. As of December 31, 2018, there were 1,681,760
shares available for issuance under the 2014 EIP.
2014 Inducement Plan
On August 26, 2014, the Company’s Board of Directors authorized the adoption of the 2014 Inducement Plan (“2014 IN”), which became effective
immediately. Stockholder approval of the 2014 IN was not required pursuant to Rule 5635 (c)(4) of the Nasdaq Listing Rules. The 2014 IN reserves 325,000
shares of common stock and provides for the grant of NSOs that will be used exclusively for grants to individuals that were not previously employees or
directors of the Company, as an inducement material to the individual’s entry into employment with the Company. On December 14, 2015, the Company’s
Board of Directors authorized an additional 500,000 shares of common stock to be reserved for issuance under the 2014 IN. Under the 2014 IN, options may
be granted with different vesting terms from time to time, but not to exceed 10 years from the date of grant. During the year ended December 31, 2018, the
Company granted stock options for 210,000 shares of common stock and 34,000 restricted stock awards under the 2014 IN. As of December 31, 2018, there
were 157,861 shares available for issuance under the 2014 IN.
Under the 2014 EIP and the 2014 IN plan, restricted stock awards typically vest annually over 1, 3, or 4 years, while options typically vest over four
years, either with 25% of the total grant vesting on the first anniversary of the option grant date and 1/36th of the remaining grant vesting each month
thereafter or 1/48th vesting monthly.
F-28
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The following summary of stock option and restricted stock award activity, excluding 2014 IN, for the periods presented is as follows:
Number of Shares
Available for Grant
Number of Shares
Underlying
Outstanding Options
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining
Contractual Life (in
Years)
Aggregate Intrinsic
Value
(In thousands)
Balance as of December 31, 2015
Additional shares reserved
Options granted
Restricted stock awards granted
Options exercised
Options cancelled/forfeited
Restricted stock awards forfeited
Restricted stock awards released
Shares cancelled/retired under 2002/2012
plans
Net settlement of restricted stock awards
for employee taxes
Balance as of December 31, 2016
Additional shares reserved
Options granted
Restricted stock awards granted
Options exercised
Options cancelled/forfeited
Restricted stock awards forfeited
Restricted stock awards released
Shares cancelled/retired under 2002/2012
plans
Net settlement of restricted stock awards
for employee taxes
Balance as of December 31, 2017
Additional shares reserved
Options granted
Restricted stock awards granted
Options exercised
Options cancelled/forfeited
Restricted stock awards forfeited
Restricted stock awards released
Net settlement of restricted stock awards
for employee taxes
Balance as of December 31, 2018
Exercisable as of December 31, 2018
273,948
1,131,538
(839,800)
(299,900)
—
320,084
80,333
—
—
23,289
689,492
1,145,958
(925,525)
(340,525)
—
230,734
81,905
—
—
21,010
903,049
1,460,643
(926,650)
(339,500)
—
423,096
101,218
—
59,904
1,681,760
2,381,486 $
—
839,800
299,900
(131,752)
(320,084)
(80,333)
(124,344)
18.36
—
16.72
—
10.67
21.77
—
—
(38,829)
8.92
—
17.92
—
21.65
—
12.88
22.81
—
—
8.94
—
19.29
—
28.67
—
15.45
25.66
—
—
—
21.63
19.47
—
2,825,844
—
925,525
340,525
(309,341)
(230,734)
(81,905)
(117,218)
(696)
—
3,352,000
—
926,650
339,500
(293,100)
(423,096)
(101,218)
(198,213)
—
3,602,523 $
1,853,452 $
F-29
7.13 $
6.11 $
8,071
7,274
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The intrinsic values of outstanding and exercisable options were determined by multiplying the number of shares by the difference in exercise price
of the options and the fair value of the common stock as of December 31, 2018.
The total intrinsic values of options exercised as of December 31, 2018, 2017 and 2016 of $1.5 million, $7.1 million, and $1.3 million, respectively,
were determined by multiplying the number of shares by the difference between exercise price of the options and the fair value of the common stock as of
December 31, 2018, 2017, and 2016 of $20.13, $35.75 and $20.70 per share, respectively.
The following table summarizes the stock option activity for the 2014 IN is as follows:
Number of Shares
Available for Grant
Number of Shares
Underlying
Outstanding Options
and Awards
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining
Contractual Life (in
Years)
Aggregate Intrinsic
Value
(In thousands)
Balance as of December 31, 2015
Options granted
Restricted stock awards granted
Option forfeitures
Restricted stock awards released
Net settlement of restricted stock awards
for employee taxes
Balance as of December 31, 2016
Options granted
Restricted stock awards granted
Restricted stock awards released
Net settlement of restricted stock awards
for employee taxes
Balance as of December 31, 2017
Options granted
Restricted stock awards granted
Option forfeitures
Restricted stock award forfeitures
Restricted stock awards released
Net settlement of restricted stock awards
for employee taxes
Balance as of December 31, 2018
Exercisable as of December 31, 2018
31.46
18.37
—
22.97
—
—
29.43
24.40
—
—
—
28.96
26.71
—
24.40
—
—
—
28.32
29.34
449,889
(110,000)
(15,000)
88,594
—
3,604
417,087
(35,000)
(95,000)
—
5,009
292,096
(210,000)
(34,000)
25,521
71,250
—
12,994
157,861
354,219 $
110,000
15,000
(88,594)
(9,594)
—
381,031
35,000
95,000
(13,344)
—
497,687
210,000
34,000
(25,521)
(71,250)
(37,094)
—
607,822 $
261,791 $
F-30
7.82 $
6.67 $
194
133
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes information with respect to stock options outstanding and currently exercisable as of December 31, 2018:
Exercise Price
$0.45 - 9.15
$13.35 - 16.23
$16.3 - 18.37
$18.7 - 19.7
$19.91 - 24.96
$25.3 - 29.15
$29.4 - 32.22
$32.25 - 34.08
$35.95 - 35.95
$36.32 - 36.32
Options Outstanding
Number of Options
Weighted-Average
Remaining
Contractual Life
(In Years)
430,333
406,389
423,042
391,547
442,443
656,654
587,175
51,000
10,500
206,250
3,605,333
4.41
6.44
7.16
8.09
8.48
8.52
6.88
8.53
8.94
6.95
Options Exercisable
430,333
335,718
298,893
180,069
167,039
176,065
360,415
9,399
2,625
154,687
2,115,243
The following table summarizes information with respect to restricted stock awards outstanding as of December 31, 2018:
Outstanding as of December 31, 2015
Granted
Vested
Forfeited
Outstanding as of December 31, 2016
Granted
Vested
Forfeited
Outstanding as of December 31, 2017
Granted
Vested
Forfeited
Number of Awards
Available for Grant
Weighted-Average
Grant-Date Fair Value
Aggregate Intrinsic
Value
(In thousands)
315,600 $
314,900
(133,938)
(80,333)
416,229
435,525
(130,562)
(81,905)
639,287
373,500
(235,307)
(172,468)
25.67
17.16
26.41
20.35
20.02
22.08
23.25
19.32
20.86
28.37
20.25
24.83
—
—
—
—
—
—
—
—
—
—
—
—
Outstanding as of December 31, 2018
605,012 $
24.61 $
14,888
Stock Options Granted to Employees and Non-employee Directors
During the years ended December 31, 2018, 2017, and 2016, the Company granted stock options to employees and non-employee directors to
purchase shares of common stock with a weighted-average grant date fair value of $16.35, $13.43 and $16.91 per share, respectively. As of December 31,
2018, 2017, and 2016, there was total unrecognized compensation cost for outstanding stock options and restricted stock awards of $30.8 million, $26.5
million, and $19.6 million to be recognized over a period of approximately 2.6 years, 2.7 years, and 2.7 years, respectively.
F-31
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
The fair value of the employee and non-employee director stock options was estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend rate
Year Ended December 31,
2018
2017
2016
6.0
60.2%
2.7%
—%
6.0
67.7%
2.1%
—%
6.0
61.9%
1.4%
—%
Fair Value of Common Stock. The fair value of the shares of common stock is based on the Company's stock price as quoted by the Nasdaq.
Expected Term. The expected term for employees and non-employee directors is based on the simplified method, as the Company’s stock options
have the following characteristics: (i) granted at-the-money; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service
prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable, or
“plain vanilla” options, and the Company has limited history of exercise data. The expected term for non-employees is based on the remaining contractual
term.
Expected Volatility. Since January 1, 2017, the expected volatility is based on the historical volatility of a group of similar entities combined with the
historical volatility of the Company, whereas prior to 2017, the expected volatility was based solely on the historical volatility of a group of similar entities. In
evaluating similarity, the Company considered factors such as industry, stage of life cycle, capital structure, and size.
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury constant maturity rates with remaining terms similar to the expected
term of the options.
Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore,
used an expected dividend rate of zero in the valuation model.
Forfeitures. Since January 1, 2017, the Company adopted the forfeiture rate methodology change in accordance with ASU 2016-09 to account for
forfeitures as they occur. Prior to the adoption of ASU 2016-09, the Company was required to estimate forfeitures at the time of grant and revised those
estimates in subsequent periods if actual forfeitures differed from those estimates. The Company used historical data to estimate pre-vesting option forfeitures
and record stock-based compensation expense only for those awards that were expected to vest. To the extent actual forfeitures differed from the estimates,
the difference was recorded as a cumulative adjustment in the period that the estimates were revised.
Equity Awards Granted to Non-employee Consultants
During the year ended December 31, 2018, the Company granted options to purchase 1,000 shares of common stock with an exercise price of $30.80
per share to a non-employee consultant. During the year ended December 31, 2017, the Company granted options to purchase 5,000 shares of common stock
with a weighted-average exercise price of $25.45 per share and restricted stock awards of 4,000 shares to a non-employee consultant. Also in 2017, two
employees converted to non-employee consultants and the individuals' options and awards continued to vest in accordance with the 2014 EIP. The Company
did not grant options to purchase shares of common stock to non-employee consultants during the year ended December 31, 2016, however, the non-
employee consultant options outstanding for the year then ended related to employees who had converted to non-employee consultants.
As of July 1, 2018, we began accounting for share-based payment transactions for acquiring goods and services from non-employees (excluding
non-employee directors) in accordance with ASU 2018-07 (Note 2). Under ASU 2018-07, equity-classified non-employee share-based payment awards are
measured at the grant date fair value on the grant date, and expense is recognized in the same period and in the same manner as if the Company had paid cash
for the goods or services received. In connection with the adoption of ASU 2018-07, we recorded a cumulative charge of less than $0.1 million to the
Accumulated Deficit balance as of January 1, 2018.
F-32
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend rate
2014 Employee Stock Purchase Plan
Year Ended December 31,
2018
2017
2016
5.5
59.4%
2.8%
—%
8.9
67.9%
2.3%
—%
7.3
68.9%
1.7%
—%
On January 22, 2014, the Company’s Board of Directors authorized the adoption of the 2014 Employee Stock Purchase Plan (“2014 ESPP”), which
became effective after adoption and approval by the Company’s stockholders on January 23, 2014. The maximum number of shares of common stock that
may be issued under the Company’s 2014 ESPP was initially 200,000 shares. The number of shares of common stock reserved for issuance under the
Company’s 2014 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2015 and ending on and including January 1, 2024, by
the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (ii) 300,000 shares of
common stock or (iii) such lesser number of shares of common stock as determined by the Company’s Board of Directors. Shares subject to purchase rights
granted under the Company’s 2014 ESPP that terminate without having been exercised in full will return to the 2014 ESPP reserve and will not reduce the
number of shares available for issuance under the Company’s 2014 ESPP. The 2014 ESPP is intended to qualify as an “employee stock purchase plan,” or
ESPP, under Section 423 of the Internal Revenue Code of 1986 with the purpose of providing employees with an opportunity to purchase the Company’s
common stock through accumulated payroll deductions.
On January 1, 2018, the number of shares of common stock reserved for issuance under the Company’s 2014 ESPP, automatically increased by 1%
of the total number of shares of the Company’s capital stock outstanding on December 31, 2017, or 300,000 shares. As of December 31, 2018, there were
1,178,940 shares available for issuance under the 2014 ESPP. For the year ended December 31, 2018, the Company recorded stock-based compensation
expense of $0.3 million and issued 37,894 shares of common stock to employees under the 2014 ESPP. For the year ended December 31, 2017, the Company
recorded stock-based compensation expense of $0.2 million and issued 28,135 shares of common stock to employees under the 2014 ESPP. For the year
ended December 31, 2016, the Company recorded stock-based compensation expense of $0.1 million and issued 21,064 shares of common stock to
employees under the 2014 ESPP.
The fair value of the option component of the shares purchased under the 2014 ESPP was estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend rate
Year Ended December 31,
2018
2017
2016
0.5
50.9%
1.9%
—%
0.5
59.2%
0.9%
—%
0.5
72.0%
0.4%
—%
Fair Value of Common Stock. The fair value of the shares of common stock is based on the Company’s stock price.
Expected Term. The expected term is based on the term of the purchase period under the 2014 ESPP.
Expected Volatility. Since of January 1, 2017 the expected volatility is based on the historical volatility of the Company's common stock. Prior to
January 1, 2017, the expected volatility was based on volatility of a group of similar entities. In evaluating similarity, the Company considered factors such as
industry, stage of life cycle, capital structure, and size.
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury constant maturity rates with remaining terms similar to the expected
term.
Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore,
used an expected dividend rate of zero in the valuation model.
F-33
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
Stock-Based Compensation
Stock-based compensation expense related to options and awards for employees and non-employees and shares purchased under the 2014 ESPP by
employees, was allocated as follows:
(in thousands)
Research and development
General and administrative
Total stock-based compensation expense
Year Ended December 31,
2018
2017
2016
$
$
7,480 $
8,793
16,273 $
5,902 $
7,328
13,230 $
5,557
6,396
11,953
There were no capitalized stock-based compensation costs or recognized stock-based compensation tax benefits during the years ended
December 31, 2018, 2017, and 2016.
During 2017 and 2016, the Company modified certain equity awards, resulting in an acceleration of vesting for a portion of such awards as a result
of termination of service. The acceleration in vesting of the unvested awards resulted in a Type III modification, which occurs when there is a change from an
improbable to probable vesting condition. The Company recognized the incremental fair value, which was equal to the fair value of the awards on the
modification date, and recognized the stock-based compensation over the remaining requisite service period. For the years ended December 31, 2017 and
2016, the Company recorded $0.1 million and $0.2 million, respectively, of stock-based compensation expense in connection with these modifications. There
were no modifications for the year ended December 31, 2018.
Common Stock
As of December 31, 2018 and 2017, the Company was authorized to issue up to 95,000,000 shares of par value $0.001 per share common stock.
As of December 31, 2018 and 2017, the Company had no shares of common stock subject to repurchase. Common stockholders are entitled to
dividends when and if declared by the Board of Directors subject to the prior rights of the preferred stockholders. The holder of each share of common stock
is entitled to one vote. The common stockholders voting as a class are entitled to elect one member to the Company’s Board of Directors. As of December 31,
2018, no dividends have been declared.
The Company had reserved shares of common stock, on an as if converted basis, for issuance as follows:
Issuances under stock incentive plans
Issuances upon exercise of common stock warrants
Issuances under employee stock purchase plan
Issuances under inducement plan
Total
Follow-On Public Offerings
December 31, 2018
1,681,760
34,113
1,178,940
157,861
3,052,674
In December 2017, the Company completed a follow-on public offering (the “2017 follow-on offering”), pursuant to which the Company issued
5,389,515 shares of common stock at $31.00 per share, including the exercise of the underwriters' over-allotment option to purchase 550,806 additional shares
of common stock, for net proceeds of $156.9 million, after underwriting discounts, commissions and other offering expenses.
In January 2019, the Company completed a follow-on public offering (the “2019 follow-on offering”), pursuant to which the Company issued
6,764,705 shares of common stock at $17.00 per share, including the exercise of the underwriters' over-allotment option to purchase 882,352 additional shares
of common stock, for net proceeds of $107.6 million, after underwriting discounts, commissions and other offering expenses.
F-34
Table of Contents
At-The-Market Offerings
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
In March 2016, the Company entered into the 2016 At-The-Market (“ATM”) agreement under which the Company may offer and sell common stock
having aggregate proceeds of up to $75.0 million from time to time through Cowen, our sales agent. On March 25, 2016, the effective date of the registration
statement on Form S-3 filed with the SEC on March 7, 2016, the 2015 ATM Agreement was effectively terminated and superseded by the 2016 ATM
Agreement. Sales of common stock through Cowen under the 2016 ATM agreement will be made by means of ordinary brokers’ transactions on the Nasdaq
Global Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise agreed upon by the Company and Cowen.
Cowen will sell the common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary
parameters or conditions we may impose). The Company agreed to pay Cowen a commission of up to 3.0% of the gross sales proceeds of any common stock
sold through Cowen under the ATM agreement. During the year ended December 31, 2017, the Company sold 1,802,651 shares of common stock under the
2016 ATM Agreement at a weighted average price of $22.17 per share resulting in net proceeds of $38.2 million, which was comprised of $38.8 million in
proceeds after underwriting discounts and commissions and net of offering expenses of $0.6 million, of which $0.2 million was paid in 2016 and $0.4
million was paid in 2017.
In March 2018, the Company terminated the 2016 ATM Agreement and entered into the 2018 ATM Agreement. Under the 2018 ATM Agreement,
the Company may offer and sell common stock having aggregate proceeds of up to $125.0 million from time to time through Cantor Fitzgerald as our sales
agent. Sales of common stock through Cantor Fitzgerald under the 2018 ATM Agreement will be made by means of ordinary brokers’ transactions on the
NASDAQ Global Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise agreed upon by the Company and
Cantor Fitzgerald. Cantor Fitzgerald will sell the common stock from time to time, based upon instructions from the Company. The Company agreed to pay
Cantor Fitzgerald a commission of up to 3.0% of the gross sales proceeds of any common stock sold through Cantor Fitzgerald under the 2018 ATM
Agreement. No sales of common stock have taken place under the 2018 ATM Agreement as of December 31, 2018.
12. Income Taxes
From inception through 2018, the Company has only generated pretax losses in the U.S. and has not generated any pretax income or loss outside of
the U.S. The Company recorded a current foreign income tax provision of $3.0 million for the year ended December 31, 2018. The tax provision is related to
foreign withholding taxes. No provision (benefit) for income taxes was recorded for the years ended December 31 2017 and 2016.
The domestic and foreign components of loss before income taxes were as follows:
(in thousands)
Domestic
Foreign
Loss before income taxes
Year Ended December 31,
2018
2017
2016
$
$
(139,568) $
(118,331) $
(89,270)
—
(2,256)
(139,568) $
(120,587) $
—
(89,270)
F-35
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
Significant components of the Company’s deferred tax assets consist of the following:
(in thousands)
Deferred tax assets:
Net operating loss carryforward
Accruals and reserves
Stock based compensation
Tax credits
Fixed and intangible assets
Valuation Allowance
Net deferred tax assets
Year Ended December 31,
2018
2017
$
146,618 $
106,338
2,191
5,173
12,230
3,328
2,591
5,400
6,779
7,221
(169,540)
(128,329)
$
— $
—
Reconciliations of the statutory federal income tax (benefit) to the Company’s effective tax are as follows:
(in thousands)
Tax benefit at statutory federal rate (1)
Sale of intellectual property (2)
Research and development credits
Foreign rate differential and withholding taxes
Nondeductible/nontaxable items
Impact of the Tax Reform Act
Other changes in valuation allowance
Other
Income tax provision
Year Ended December 31,
2018
2017
2016
$
(29,309) $
(14,008)
(4,064)
2,370
108
5,154
42,902
(153)
$
3,000 $
(40,999) $
(30,352)
14,008
(1,858)
767
738
62,903
(35,783)
224
— $
—
(544)
—
832
—
30,053
11
—
(1) On December 22, 2017, the United States enacted tax reform legislation reduced the U.S federal tax rate from 35 percent to 21 percent.
(2) This represents the tax effect of an intra-entity sale between the Company and the Company's wholly owned subsidiary, Revance International Limited, which was eliminated for financial
reporting purposes (discussed below).
The valuation allowance is determined using an assessment of both positive and negative evidence. Based on the available objective evidence and
the Company’s history of losses, the Company believes it is more likely than not that the net deferred tax assets will not be realized. The Company has
established a valuation allowance to offset deferred tax assets as of December 31, 2018 and 2017 due to the uncertainty of realizing future tax benefits from
its net operating loss carryforwards and other deferred tax assets. The valuation allowance for the year ended December 31, 2018 increased by $41.2 million,
compared to the same period in 2017. The valuation allowance increased primarily due to net operating losses and credits generated during the taxable years.
As of December 31, 2018, the Company had net operating loss (“NOL”) carryforwards available to reduce future taxable income, if any, for federal,
California, and other states income tax purposes of $638.6 million, $179.1 million, and $703.9 million, respectively. The California NOL carryforwards began
to expire in 2010. The federal NOL carryforwards will begin expiring in 2020, and the other states NOL carryforwards will begin expiring in 2030 if they are
not utilized. As a result of the Tax Reform Act, the federal NOL generated after December 31, 2017 will carryover indefinitely with statutory limitations to
the annual utilization.
As of December 31, 2018, the Company had research and development credit carryforwards of $7.3 million and $6.7 million available to reduce
future taxable income, if any, for federal and California income tax purposes, respectively.
The federal research and development credit carryforwards will begin expiring in 2023 if they are not utilized, and the California research and development
credit carryforwards have no expiration date.
F-36
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
As of December 31, 2018, the Company had orphan drug credit carryforwards of $3.4 million available to reduce future taxable income, if any, for
federal income tax purposes. The federal orphan drug credit carryforwards will begin expiring in 2038 if they are not utilized.
In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a 3-year period (a Section 382
ownership change), utilization of its pre-change NOL carryforwards are subject to an annual limitation under Internal Revenue Code Section 382 (California
and the other states have similar laws). The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such
ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the
NOL carryforwards before utilization. The Company determined that an ownership change occurred on April 7, 2004 but that all carryforwards can be
utilized prior to the expiration. The Company also determined that an ownership change occurred in February 2014, and as a result, the Company reduced the
deferred tax assets and the corresponding valuation allowance to account for this limitation. Since the research and development credits for California carry
over indefinitely, there was no change to the California research and development credits. The Company has reviewed its Internal Revenue Code Section 382
limitation through December 31, 2018 and has not identified any ownership changes resulting in a limitation.
The ability of the Company to use its remaining NOL carryforwards may be further limited if the Company experiences a Section 382 ownership
change as a result of future changes in its stock ownership.
In December 2017, the U.S. government enacted Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act includes but not limited to,
reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, allowing for federal net operating losses (“NOL”) to be carried over indefinitely for
NOL generated after December 31, 2017, and creating a new limitation on deductible interest expense.
In March 2018, the SEC staff issued SAB 118 which provides guidance on accounting for the tax effects of the Tax Reform Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Tax Reform Act enactment date for companies to complete the accounting under ASC
740, Income Taxes. The Company has completed its assessment of the accounting impact resulting from the Tax Reform Act in December 2018. The impact
of the Tax Reform Act includes:
•
•
•
a decrease in deferred tax assets resulting from the change in tax rate in the amount of $62.9 million;
an increase of net operating loss of $43.5 million as a result of the reversal of the intra-entity transfer of certain intellectual properties (further
discussed below);
a decrease in net operating loss of $3.8 million related to a research and development credit adjustment.
The aggregated impact resulting from the Tax Reform Act to deferred taxes is $68.1 million, which continues to be fully offset by a valuation
allowance.
In October 2017, the Company created a wholly owned subsidiary, Revance International Limited, which was incorporated in the Cayman Islands,
and transferred the economic rights to certain intellectual property for $41.2 million to the newly formed subsidiary. Under the tax laws prior to the Tax
Reform Act in December 2017, the transaction had no financial statement impact to the Company other than to decrease the current net operating loss by the
amount of the consideration. As a result of the Tax Reform Act in December 2017, the Company did not complete the accounting with regard to the tax
effects associated with this intra-entity transfer as of December 31, 2017. In October 2018, the Company received notification that the Internal Revenue
Service (IRS) had approved its request to disregard the Cayman subsidiary by treating it as a U.S. branch for federal income tax purposes, effectively
eliminating any tax effects from the transaction. As a result of the finalization of our assessment of the Tax Reform Act, the Company has reversed the usage
of the net operating losses from this transaction as of December 31, 2018.
The Company follows the provisions of the FASB’s guidance for accounting for uncertain tax positions. The guidance indicates a comprehensive
model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to
be taken on a tax return. No liability related to uncertain tax positions is recorded in the financial statements due to the fact the liabilities have been netted
against deferred attribute carryovers. It is the Company’s policy to include penalties and interest related to income tax matters in income tax expense.
F-37
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
As of December 31, 2018 and December 31, 2017, the unrecognized tax benefit was $4.2 million and $2.6 million, respectively. The Company does
not expect that its uncertain tax positions will materially change in the next twelve months. No liability related to uncertain tax positions is recorded on the
financial statements. During the year ending December 31, 2018, the amount of unrecognized tax benefits increased due to additional research and
development credits generated. The additional uncertain tax benefits would not impact the Company’s effective tax rate to the extent that the Company
continues to maintain a full valuation allowance against its deferred tax assets.
The unrecognized tax benefit was as follows:
(in thousands)
Balance as of December 31, 2015
Additions for prior tax positions
Additions for current tax positions
Balance as of December 31, 2016
Additions for prior tax positions
Additions for current tax positions
Balance as of December 31, 2017
Additions for prior tax positions
Additions for current tax positions
Balance as of December 31, 2018
Unrecognized tax
benefits
1,537
9
273
1,819
—
758
2,577
333
1,290
4,200
$
$
The Company files income tax returns in the U.S., California, and other states. The Company is not currently under examination by income tax
authorities in federal, state or other jurisdictions. All tax returns will remain open for examination by the federal and state authorities for three and four years,
respectively, from the date of utilization of any NOL or tax credits.
13. Defined Contribution Plan
The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all employees.
Contributions made by the Company are voluntary and are determined annually by the Board of Directors on an individual basis subject to the maximum
allowable amount under federal tax regulations. During the year ended December 31, 2018 and December 31, 2017, the Company made contributions to the
plan of approximately $0.6 million and $0.2 million, respectively. The Company made no contributions for the year ended December 31, 2016.
14. Subsequent Events
2014 EIP Stock Option and Awards Grants
In January and February 2019 the Company granted 779,750 stock options and 316,200 restricted stock awards under the 2014 EIP to existing
employees. The aggregate grant date fair value is estimated to be $19.1 million.
California State Apportionment
In 2018, the Company petitioned the California Franchise Tax Board for an alternative apportionment percentage due to the insignificant
apportionment percentage derived from the single sales factor methodology for California. In January 2019, the California Franchise Tax Board approved the
use of an alternative apportionment method. The Company is still assessing the accounting impact to its NOL in California and related tax effect from the
change in apportionment model. Since the approval notification was received after December 31, 2018, the accounting impact resulting from the change in
apportionment model will be recognized in 2019.
F-38
Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Consolidated Financial Statements — (Continued)
15. Quarterly Results of Operations (Unaudited)
The following tables presents the Company’s unaudited consolidated quarterly financial data. This information has been prepared on a basis
consistent with that of the audited consolidated financial statements. The Company believes that all necessary adjustments, consisting of normal recurring
accruals and adjustments, have been included to present fairly the quarterly financial data. The Company’s quarterly results of operations for these periods are
not necessarily indicative of future results of operations. The following amounts are in thousands, except per share amounts:
Revenue
Net loss
Basic and Diluted net loss attributable to common stockholders
Basic and Diluted net loss per share attributable to common
stockholders(1)
Revenue
Loss on Impairment
Net loss
Basic and Diluted net loss attributable to common stockholders
Basic and Diluted net loss per share attributable to common
stockholders (1)
For the Quarters Ended
2018
December 31,
September 30,
June 30,
March 31,
487 $
(40,616) $
(40,616) $
2,362 $
(32,834) $
(32,834) $
686 $
(34,080) $
(34,080) $
193
(35,037)
(35,037)
(1.12) $
(0.91) $
(0.94) $
(0.97)
For the Quarters Ended
2017
December 31,
September 30,
June 30,
March 31,
37 $
(2,927) $
(40,616) $
(40,616) $
75 $
— $
(30,651) $
(30,651) $
75 $
— $
(26,874) $
(26,874) $
75
—
(27,156)
(27,156)
(1.12) $
(1.01) $
(0.90) $
(0.94)
$
$
$
$
$
$
$
$
$
(1) Net loss per share amounts are calculated discretely and therefore may not add up to the total due to rounding.
F-39
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Newark, State of California on the 28th day of February, 2019.
REVANCE THERAPEUTICS, INC.
By:
/s/ L. Daniel Browne
L. Daniel Browne
President and Chief Executive Officer
By:
/s/ Tobin C. Schilke
Tobin C. Schilke
Chief Financial Officer
By:
/s/ Cyril Allouche
Cyril Allouche
Principal Accounting Officer, Head of Finance and Corporate Controller
Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints L. Daniel Browne and
Tobin C. Schilke, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for him, and in his name in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ L. Daniel Browne
President, Chief Executive Officer and Director
February 28, 2019
L. Daniel Browne
(Principal Executive Officer)
/s/ Tobin C. Schilke
Tobin C. Schilke
Chief Financial Officer
(Principal Financial Officer)
February 28, 2019
/s/ Cyril Allouche
Cyril Allouche
Head of Finance and Corporate Controller
February 28, 2019
(Principal Accounting Officer)
/s/ Angus C. Russell
Director, Chairman
February 28, 2019
Angus C. Russell
/s/ Robert Byrnes
Robert Byrnes
/s/ Mark Foley
Mark Foley
/s/ Julian S. Gangolli
Julian S. Gangolli
/s/ Phyllis Gardner
Phyllis Gardner, M.D.
/s/ Philip J. Vickers
Philip J. Vickers, Ph.D.
Director
Director
Director
Director
Director
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
REVANCE THERAPEUTICS, INC.
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Exhibit 10.27
Each member of the Board of Directors (the “Board”) who is not also serving as an employee of Revance Therapeutics, Inc. (the “Company”) or any of its
subsidiaries (each such member, an “Eligible Director”) will receive the compensation described in this Amended and Restated Non-Employee Director
Compensation Policy for his or her Board service. This policy is effective as of February 7, 2019 (the “Effective Date”) and may be amended at any time in
the sole discretion of the Board.
Annual Cash Compensation
The annual cash compensation amount set forth below is payable in equal quarterly installments, payable in arrears on the last day of each fiscal quarter in
which the service occurred. If an Eligible Director joins the Board or a committee of the Board at a time other than effective as of the first day of a fiscal
quarter, each annual retainer set forth below will be pro-rated based on days served in the applicable fiscal year, with the pro-rated amount paid for the first
fiscal quarter in which the Eligible Director provides the service, and regular full quarterly payments thereafter. All annual cash fees are vested upon payment.
1.
2.
Annual Board Service Retainer:
a.
b.
All Eligible Directors: $39,500
Chairman of the Board Service Retainer (including Eligible Director Service Retainer): $74,000
Annual Committee Member Service Retainer:
a.
b.
c.
d.
Member of the Audit Committee: $7,500
Member of the Compensation Committee: $5,000
Member of the Nominating & Governance Committee: $4,500
Member of the Science & Technology Committee: $5,000
3.
Annual Committee Chair Service Retainer (including Committee Member Service Retainer):
a.
b.
c.
d.
Chairman of the Audit Committee: $20,000
Chairman of the Compensation Committee: $12,250
Chairman of the Nominating & Governance Committee: $8,000
Chairman of the Science & Technology Committee: $12,250
Equity Compensation
The equity compensation set forth below will be granted under the Revance Therapeutics, Inc. 2014 Equity Incentive Plan (the “Plan”), and will be
documented on the applicable form of stock option agreement most recently approved for use by the Board (or a duly authorized committee thereof) for
Eligible Directors. All stock options granted under this policy will be nonstatutory stock options, with an exercise price per share equal to 100% of the Fair
Market Value (as defined in the Plan) of the underlying Common Stock on the date of grant, and a term of ten years from the date of grant (subject to earlier
termination in connection with a termination of service as provided in the Plan).
Initial Option Grant: On the date of the Eligible Director’s initial election to the Board, for each Eligible Director who is first elected to the Board
1.
following the Effective Date (or, if such date is not a market trading day, the first market trading day thereafter), the Eligible Director will be automatically,
and without further action by the Board or Compensation Committee of the Board, granted a stock option for 18,000 shares (an “Initial Option Grant”). The
shares subject to each Initial Option Grant will vest on the one year anniversary of the date of grant, subject to the Eligible Director’s Continuous Service (as
defined in the Plan) through each such vesting date.
Initial Restricted Stock Award: On the date of the Eligible Director’s initial election to the Board, for each Eligible Director who is first elected to
2.
the Board following the Effective Date (or, if such date is not a market trading day, the first market trading day thereafter), the Eligible Director will be
automatically, and without further action by the Board or Compensation Committee of the Board, granted a restricted stock award for 9,000 shares (an
“Initial RSA”). The shares underlying the Initial RSA will vest on the one year anniversary of the date of grant, subject to the Eligible
Director’s Continuous Service (as defined in the Plan) through such vesting date.
Annual Option Grant: On the date of each Company’s annual stockholder meeting held after the Effective Date, each Eligible Director who
3.
continues to serve as a non-employee member of the Board will be automatically, and without further action by the Board or Compensation Committee of the
Board, granted a stock option for 9,000 shares (an “Annual Option Grant”). The shares subject to the Annual Option Grant will vest on the one year
anniversary of the date of grant, subject to the Eligible Director’s Continuous Service (as defined in the Plan) through such vesting date.
4.
Annual Restricted Stock Award: On the date of each Company’s annual stockholder meeting held after the Effective Date, each Eligible Director
who continues to serve as a non-employee member of the Board will be automatically, and without further action by the Board or Compensation Committee
of the Board, granted a restricted stock award for 4,500 shares (an “Annual RSA”). The shares underlying the Annual RSA will vest on the one year
anniversary of the date of grant, subject to the Eligible Director’s Continuous Service (as defined in the Plan) through such vesting date.
REVANCE THERAPEUTICS, INC.
2019 MANAGEMENT BONUS PROGRAM
Exhibit 10.28
On January 24, 2019, the Compensation Committee of the Board of Directors of Revance Therapeutics, Inc. (the “Company”) approved the Company’s 2019
corporate objectives, weighted for purposes of determining bonuses, if any, for the Company’s executive officers with respect to performance for fiscal year
2019 (the “2019 Bonus Program”).
The 2019 Bonus Program is designed to reward, through the payment of annual cash bonuses, the Company’s executive officers for the Company’s
performance in meeting key corporate objectives and for individual performance in meeting specified corporate goals for the year.
The Company’s 2019 corporate goals include (i) achievement of specified milestones and activities relating to the Company’s contemplated filing of a
Biologics License Application (“BLA”) with the U.S. Food and Drug Administration (50% weighting), (ii) achievement of specified milestones relating to
the Company’s clinical development programs (20% weighting), (iii) achievement of certain commercial readiness milestones (20% weighting), and (iv)
completion of certain biosimilar development activities (10% weighting), as well as (v) the stretch goal of achieving specified financial milestones (up to 15%
weighting).
The cash bonus for L. Daniel Browne will be based on the achievement of the 2019 corporate goals (100% weighting). The cash bonus for the other executive
officers will be based on the achievement of the 2019 corporate goals (75% weighting) and his or her individual performance goals (25% weighting). The
executive officers’ actual bonuses for fiscal year 2019 may exceed 100% of his or her 2019 target bonus percentage in the event performance exceeds the
predetermined goals and/or upon the achievement of other specified goals, including stretch goals.
Payment of bonuses to the Company’s executive officers under the 2019 Bonus Program and the actual amount of such bonus, if any, are within the discretion
of the Compensation Committee. The actual bonus awarded, if any, may be more or less than each executive’s annual target bonus.
EXECUTIVE EMPLOYMENT AGREEMENT
for
Tobin Schilke
Exhibit 10.37
This Executive Employment Agreement (the “Agreement”), made between Revance Therapeutics, Inc. (the “Company”) and Tobin Schilke
(“Executive”) (collectively, the “Parties”), is effective as of November 5, 2018 (the “Start Date”).
Whereas, the Company desires for Executive to provide services to the Company; and
Whereas, Executive is willing to engage in employment by the Company on the terms and conditions set forth in this Agreement;
Now, Therefore, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1.
Employment by the Company.
1.1 Position. Executive shall serve as the Company’s Chief Financial Officer. During the term of Executive’s employment with the
Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company,
except for approved vacation periods and reasonable periods of illness or other incapacities permitted by the Company’s general employment policies.
1.2 Duties and Location. Executive shall perform such duties as are required by the Company’s President and Chief Executive Officer, to
whom Executive will report. Executive’s primary office location will be the Company’s office located in Newark, California. The Company reserves the
right to reasonably require Executive to perform Executive’s duties at places other than Executive’s primary office location from time to time, and to require
reasonable business travel. The Company may modify Executive’s job title and duties as it deems necessary and appropriate in light of the Company’s needs
and interests from time to time.
1.3 Policies and Procedures. The employment relationship between the Parties shall be governed by the general employment policies
and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies
or practices, this Agreement shall control.
2.
Compensation.
2.1 Salary. For services to be rendered hereunder, Executive shall receive a base salary at the rate of $405,000 per year (the “Base
Salary”), subject to standard payroll deductions and withholdings and payable in accordance with the Company’s regular payroll schedule. Executive’s base
salary shall be reviewed by the Board of Directors (the “Board”) for possible adjustment annually. In addition, you will receive a signing bonus of
$50,000.00 (the “Signing Bonus”) to be paid in 2 increments.
1
The first increment of $25,000.00 is payable with your first regular paycheck and the second increment of $25,000.00 will be payable on July 1, 2019, subject
to all applicable deductions and tax withholdings. By signing this Agreement to accept the employment, you agree to repay the full amount of this Signing
Bonus if you resign your employment for any reason within one year after your start date. You further authorize Revance to deduct such Signing Bonus
moneys you owe Revance from any moneys Revacne owes you (including your final paycheck). You understand and agree that you must repay Revance any
unpaid balance of the Signing Bonus remaining after that deduction is made.
2.2 Bonus. Executive will be eligible for a discretionary annual bonus, with Executive’s target bonus to be equal to 45% of Executive’s
Base Salary commencing with the 2020 bonus payouts for 2019 performance year.. Executive’s target bonus shall be reviewed by the Board for possible
adjustment annually. Whether Executive receives an annual bonus for any given year, and the amount of any such annual bonus, will be determined by the
Board in its sole discretion based upon the Company’s and Executive’s achievement of objectives and milestones to be determined on an annual basis by the
Board in consultation with Executive. Bonuses are generally paid by March 15 following the applicable bonus year, and Executive must be an active
employee on the date any annual bonus is paid in order to earn any such annual bonus. Executive will not be eligible for, and will not earn, any annual bonus
(including a prorated bonus) if Executive’s employment terminates for any reason before the date annual bonuses are paid.
2.3 Standard Company Benefits. Executive shall be entitled to participate in all employee benefit programs for which Executive is
eligible under the terms and conditions of the benefit plans that may be in effect from time to time and provided by the Company to its employees. Executive
will receive up to twenty (20) days vacation per calendar year. The Company reserves the right to cancel or change the benefit plans or programs it offers to
its employees at any time.
2.4 Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in
furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy and
requirements of the Internal Revenue Service as in effect from time to time. The Company also agrees to pay for Executive’s relocation expenses up to 12
months of hire date including (a) household goods move from San Francisco to South Peninula and (b) 3 months of temporary housing.
2.5 Equity. As a material inducement to Executive’s acceptance of the Company’s offer of employment, and subject to approval by the
Board or Compensation Committee of the Board, the Company will grant Executive 18,000 shares of restricted stock and an option to purchase 100,000
shares of the Company’s common stock with an exercise price equal to the closing sales price of such stock as qutoted on the NASDAQ on the date of grant.
Subject to Executive’s continuing service with the Company, the option will vest over a period of four years, with 25% vesting one year after the Start Date
and 1/48th vesting each month thereafter over the remaining three years. Executive’s stock option and restricted stock award will be governed in all respects
by the terms of the Company’s 2014 Inducement Plan, as amended, which is a non-shareholder
2
approved stock plan approved by the Board pursuant to the “inducement exception” provided under NASDAQ Listing Rule 5635(c)(4), and restricted stock
award and stock option agreements thereunder, which Executive will be required to sign as a condition of receiving the awards.
3.
Termination of Employment; Severance. Executive’s employment relationship is at-will. Either Executive or the Company may
terminate the employment relationship at any time, with or without cause or advance notice. The Executive will be eligible for severance under the
Company’s Executive Severance Benefit Plan, adopted by the Board, and amended from time to time (see attached).
4.
Proprietary Information Obligations. As a condition of employment, Executive shall be required to execute the Company’s standard
form of Employee Proprietary Information and Inventions Agreement.
5.
Conflicts. Executive represents that Executive has full authority to accept this position and perform the duties of the position without
conflict with any other obligations and that Executive is not involved in any situation that might create, or appear to create, a conflict of interest with respect
to Executive’s loyalty to or duties for the Company. Executive specifically warrants that Executive is not subject to an employment agreement or restrictive
covenant preventing full performance of Executive’s duties for the Company. Executive agrees not to bring to the Company or use in the performance of
Executive’s responsibilities any materials or documents of a former employer that are not generally available to the public unless Executive has obtained
express written authorization from the former employer. Executive further agrees to honor all obligations to former employers during the course of
Executive’s employment with the Company.
6.
Outside Activities During Employment.
6.1 Non-Company Business. Except with the prior written consent of the Board, Executive will not during the term of Executive’s
employment with the Company undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a
passive investor; provided, however, that Executive may (i) engage in activities that do not interfere with his duties and obligations under this Agreement or
create an actual or potential conflict of interest with the Company as reasonably determined by the Board, and (ii) serve as a member of the Board of
Directors on a maximum one (1) Board of other entities subject to the approval of the Board with such approval not to be unreasonably withheld. Executive
may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of Executive’s duties hereunder.
6.2 No Adverse Interests. Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or
interest known to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
7.
Dispute Resolution. To ensure timely and economical resolution of any disputes that may arise in connection with Executive’s
employment with the Company, as a condition of Executive’s employment, Executive and the Company hereby agree that any
3
and all claims, disputes or controversies of any nature whatsoever arising out of, or relating to, this letter, or its interpretation, enforcement, breach,
performance or execution, Executive’s employment with the Company, or the termination of such employment, shall be resolved, to the fullest extent
permitted by law, by final, binding and confidential arbitration conducted before a single arbitrator by JAMS or its successor, under the then applicable JAMS
arbitration rules (which can be found at http://www.jamsadr.com/rules-clauses/). The arbitration shall take place in San Jose, California; provided, however,
that if the arbitrator determines there will be an undue hardship to Executive to have the arbitration in such location, the arbitrator will choose an alternative
appropriate location. Executive and the Company each acknowledge that by agreeing to this arbitration procedure, both Executive and the Company
waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding. Executive will have the
right to be represented by legal counsel at Executive’s expense at any arbitration proceeding. The arbitrator shall: (i) have the authority to compel adequate
discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (ii) issue a
written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award,
and the arbitrator’s essential findings and conclusions on which the award is based. The arbitrator, and not a court, shall also be authorized to determine
whether the provisions of this paragraph apply to a dispute, controversy, or claim sought to be resolved in accordance with these arbitration procedures. The
Company shall pay all costs and fees in excess of the amount of court fees that Executive would be required to incur if the dispute were filed or decided in a
court of law. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any arbitration.
8.
General Provisions.
8.1 Contingencies. The Company reserves the right to conduct a background investigation and/or reference check on Executive.
Executive may also be required to go through a Security Risk Assessment (SRA) via the CDC which includes a Bioterrorism Act background check and FBI
fingerprinting. This job offer is contingent upon SRA approval (including FBI clearance) as well as a satisfactory background investigation and/or reference
check. In accordance with federal immigration law, Executive will also be required to provide to the Company documentary evidence of Executive’s identity
and eligibility for employment in the United States. This employment offer is contingent upon such documentation being provided to the Company within
three (3) business days after Executive’s hire date.
8.2 Notices. Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including
personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as
listed on the Company payroll.
8.3 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be invalid, illegal
4
or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other
provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the
intent of the parties.
8.4 Waiver. Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be
deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
8.5 Complete Agreement. This Agreement constitutes the entire agreement between Executive and the Company with regard to this
subject matter and is the complete, final, and exclusive embodiment of the Parties’ agreement with regard to this subject matter. This Agreement is entered
into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such
promises, warranties or representations. It is entered into without reliance on any promise or representation other than those expressly contained herein, and
it cannot be modified or amended except in a writing signed by a duly authorized officer of the Company.
8.6 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than
one party, but all of which taken together will constitute one and the same Agreement.
8.7 Headings. The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.8 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and
he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
8.9 Tax Withholding and Indemnification. All payments and awards contemplated or made pursuant to this Agreement will be subject
to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities. Executive acknowledges
and agrees that the Company has neither made any assurances nor any guarantees concerning the tax treatment of any payments or awards contemplated by
or made pursuant to this Agreement. Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic
consequences of all payments and awards made pursuant to the Agreement.
8.10 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the
laws of the State of California.
5
In Witness Whereof, the Parties have executed this Agreement on the day and year first written above.
REVANCE THERAPEUTICS, INC.
By:
/s/ Dan Browne
Dan Browne
President & Chief Executive Officer
EXCECUTIVE
By:
/s/ Tobin C. Schilke
Tobin Schilke
Chief Financial Officer
6
Exhibit 10.38
November 7, 2018
Cyril Allouche
Dear Cyril:
This memo will confirm your current title and compensation as an Executive Officer at Revance Therapeutics:
Title:
Head of Finance, Corporate Controller & Principal Accounting Officer
Base Salary:
$265,000
Bonus Target %:
30%
Sincerely,
Justin Ford
/s/ Justin Ford
Justin Ford
Vice President, Human Resources and Head of People
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
Exhibit 10.42
EXECUTION COPY
LICENSE AGREEMENT
BY AND BETWEEN
REVANCE THERAPEUTICS, INC.
AND
SHANGHAI FOSUN PHARMACEUTICAL INDUSTRIAL DEVELOPMENT CO., LTD.
DECEMBER 4, 2018
LICENSE AGREEMENT
This License Agreement (the “Agreement”) is entered into as of December 4, 2018 (the “Effective Date”) by and between
Revance Therapeutics, Inc., a Delaware corporation with a place of business at 7555 Gateway Blvd., Newark, California, 94560
(“Revance”) and Shanghai Fosun Pharmaceutical Industrial Development Co., Ltd., a Chinese corporation with a place of business
at Building A, 1289 Yishan Road, Minhang District, Shanghai 200233, China (“Fosun”). Revance and Fosun are sometimes
referred to herein individually as a “Party” and collectively as the “Parties”.
RECITALS
WHEREAS, Revance is a biotechnology company developing botulinum toxin products for use in aesthetic and therapeutic
indications, including a certain proprietary biological product known as RT002;
WHEREAS, Fosun is a pharmaceutical company engaged in the research, development and commercialization of products
for human use in the aesthetic and therapeutic settings;
WHEREAS, Revance and Fosun desire to establish a license agreement for the further development and commercialization
of RT002, with the objective of providing pharmaceutical products in specified territories to patients.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth below, and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I.
DEFINITIONS AND CONSTRUCTION
The following terms shall have the following meanings as used in this Agreement:
Section 1.01 “Aesthetic Indication” means the treatment, minimization, and/or eradication of, or the appearance of any
lines or wrinkles on the body, including without limitation, glabellar lines and crow’s feet on the face.
Section 1.02 “Affiliate” means with respect to either Party, any Person controlling, controlled by or under common
control with such Party, from time to time and for so long as such control exists. For purposes of this definition of Affiliate,
“control” (and, with correlative meanings, the terms “controlled by” and “under common control with”) means (a) direct or indirect
ownership of fifty percent (50%) or more of the stock or shares having the right to vote for the election of directors of a Person or
(b) the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
1
Section 1.03 “Alliance Manager” shall have the meaning assigned in Section 3.01.
Section 1.04 “Annual Net Sales” means the Net Sales made during any given Calendar Year.
Section 1.05 “Anti-Corruption Laws” means the U.S. Foreign Corrupt Practices Act, as amended, and any other
applicable anti-corruption laws and laws for the prevention of fraud, bribery, racketeering, money laundering or terrorism in the
Territory.
Section 1.06 “Applicable Laws” means all applicable statutes, ordinances, codes, executive or governmental orders,
laws, rules and regulations, including without limitation, any rules, regulations, guidelines or other requirements of Regulatory
Health Authorities, that may be in effect from time to time.
Section 1.07 “Bankruptcy Code” means Title 11, United States Code, as amended, or analogous provisions of
Applicable Laws outside the United States.
Section 1.08 “Biosimilar” means, with respect to the Product, any pharmaceutical product that: (a) has received all
necessary approvals by the applicable Regulatory Authorities in such country to market and sell such product as a pharmaceutical
product, including required pricing; (b) is marketed or sold by a Third Party that has not obtained the rights to market or sell such
product as a licensee, sublicensee or distributor of Revance or Fosun or any of their respective Affiliates, licensees or sublicensees
with respect to the Product; (c) is highly similar to the Product notwithstanding minor differences in clinically inactive components;
(d) has no clinically meaningful differences from the Product in terms of safety, purity, and potency; and (e) is approved as (i) a
“biosimilar” (in the United States) of the Product, or (ii) if not in the US, the foreign equivalent of a “biosimilar” of the Product in
the Territory; in each case for use in such country pursuant to an expedited regulatory approval process governing approval of
generic biologics based on the then-current standards for regulatory approval in such country (e.g., the BPCIA Act or an equivalent
under foreign law) and where such Regulatory Approval was based in significant part upon clinical data generated by Revance,
Fosun or their respective Affiliates or Sublicensees with respect to the Product.
Section 1.09 “BLA” means (a) in the US, a Biologics License Application, as defined in the BPCI Act, and applicable
regulations promulgated thereunder by the FDA, or any equivalent application that replaces such application, (b) in the Territory,
the relevant equivalent to the foregoing.
Section 1.10 “BPCI Act” means the Biologics Price Competition and Innovation Act of 2009 within the Patient
Protection and Affordable Care Act, as set forth in Section 351(k) of the United States Public Health Services Act (42 U.S.C. 262),
which was signed into law in the United States in March 2010, as may be subsequently amended.
Section 1.11 “Breaching Party” shall have the meaning assigned in Section 11.02(a).
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
2
Section 1.12 “Business Day” means any day other than (a) a Saturday or a Sunday or (b) a day on which commercial
banking institutions are authorized or required by Applicable Laws to be closed in New York City, New York or in Shanghai,
People’s Republic of China.
Section 1.13 “Calendar Quarter” means each successive period of three (3) consecutive calendar months commencing
on 1st January, 1st April, 1st July and 1st October.
Section 1.14 “Calendar Year” means each successive period of twelve (12) consecutive calendar months commencing on
1st January.
Section 1.15 “Change of Control” means, with respect to a Party, (a) a transaction or series of related transactions that
results in the sale or other disposition of all or substantially all of such Party’s assets; or (b) a merger or consolidation in which,
whether or not such Party is the surviving corporation, the shareholders of such Party immediately prior to the consummation of
such merger or consolidation do not, immediately after consummation of such merger or consolidation, possess, directly or
indirectly through one or more intermediaries, a majority of the voting power of all of the surviving entity’s outstanding stock and
other securities and the power to elect a majority of the members of the surviving entity’s board of directors; or (c) a transaction or
series of related transactions (which may include a tender offer for such Party’s stock or the issuance, sale, or exchange of stock of
the Party) if a single Person or group of Persons who are Affiliates (including, without limitation, Affiliates that are venture capital
or investment divisions of such Person) and who are engaged in the research, development, manufacturing and commercialization
of pharmaceutical products acquire the Party’s stock in such transaction or series of related transactions that possesses a majority of
voting power of all of the Party’s outstanding stock and other securities and the power to elect a majority of the members of the
Party’s board of directors.
Section 1.16 “Co-Chair” shall have the meaning assigned in Section 3.04.
Section 1.17 “Combination Product” means any combination of the Product and any other commercial product(s),
including fillers, where such products are not formulated together but are sold together as a single product and invoiced as one
product. For purposes of Section 1.54, the other commercial product(s) shall be referred to as the “Other Product(s)”.
Section 1.18 “Commercialization” means all activities undertaken relating to the marketing and sale of Product,
advertising, education, planning, marketing, promotion, distribution, market and product support, and any post-approval clinical
studies commenced after the First Commercial Sale of the Product in the Territory. “Commercialize” shall have a corresponding
meaning.
Section 1.19 “Commercialization Plan” shall have the meaning assigned in Section 4.09.
Section 1.20 “Commercially Reasonable Efforts” shall mean, with respect to a Party’s obligations under this Agreement,
the efforts and resources typically used by pharmaceutical companies similar in size and scope to perform the obligations at issue,
which efforts shall not be less than those efforts made by the performing Party with respect to other products at a similar stage
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
3
of development or in a similar market and commercial potential, taking into account the competitiveness of the market place, the
proprietary position of the products, the regulatory structure involved and the profitability of the applicable products. Without
limiting the foregoing, Commercially Reasonable Efforts requires, with respect to such obligations, that the Party apply efforts
sufficient to carry out the given obligation in a diligent and sustained manner without undue interruption, pause, or delay. It is
anticipated that the level of effort will change over time, reflecting changes in the status of the Product and the market involved.
Section 1.21 “Competitive Product” means any pharmaceutical composition [*], regardless of formulation, dosage, or
form, other than the Product.
Section 1.22 “Confidential Information” means, subject to the exceptions listed at Section 7.02, any and all (a) Know-
How relating to the Exploitation of the Product or relating to other aspects of this Agreement, and (b) Information and Materials,
whether oral or in writing or in any other form, disclosed before, on or after the date of this Agreement by one Party to the other
Party, including the terms of this Agreement.
Section 1.23 “Control” means, with respect to an item of Know-How, Patent or other Intellectual Property Rights, the
ability and authority of a Party or its Affiliates, whether arising by ownership, or pursuant to a license or sublicense, to grant
licenses, sublicenses, or other rights to the other Party under or to such item of Know-How, Patent or Intellectual Property Rights as
provided for in this Agreement without breaching the terms of any agreement between such Party and any Third Party.
Section 1.24 “Cost of Goods”, to be more specifically defined in the Supply Agreement, shall mean the fully burdened
cost of manufacturing and supplying finished Product (as defined in Section 1.61), such costs to include the cost of direct materials
and labor, conversion, packaging and labeling, associated freight expenses, and attributable portion of overhead. For clarity,
Fosun’s Cost of Goods will be consistent with internal and external reporting for Revance’s Cost of Goods and associated Product
gross margin calculations, as per U.S. GAAP. The Cost of Goods shall be subject to the condition defined at Exhibit E hereto.
Section 1.25 “CRO” means a contract research organization, as defined in 21 C.F.R. 312 or in any Applicable Laws, that
assumes, as an independent contractor with the sponsor of a clinical trial, one or more of the obligations of a sponsor, e.g., design of
a protocol, selection or monitoring of investigations, evaluation or reports, and preparation of materials to be submitted to the
applicable Regulatory Authority.
Section 1.26 “Development” means all activities relating to obtaining Regulatory Approval of the Product and new
Indications therefor, but excluding activities related to the manufacture of Product. Development activities includes, for example,
(a) the conduct of all preclinical and clinical testing required for Regulatory Approval of the Product in the Territory, (b) the
conduct of all regulatory activities directed to obtaining and maintaining Regulatory Approval of the Product in the Territory.
“Develop” and “Developing” shall have a corresponding meaning.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
4
Section 1.27 “Drug Approval Application” means an application for Regulatory Approval required before commercial
sale or use of the Product as a drug in a regulatory jurisdiction.
Section 1.28 “Effective Date” shall have the meaning assigned in the first paragraph of this Agreement.
Section 1.29 “Exploit” means to import, use, sell or offer for sale, including to Develop and Commercialize, the Product
in the Territory. “Exploitation” shall have a corresponding meaning.
Section 1.30 “FDA” means the United States Food and Drug Administration or any successor thereto.
Section 1.31 “FFDCA” means the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301, et seq., as amended from
time to time.
Section 1.32 “Field” means any and all uses of Product under an Aesthetic Indication or Therapeutic Indication.
Section 1.33 “Filing” means, with respect to a submission to a Regulatory Health Authority, the date that such submission
is confirmed to have been received by the relevant Regulatory Health Authority.
Section 1.34 “First Commercial Sale” means, with respect to the Product, the first arm’s length sale for monetary value
by Fosun, its Affiliates, or its Sublicensees to a Third Party for end use or consumption by the general public of the Product in the
Territory for any Indication.
Section 1.35 “Fosun Technology” means all Patents and Know-How (i) Controlled by Fosun as of the Effective Date, or
(ii) that thereafter comes into Fosun’s Control independent of this Agreement, and in each case, that is not Product-related IPR. For
clarity, Fosun Technology may include inventions that are broadly applicable to the Development or Commercialization of
pharmaceutical products generally.
Section 1.36 “Fosun Triggered Termination” shall have the meaning assigned in Section 11.03.
Section 1.37 “GCP” or “Good Clinical Practices” means the current standards for clinical trials for pharmaceuticals, as
set forth in China as well as in the United States Code of Federal Regulations, ICH guidelines and applicable regulations, laws or
rules as promulgated thereunder, as amended from time to time, and such standards of good clinical practice as are required by
other organizations and governmental agencies in the Territory.
Section 1.38 “GLP” or “Good Laboratory Practices” means good laboratory practices required under the regulations
set forth in 21 C.F.R. Part 58, as in effect during the Term, and the requirements thereunder imposed by the FDA and the NMPA,
and the equivalent thereof in any jurisdiction.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
5
Section 1.39 “Government Official” means any Person employed by or acting on behalf of a Governmental Body,
government-controlled entity or public international organization.
Section 1.40 “Governmental Body” means any: (a) nation, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c)
governmental or quasi-governmental authority of any nature (including any governmental division, department, agency,
commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or entity and any court or other
tribunal); or (d) self-regulatory organization (including the NASDAQ Global Market and the NASDAQ Global Select Market).
Section 1.41 “IFRS” means the International Financial Reporting Standards, the set of accounting standards and
interpretations and the framework in force on the Effective Date and adopted by the European Union as issued by the International
Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC), as such
accounting standards may be amended from time to time.
Section 1.42 “IND” means an Investigational New Drug application or the equivalent filed with or submitted to the
relevant Regulatory Health Authority, including, for example, the FDA, for authorization to commence human clinical trials.
Section 1.43 “Indication” means any distinct Aesthetic Indication or Therapeutic Indication.
Section 1.44 “Indirect Taxes” means value added taxes, sales taxes, consumption taxes and other similar taxes.
Section 1.45 “Information” means (a) techniques, information and data necessary or useful for the Development or
Commercialization of the Product, including without limitation, Know-How, marketing, pricing, distribution, cost, sales, and
manufacturing data or descriptions as well as (b) any information or data relating to Materials.
Section 1.46 “Intellectual Property Rights” or “IPR” means Patents, Trademarks, service marks, Know-How, Trade
Secrets (including patentable inventions), trade names, registered designs, design rights, copyrights (including rights in computer
software), domain names, database rights and any rights or property similar to any of the foregoing in any part of the world,
whether registered or not, together with the right to apply for the registration of any such rights.
Section 1.47 “I.U.” means with respect to a measure of Product, an international unit.
Section 1.48 “Know-How” means all inventions, discoveries, data, information (including scientific, technical or
regulatory information), Trade Secrets, processes, means, methods, practices, formulae, instructions, procedures, techniques,
materials, technology, results, analyses, designs, drawings, computer programs, apparatuses, specifications, technical assistance,
laboratory, pre-clinical and clinical data (including laboratory notes and notebooks), and other material or know-how, in written,
electronic or any other form, whether or not confidential,
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
6
proprietary or patentable, including without limitation: development technology; biology, chemistry, pharmacology, toxicology,
drug stability, Manufacturing and formulation, test procedures, synthesis, purification and isolation techniques, quality control data
and information, methodologies and techniques; information regarding clinical and non-clinical safety and efficacy studies,
including study designs and protocols, marketing studies, absorption, distribution, metabolism and excretion studies; assays and
biological methodology.
Section 1.49 “Knowledge” means the good faith understanding of the officers of the Party associated with the
representation.
Section 1.50 “Losses” means any and all direct and indirect liabilities, claims, actions, damages, losses or expenses,
including interest, penalties, and reasonable lawyers’ fees and disbursements. In calculating Losses, the legal duty to mitigate on
the part of the Party suffering the Loss shall be taken into account.
Section 1.51 “Manufacture” or “Manufacturing” means activities in connection with the manufacture, processing,
formulating, testing (including, without limitation quality control, quality assurance and lot release testing), bulk packaging or
storage and delivery of Product.
Section 1.52 “Manufacturer” means Revance or such other Person as may be appointed to supply Product to Fosun
pursuant to the Supply Agreement.
Section 1.53 “Materials” means information, data or assays necessary or useful for the Development or
Commercialization of Product in the Territory. Materials excludes any materials associated with Revance Manufacturing Know-
How.
Section 1.54 “Net Sales” means the gross amount invoiced by Fosun, its Affiliates or Sublicensees, for sales of Product to
a Third Party (that is not an Affiliate or Sublicensee) less the following deductions from such gross amounts to the extent included
in the gross amount invoiced for such Product or otherwise directly paid or incurred by Fosun, its Affiliates or Sublicencees:
(a) customary trade discounts, credits or allowances, not to exceed [*] of the gross amount invoiced;
(b) credits or allowances additionally granted upon returns, rejections or recalls (except where such recall arises out of the
gross negligence, willful misconduct, or fraud by Fosun, its Affiliates or Sublicensees);
(c) taxes, duties or other governmental tariffs (other than income taxes); and
(d) government mandated rebates.
Notwithstanding the foregoing, such aggregated allowable deductions shall not exceed [*] of the gross amount invoiced.
For the avoidance of doubt, sales between or among Fosun and its Affiliates or Sublicensees will be excluded from the
computation of Net Sales, but the subsequent final sales to a Third Party
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
7
by such Affiliate or Sublicensee will be included in the computation of Net Sales. For the further avoidance of doubt, gross
amounts invoiced shall exclude value added taxes payable by Fosun as per Applicable Laws.
Net Sales for a Combination Product in the Territory shall be calculated as follows:
(i) If the Product and Other Product(s) in such Combination Product each are sold separately in the
Territory, Net Sales will be calculated by multiplying the total Net Sales (as described above) of the Combination Product by the
fraction A/(A+B), where A is the standard average sales price in the Territory of the Product separately in the same formulation and
dosage, and B is the (sum of the) standard average sales price(s) in the Territory of the Other Product(s) sold separately in the same
formulation and dosage, during the applicable Calendar Year.
(ii) If the Product is sold independently of the Other Product(s) in the Territory, but the standard average
sales price of the Other Product(s) cannot be determined, Net Sales will be calculated by multiplying the total Net Sales (as
described above) of such Combination Product by the fraction A/C, where A is the standard average sales price in the Territory of
the Product sold separately in the same formulation and dosage and C is the standard average sales price in the Territory of the
Combination Product, during the applicable Calendar Year.
of the Combination Product based on the relative values of the Product and the Other Product(s).
(iii) If neither (i) nor (ii) above apply, the Parties will work together in good faith to determine the Net Sales
Section 1.55 “NMPA” means the National Medical Products Administration under the People’s Republic of China’s State
Administration for Market Regulation, or any successor thereto. For the avoidance of doubt, the NMPA shall refer to the agency
formerly known as the People’s Republic of China’s Food and Drug Administration (CFDA).
Section 1.56 “Non-Breaching Party” shall have the meaning assigned in Section 11.02(a).
Section 1.57 “Patent” means (a) all national, regional and international patents and patent applications, including
provisional patent applications, (b) all patent applications filed either from such patents, patent applications or provisional
applications or from an application claiming priority from any of these, including divisionals, continuations, continuations-in-part,
provisionals, converted provisionals, and continued prosecution applications, (c) any and all patents that have issued or in the future
issue from the foregoing patent applications ((a) and (b)), including utility models, petty patents and design patents and certificates
of invention, (d) any and all extensions or restorations by existing or future extension or restoration mechanisms, including
revalidations, reissues, re-examinations and extensions (including any supplementary protection certificates and the like) of the
foregoing patents or patent applications ((a), (b) and (c)), and (e) any similar rights, including so-called pipeline protection, or any
importation, revalidation, confirmation or introduction patent or registration patent or patent of additions to any such foregoing
patent applications and patents.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
8
Section 1.58 “Payments” shall have the meaning assigned in Section 6.07(a).
Section 1.59 “Person” means any individual, sole proprietorship, corporation, partnership, association, joint-stock
company, trust, unincorporated organization, joint venture or other similar entity or organization, including a government or
political subdivision, department or agency of a government.
Section 1.60 “Pharmacovigilance Agreement” shall have the meaning assigned in Section 4.07(a).
Section 1.61 “Product” means the finished form of the injectable pharmaceutical drug product containing
daxibotulinumtoxinA, also referred to by Revance as RT002, that is manufactured and supplied by the Manufacturer in accordance
with the Supply Agreement, and suitable for human administration.
Section 1.62 “Product-related IPR” means all Intellectual Property Rights, including but not limited to rights to Patents
and clinical data, not otherwise licensed by Revance to Fosun under this Agreement, that is discovered, invented, generated,
collected, or obtained by Fosun, its Affiliates, or Sublicensees in the performance of activities conducted pursuant to this
Agreement that relate to the Product and are necessary and/or useful to the Exploitation of the Product anywhere in the world.
Section 1.63 “Regulatory Approval” means any and all approvals (including without limitation pricing and
reimbursement approvals), product or establishment licenses, registrations, or authorizations of any regional, federal, state, or local
Regulatory Health Authority, department, bureau, or other governmental entity, necessary to commercially distribute, sell or market
the Product in a regulatory jurisdiction, including, where applicable, (a) pricing or reimbursement approval in such jurisdiction, (b)
pre- and post-approval marketing authorizations, (c) labeling approval and (d) technical, medical and scientific licenses.
Section 1.64 “Regulatory Authority” means any court or government body, whether national, supra-national, federal,
state, local, foreign or provincial, including any political subdivision thereof, including any department, commission, board, bureau,
agency, or other regulatory or administrative governmental authority or instrumentality, and further including any quasi-
governmental Person or entity exercising the functions of any of these.
Section 1.65 “Regulatory Documentation” means all applications, registrations, licenses, authorizations and approvals,
all correspondence submitted to or received from Regulatory Health Authorities (including minutes and official contact reports
relating to any communications with any Regulatory Health Authority) and all supporting documents, including documentation
arising in the course of all clinical studies and tests, in each case relating to the Product, including all INDs, BLAs, Regulatory
Approvals, regulatory drug lists, advertising and promotion documents, adverse event files and complaint files.
Section 1.66 “Regulatory Exclusivity” means any exclusive marketing rights or data exclusivity rights conferred by any
Regulatory Health Authority with respect to Product other than
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
9
Patents, including, without limitation, rights conferred in the U.S. under the Hatch-Waxman Act or the FDA Modernization Act of
1997 (including pediatric exclusivity), orphan drug exclusivity, or rights similar thereto outside the U.S.
Section 1.67 “Regulatory Health Authority” means any applicable national (for example, FDA or NMPA),
supranational, regional, state, provincial or local regulatory health authority, department, bureau, commission, council, or other
government entity regulating or otherwise exercising authority with respect to the Exploitation of Product in the Territory pursuant
to the terms and conditions of this Agreement, including any such entity involved in the granting of Regulatory Approval for
pharmaceutical products.
Section 1.68 “Revance” shall have the meaning set forth in the preamble.
Section 1.69 “Revance Change of Control” shall have the meaning set forth in Section 2.07.
Section 1.70 “Revance Corporate Trademarks” shall have the meaning set forth in Section 1.75.
Section 1.71 “Revance Know-How” means any and all know how, information, data (including, without limitation, pre-
clinical data, toxicology information and clinical trial data), documents, materials, and software (including, but not limited to,
marketing information, technical information, regulatory information, clinical information, processes, procedures, methods,
formulae, protocols, and techniques) relating to Product and which is useful and necessary for Fosun to obtain Regulatory Approval
of the Product in the Territory, or otherwise import, Develop, use, sell, offer for sale, or Commercialize the Product in the Territory,
but not including Revance Manufacturing Information, which exists as of the Effective Date or during the Term and is Controlled
by Revance or its Affiliates.
Section 1.72 “Revance Manufacturing Information” means any and all confidential documents and information
Controlled by Revance and/or its Affiliates and relating to the manufacture of Product.
Section 1.73 “Revance Patents” means any and all patent applications and patents generically or specifically claiming or
covering the use, sale, offer for sale and/or import of Product (including without limitation the active pharmaceutical ingredient in
Product and its dosage forms and formulations), that are Controlled by Revance or its Affiliates as of the Effective Date or during
the Term in the Territory, including without limitation the following: (a) patent applications and patents set forth in Exhibit A; (b)
divisions, continuations, continuations-in-part, renewals, and substitute applications of any patent applications described in (a); (c)
patents that may issue from any patent applications described in (a) or (b); (d) reissues, reexaminations, and extensions or
restorations of patents described in (a) or (c) by existing or future extension or restoration mechanisms, including without
limitation, patent restoration and supplementary protection certificates or the equivalent thereof; and (e) any other form of
government-issued right in the Territory substantially similar to any of the foregoing. Notwithstanding anything to the contrary,
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
10
Revance Patents will not include any patent applications or patents claiming or covering any processes for manufacture of Product.
Section 1.74 “Revance Product Trademarks” shall have the meaning set forth in Section 1.75.
Section 1.75 “Revance Technology” shall mean, for purposes of this Agreement, the Revance Know-How, Revance
Patents, and Revance Trademarks.
Section 1.76 “Revance Trademarks” means any trademarks, applications to register trademarks, intent-to-use
applications, or other registrations or applications related to trademarks, common-law trademarks and rights, service marks, trade
dress, logos, trade names, corporate names, all rights arising from the use of or existing in connection with domain names, and all
goodwill associated with the foregoing and all registrations and applications for registration of any of the foregoing, currently
pending or applied for in the future by Revance, all to the extent Controlled by Revance or its Affiliates in the Territory as of the
Effective Date or during the Term that are (a) specific to and only used with Product(the “Revance Product Trademarks”) or (b)
used in connection with, but are not specific to or used exclusively with, Product (including, without limitation Housemarks of
Revance)(the “Revance Corporate Trademarks”).
Section 1.77 “Review Period” shall have the meaning assigned in Section 7.07.
Section 1.78 “SAKURA 3 Trial” means the clinical phase 3 trial investigating the long-term safety of the Product for the
treatment of moderate to severe glabellar lines in adults.
Section 1.79 “Senior Executives” means (a) the Chief Executive Officer of Revance and (b) the Chief Executive Officer
of Fosun. A Party shall be entitled, effective upon written notice thereof to the other Party, to designate one of its other
representatives having equivalent seniority and experience to replace such foregoing representative as that Party’s Senior Executive
for the purpose of this Agreement.
Section 1.80 “Sublicensee(s)” shall have the meaning assigned in Section 2.02.
Section 1.81 “Supply Agreement” means the agreement for the manufacture and supply of Product by the Manufacturer
to Fosun or its designated agent for the purposes of this Agreement, which shall be executed by Fosun and Revance as soon as
reasonably practicable after the Effective Date.
Section 1.82 “Tax” means any form of tax or taxation, levy, duty, charge, social security charge, contribution or
withholding of whatever nature (including any related fine, penalty, surcharge or interest) imposed by, or payable to, a Tax
Authority.
Section 1.83 “Tax Authority” means any government, state or municipality, or any local, state, federal or other fiscal,
revenue, customs, or excise authority, body or official anywhere in the world, authorized to levy Tax.
Section 1.84 “Term” shall have the meaning assigned in Section 11.01.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
11
Section 1.85 “Territory” means the People’s Republic of China, Hong Kong Special Administrative Region, and Macao
Special Administrative Region (each of which for purposes of this Agreement shall each be deemed a region).
Section 1.86 “Therapeutic Indication” means the treatment, prevention or palliation of any disease or non-aesthetic
medical condition, including but not limited to, cervical dystonia, plantar fasciitis, chronic migraine, upper and lower limb
spasticity, hyperhidrosis, urinary incontinence, overactive bladder, strabismus, facial spasm, blepharospasm, and focal dystonia.
Section 1.87 “Third Party” means any Person other than Revance, Fosun, or their respective Affiliates.
Section 1.88 “Third Party Claims” shall have the meaning assigned in Section 12.01(a).
Section 1.89 “Third Party Compensation” shall have the meaning assigned in Section 6.04(f).
Section 1.90 “Trademark” means any trademark, trade name, service mark, service name, brand, domain name, trade
dress, logo, slogan or other indicia of origin or ownership, including the goodwill and activities associated with each of the
foregoing.
Section 1.91 “Trademark License Agreement” shall have the meaning assigned in Section 2.06(b).
Section 1.92 “Trade Secret” means information, including but not limited to formulae, techniques, conditions, reagents,
processes, or methods, that (i) derives independent economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is
the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Section 1.93 “Transfer Price” means with respect to the Product and placebo supplied by Revance, the Manufacturer’s
Cost of Goods plus [*], subject to [*] the Supply Agreement.
Section 1.94 “U.S. GAAP” means United States Generally Accepted Accounting Principles, consistently applied.
Section 1.95 “Valid Claim” means (a) a claim of an issued and unexpired Patent within the Revance Patents that has not
been held unpatentable, invalid, or unenforceable by a court or other government agency of competent jurisdiction in an
unappealable decision or has not been admitted to be invalid or unenforceable through disclaimer, or otherwise or (b) a claim of a
pending patent application within the Revance Patents that has not been abandoned, finally rejected or expired without the
possibility of appeal or re-filing.
Section 1.96 “Written Disclosure” shall have the meaning assigned in Section 10.02.
Section 1.97 Construction. Except where the context requires otherwise, whenever used in this Agreement, the singular
includes the plural, the plural includes the singular, the use of any
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
12
gender is applicable to all genders and the word “or” has the inclusive meaning represented by the phrase “and/or”. Whenever this
Agreement refers to a number of days, unless otherwise specified, such number refers to calendar days. The term “including” or
“includes” as used in this Agreement means including, without limiting the generality of any description preceding such term. The
article, section, and subsection headings contained in this Agreement are for the purposes of convenience only and are not intended
to define or limit the contents of such articles, sections, and subsections. The wording of this Agreement shall be deemed to be the
wording mutually chosen by the Parties and no rule of strict construction shall be applied against any Party.
ARTICLE II.
GRANT OF RIGHTS AND LICENSES; EXCLUSIVITY
Section 2.01 License to Fosun.
(a) Subject to the terms of this Agreement, Revance hereby grants to Fosun an exclusive (including with regard to
Revance and its Affiliates), royalty-bearing license, with the right to grant sublicenses solely in accordance with Section 2.02
below, under Revance Know-How and Revance Patents (but specifically excluding Revance Manufacturing Information and
related Patents) to import, use, sell, offer for sale, Develop, and Commercialize, including without limitation package and have
packaged the Product in the Field in the Territory. For the avoidance of doubt, the license granted in this Section 2.01 does not
include the right to manufacture or have manufactured the Product.
(b) Fosun shall have the right to engage and appoint service providers at its own discretion:
(i) for the sole purpose of obtaining marketing authorisation or import authorisation, in each case, in relation to the
Product in the Territory; provided such service providers [*], otherwise only upon prior written approval by Revance;
(ii) for the sole purpose of providing clinical development services in relation to the Product; provided that any
CRO shall [*];
(iii) for the sole purpose of distributing Product in the Territory, upon prior written notice to Revance; provided
such distributor [*]; and
(iv) for the sole purpose of marketing or promotion services in relation to the Product on behalf of Licensee in the
Territory; provided that such service provider [*] with respect to the marketing, distribution or sale of the Product with
respect to [*], otherwise upon prior written approval by Revance.
For avoidance of doubt, the Affiliates and the Sublicensee (as defined in Sections 2.02) of Licensee shall also have the right to
engage and appoint service providers at its own discretion for the aforementioned purposes, subject to the same restrictions as
indicated above, and provided such service providers are bound by obligations of confidentiality no less restrictive than those
contained in this Agreement. Fosun shall remain liable for any action or failure to act
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
13
by any service provider if such action or failure to act by the service provider would have constituted a breach of this Agreement if
such action or failure were committed by Fosun.
Section 2.02 Sublicenses. Fosun shall have the right to grant sublicenses, through multiple tiers of sublicenses, under the
license granted to Fosun under Section 2.01 to: (i) its Affiliates upon [*] days prior written notice to Revance, unless such Affiliate
is listed in Exhibit B hereto, in which case no prior written notice is necessary; (ii) a Third Party in the Territory for purposes [*];
and (iii) a Third Party for purposes [*]. Where Fosun or its Affiliates grants such sublicense to a Person that is not an Affiliate of
Fosun, such Person shall be a “Sublicensee” for the purposes of this Agreement, and any Person to which a Sublicensee grants a
further sublicense shall also be a Sublicensee; provided, however, that any Person that is engaged and appointed by Fosun, its
Affiliates and/or Sublicensees as a service provider pursuant to Section 2.01(b) solely to enable such Person to provide such
services shall not be a “Sublicensee” for purposes of this Agreement. Fosun, its Affiliates and its Sublicensees shall ensure that all
Persons to which they grant sublicenses comply with all terms and conditions of this Agreement. Fosun shall remain liable for any
action or failure to act by any Sublicensee, or any other Party that is granted a sublicense under the licenses granted in Section 2.01
by Fosun, its Affiliates or its Sublicensees, if such action or failure to act by the Sublicensee would have constituted a breach of this
Agreement if such action or failure were committed by Fosun.
Section 2.03 Rights Retained by Revance. Notwithstanding the foregoing, Revance hereby expressly retains all rights to,
and excludes from the license grant in Section 2.01, any Revance Know-How and Intellectual Property Rights, including the
Revance Manufacturing Information, related to the Manufacture of the Product.
Section 2.04 No Implied Rights. This Agreement confers no right, license, or interest by implication, estoppel, or
otherwise under any Patents, Know-How, or other Intellectual Property Rights of either Party except as expressly set forth in this
Agreement. Each Party hereby expressly retains and reserves all rights and interests with respect to Patents, Know-How, or other
Intellectual Property Rights not expressly granted to the other Party hereunder. Without limiting the generality of the foregoing, no
license or other rights are granted to Fosun under this Agreement to any pharmaceutical compositions claimed or disclosed in any
Revance Patents other than the Product.
Section 2.05 Non-Compete. Upon the Effective Date and throughout the Term, Fosun shall not, and shall ensure that its
Affiliates do not, engage in, independently or for or with any Third Party, any research, development, manufacture or
commercialization of any Competitive Product; provided, in the event Fosun terminates this Agreement under Section 11.02, the
restrictions of this Section 2.05 shall extend for two (2) years following such termination by Fosun. Notwithstanding the foregoing,
if Revance fails to submit a BLA for the Product in the US by the end of 2020, the non-compete restrictions under this Section 2.05
shall expire. Notwithstanding the above, in the event that an Affiliate of Fosun (a) [*], such Affiliate shall not be a violation of this
Section 2.05; provided, that: (i) the Affiliate [*]; and (ii) the Affiliate [*], or [*] (except for [*]); or (b) [*], such Affiliate shall not
be a violation of this Section 2.05; provided, that the Affiliate [*]. In the event that Fosun and/or any of its Affiliates’ direct or
indirect acquisition of or merger with a Third Party, which will become an Affiliate of Fosun immediately after closing of such
acquisition
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
14
or merger transaction, when such Third Party is engaging in the commercialization of any Competitive Products, Fosun will notify
Revance immediately after the closing of such acquisition or merger transaction to initiate a discussion with Revance and suspend
the commercialization of such Competitive Products unless and until the Parties reach an agreement on this competitive business
during or after such discussion with Fosun in good faith.
Section 2.06 Trademark Rights.
(a) Revance Trademarks. Revance hereby grants to Fosun a royalty-free exclusive license to use Revance Trademarks,
including Revance Product Trademarks and Revance Corporate Trademarks, solely in connection with the Commercialization,
including but not limited to use, sale, offering for sale, and import of Product in the Territory. All representations of Revance
Trademarks that Fosun intends to use will first be submitted to Revance for approval, such approval not to be unreasonably
withheld. Revance will have [*] days to review the representation of the Revance Trademarks. If Revance does not provide written
notice of its approval or disapproval (together with its reasons for such disapproval) within such [*] day period, Revance will be
deemed to have approved such representation.
(b) In connection with the license granted to Fosun under the Revance Trademarks as provided in Sections 2.06(a),
Revance and Fosun agree that either they or their respective Affiliates will, within [*] calendar days after the Effective Date,
cooperate to have an authorized representative execute a “Trademark License Agreement”, which shall be filed with the
appropriate governmental body in the Territory if necessary.
Section 2.07 Revance Change of Control Option.
(a) In the event of a Revance Change of Control (“Revance CoC”) during the Term of this Agreement, Revance, or its
successor entity in the event Revance does not exist after the Revance CoC transaction (“CoC Successor”), shall have the option
(“CoC Option”) to terminate this Agreement under Section 11.02(d) after the closing of Revance CoC, in exchange for economic
compensation based on the stage of Development of the Product as set forth below, so as to re-acquire all licensed rights of the
Product in the Territory transferred to Fosun under this Agreement:
Stage of Development of Product Upon Termination Under CoC Option
Compensation (USD)
Prior to [*]
After [*] but prior to [*]
After [*]
[*]
[*]
[*]
* In the event the Agreement is terminated pursuant to the CoC Option in this Section 2.07(a) prior to [*]: (1) the [*] shall be [*],
and (2) the compensation shall [*].
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
15
(b) Revance or its CoC Successor shall (i) provide written notice to Fosun of the Revance CoC within [*] Business Days
after closing of Revance CoC (“CoC Notice”), (ii) engage in a discussion in good faith with Fosun for a period of [*] days upon the
receipt of CoC Notice to discuss the possibility to continue to perform under the Agreement (“CoC Discussion Period”); (iii) have
a period of [*] days after the end of the CoC Discussion Period (“CoC Option Exercise Period”) to provide written notice
terminating the Agreement in accordance with the terms and obligations of Section 11.04(d); and (iv) fully pay Fosun the amount
of economic compensation under Section 2.07(a) within such CoC Option Exercise Period; provided that, upon request by Revance
or its CoC Successor, Fosun shall [*] during the CoC Discussion Period.
(c) For clarity, if Revance or its CoC Successor fails to exercise the CoC Option within the CoC Option Exercise Period,
then such CoC Option shall expire and Revance or its CoC Successor shall no longer be able to exercise such CoC Option.
(d) To the extent this Agreement is terminated pursuant to Section 11.02(d), and in the event that (i) Revance then
subsequently re-acquires the exclusive rights to the Product in the Territory, or (ii) the Revance CoC transaction has been
terminated or amended in a way as if the Revance CoC has not occurred, within [*] from termination of this Agreement under
Section 11.02(d), then Revance shall notify Fosun of such re-acquisition of rights, and Fosun shall have the option, at Fosun’s own
discretion, to re-acquire its rights to the Product in the Territory [*].
ARTICLE III.
GOVERNANCE
Section 3.01 Alliance Manager. Within thirty (30) days, of the Effective Date, each Party will identify (and notify the
other Party of the identity of) a representative to act as its informal liaison under this Agreement (“Alliance Manager”). The
Alliance Managers will serve as the primary contact points between the Parties regarding the activities contemplated by this
Agreement. The Alliance Managers may facilitate the flow of information and otherwise promote communication, coordination and
collaboration between the parties, providing single point communication for seeking consensus both internally within each Party’s
organization, including facilitating review of external corporate communications, and raising cross-Party and/or cross-functional
disputes in a timely manner. Each Party may change its Alliance Manager by written notice to the other Party.
Section 3.02 Joint Development Committee. Within thirty (30) days of the Effective Date, the Parties shall establish a
Joint Development Committee (the “JDC”). Each Party can designate three representatives as the members to the JDC, and such
initial members to be nominated by the Parties and listed at Exhibit D herein. Such representatives shall be individuals suitable in
seniority and experience and having delegated authority to make decisions of the JDC with respect to matters within the scope of
the JDC’s responsibilities. The JDC shall operate in accordance with the provisions of Sections 3.03 to 3.07, and shall have no
authority to alter, amend or waive the terms and conditions of this Agreement, including any payment conditions or terms, periods
of performance, or obligations of the Parties. A Party may change one or more of its representatives serving on the JDC at any time
upon written notice to the other Party; provided that such replacement is of comparable authority and scope of functional
responsibility within that Party’s organization
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
16
as the person he or she is replacing. At its meetings, the JDC shall discuss the matters described below and such other matters as
are reasonably requested by either Party’s Alliance Manager. The JDC shall remain in effect as from its establishment through the
Term. Each Party, in its sole discretion, can determine to terminate its membership in the JDC.
Section 3.03 Responsibilities of JDC. Subject to Section 3.07, the JDC shall perform the following functions:
(a) review and approve the Development and Commercialization strategy for the Product in the Territory, including the
Development Plan and Commercialization Plan (defined below);
(b) ensure harmonization of the Product Development and regulatory strategy in the Territory with Revance’s global
development and commercialization strategy;
(c) approve all pre-clinical and/or clinical Development activities proposed to be conducted by or on behalf of Fosun with
respect to the Product;
(d) review and approve the protocols for each clinical trial of Product proposed to be conducted by or on behalf of Fosun
in the Territory;
(e) facilitate and approve the exchange of Product-related Data and information between the Parties as necessary;
(f) ensure that Fosun’s Development and Commercialization activities are in compliance with the Development Plan,
Pharmacoviligance Agreement, Commercialization Plan, and other relevant obligations under this Agreement, including but not
limited to, obligations to keep Revance reasonably informed and updated regarding (i) the status of such Development and
Commercialization activities, (ii) results from any clinical trials, (iii) any adverse events, and (iv) material correspondence with a
Regulatory Authority; and
(g) perform such other functions as are specifically designated for the JDC in this Agreement.
Section 3.04 Co-Chairs. Each Party shall designate one of its representatives on the JDC to co-chair the meetings for the
JDC (each, a “Co-Chair”). The Co-Chairs shall, through and with the assistance of the Alliance Managers, coordinate and prepare
the agenda for, and ensure the orderly conduct of, the meetings of the JDC. The Co-Chairs shall, through and with the assistance of
the Alliance Managers, solicit agenda items from the JDC members and provide an agenda, along with appropriate information for
such agenda, reasonably in advance of any meeting. Such agenda shall include all items requested by either Co-Chair for inclusion
therein. In the event the Co-Chairs or another JDC member from either Party is unable to attend or participate in a meeting of the
JDC, the Party whose Co-Chair or member is unable to attend may designate a substitute co-chair or other representative for the
meeting.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
17
Section 3.05 Meetings. The JDC shall meet at least quarterly, or more or less frequently if determined by the JDC, during
the period in which Fosun is Developing the Product in the Territory, and JDC meetings can be called at other times by agreement
between the Parties for any reason. JDC meetings may be conducted by telephone, videoconference or in person. Any in-person
JDC meetings shall be held on an alternating basis between Revance’s and Fosun’s facilities, unless otherwise agreed by the
Parties. Each Party shall be responsible for the cost of such Party’s own personnel and for its own expenses in attending such
meetings and carrying out the other activities contemplated under this Article III. As appropriate, the JDC may invite a reasonable
number of non-voting employees, consultants and scientific advisors to attend its meetings as non-voting observers; provided, that
such invitees are bound by confidentiality obligations at least as stringent as the provisions set forth herein. Each Party may also
call for special meetings of the JDC to discuss particular matters requested by such Party. The Alliance Managers shall provide the
members of the JDC with no less than ten (10) Business Days’ notice of each regularly scheduled meeting and, to the extent
reasonably practicable under the circumstances, no less than five (5) Business Days’ notice of any special meetings called by either
Party.
Section 3.06 Minutes. Minutes will be kept of all JDC meetings, with the minutes for each JDC meeting to be the
responsibility of the Co-Chair (or his or her designees) of the Party that is hosting such meeting, unless otherwise agreed by the
Parties. Draft meeting minutes shall be sent to all members of the JDC by e-mail for review and approval within thirty (30) days
after each such meeting. The JDC shall formally accept the minutes of the previous meeting at or before the next meeting of the
JDC. Minutes will be deemed approved unless any member of the JDC objects to the accuracy of such minutes by providing
written notice to the other members of the JDC prior to the next meeting. Minutes shall list action items and shall designate any
issues that need to be resolved by the JDC or applicable resolution process. In the event of any objection to the minutes that is not
resolved by mutual agreement of the Parties, such minutes will be amended to reflect such unresolved dispute.
Section 3.07 Decision Making of JDC. Decisions of the JDC shall be made by unanimous vote, with each Party’s
representatives on the JDC collectively having one vote. Any matter which the JDC is unable to resolve unanimously shall be
referred to the Parties’ Alliance Managers, but the JDC shall continue to discuss over the matter in good faith. If the matter remains
unresolved by the JDC after [*] days after referral to the Parties’ Alliance Managers, final decision-making authority shall be
determined as follows: (i) with respect to any issues related to [*], including [*], [*] shall have the final decision, provided that
such decision shall [*]; and (ii) with respect to any issues related to [*], [*] shall have the final decision, provided that in no event
shall either Party be permitted to use its decision making authority under this Section 3.07 to supersede its diligence obligations
under this Agreement.
ARTICLE IV.
GENERAL PROVISIONS ON DEVELOPMENT AND COMMERCIALIZATION
Section 4.01 Record Keeping. Each Party shall maintain, or cause to be maintained, records of its activities under this
Agreement in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes related to the Product in
the Territory, which shall
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
18
be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of its activities
hereunder, which shall record only such activities and shall not include or be commingled with records of activities outside the
scope of this Agreement, and which shall be retained by such Party for at least [*] after the termination of this Agreement, or for
such longer period as may be required by Applicable Laws. Each Party shall have the right, during normal business hours and upon
reasonable prior notice to the other Party, to inspect and copy any such records of such other party.
Section 4.02 Development Plan. Fosun shall be responsible for providing to the JDC for approval a reasonably detailed
plan specifying the major Development activities, including clinical trials and regulatory submissions, planned for the Product in
the Territory with respect to each Indication for which it is seeking Regulatory Approval, and the timelines for achieving such
activities (the “Development Plan”). Fosun shall deliver an initial draft of the Development Plan to Revance for Revance’s review
within [*] of the Effective Date, Revance shall have the right to comment, such comments to be considered in good faith by Fosun,
prior to the submission of the Development Plan to the JDC for approval. Thereafter, from time to time, but at least every [*],
Fosun shall propose updates or amendments to the Development Plan in consultation with Revance to reflect changes in the plans,
including timelines for activities therein. Fosun shall submit the proposed updated or amended Development Plan to the JDC for
review and approval.
Section 4.03 Conduct of Certain Development Activities. Any clinical trial(s) and other Development studies that are
commenced in the Territory after the Effective Date to support Regulatory Approval of the Product in the Territory will be
conducted solely by Fosun at its sole expense; provided, however, Revance may sponsor or co-sponsor such clinical studies
pursuant to the Applicable Law of the Regulatory Health Authority of the Territory, in which case Revance shall use Commercially
Reasonable Efforts to cooperate with Fosun to conduct such clinical trials in the Territory. Fosun may support Revance’s global
development of Product by conducting certain Development activities in the Territory as reasonably requested by Revance. In the
event Revance wishes Fosun to recruit patients and participate in a Product-related clinical trial outside of the Territory as part of
Revance’s global development of the Product, Revance shall notify Fosun in writing and the Parties shall negotiate in good faith
with respect to Fosun’s recruitment of patients and participation in such clinical trial and the compensation to Fosun for such
activities. Any Fosun Development activities related to Revance’s global development of the Product may be included in the
Development Plan and approved by the JDC.
Section 4.04 Diligence Obligations.
(a) Fosun shall use Commercially Reasonable Efforts at its own cost and expense to carry out its activities under this
Agreement to Develop and Commercialize the Product in the Territory for Aesthetic Indications and Therapeutic indications. For
the avoidance of doubt, as of the Effective Date, Fosun shall act reasonably in preparing and conducting, and be reasonably
responsible for all Development, regulatory, and Commercialization costs required for commercial success of the Product in the
Territory, including but not limited to:
[*]
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
19
(b) Revance shall use Commercially Reasonable Efforts to carry out its activities under this Agreement to authorize Fosun
and to cooperate with Fosun to Develop and Commercialize the Product for commercial success in the Territory.
Section 4.05 Reports of Development Activities. Fosun shall prepare and provide reports on the Development activities
of the Product undertaken by it at each meeting of the JDC. The Development reports shall include a reasonably detailed summary
of all results, data and material inventions, if any, obtained from such Development activities. In addition, Fosun shall, at its own
expense, make appropriate scientific and regulatory personnel available to Revance, either by telephone or in person as the Parties
may mutually agree, as reasonably required to keep Revance informed of Development activities conducted by Fosun.
Section 4.06 Regulatory Matters.
(a) Fosun shall use Commercially Reasonable Efforts to obtain Regulatory Approval for the Product in the Territory for all
Indications specified in the Development Plan and approved by the JDC. The Product shall be registered through the Imported
Drug pathway of the NMPA, and Revance or its designated agent, as the marketing authorization holder in the United States, shall
be the marketing authorization or imported drug license holder of the Product in the Field in the Territory. Notwithstanding the
foregoing sentence, however, Revance shall not have any right to Develop and/or Commercialize the Product in the Field in the
Territory. In the event there is a change under Applicable Laws in the Territory that allow Fosun to be the marketing authorization
holder, upon Fosun’s request, the JDC shall decide whether it is appropriate and feasible to transfer marking authorization to Fosun,
and if so, Revance shall promptly transfer the marketing authorization holder to Fosun and shall not require Fosun to make
additional payment on such transfer of such holder. Fosun shall promptly reimburse Revance for any and all reasonable expenses
(internal and external) that Revance may incur in being and transferring to Fosun the marketing authorization or imported drug
license holder in the Territory.
(b) Fosun shall be solely responsible for preparing, translating, filing and submitting all Regulatory Documents related to
the Product with the Regulatory Health Authority in the Territory, including all applications for Regulatory Approval, at its own
cost. Revance shall own any and all applications for Regulatory Approvals, the Regulatory Approvals, and other regulatory filings
related to the Product which will be held in the name of Revance. Fosun shall also be solely responsible for providing, in the format
required by the applicable Regulatory Health Authorities, the data and information required to be submitted to such Regulatory
Health Authorities for Regulatory Approval of the Product in the Territory, including without limitation data from all clinical trials.
Revance shall transfer the original or provide a copy of the Regulatory Approvals and other necessary Regulatory Documents to
Fosun for Regulatory Approval in the Territory.
(c) Revance shall cooperate with Fosun regarding its regulatory activities and shall provide, upon reasonable request by
Fosun, all necessary data and other clinical development information Controlled by Revance for Fosun to obtain Regulatory
Approval of the Product in the Territory.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
20
(d) Upon request by Fosun, Revance shall share with Fosun a summary of publicly available information related to the
status of each IND application or Drug Approval Application covering the Product outside the Territory. During the Term, Fosun
shall report to Revance regarding the status of each pending or proposed BLA equivalent application or Drug Approval Application
covering a Product in the Territory.
(e) Fosun shall promptly notify Revance of any request for information by any Regulatory Health Authority, and Fosun
shall reasonably cooperate with Revance in providing such information. Fosun shall as soon as reasonably practicable furnish
Revance with English language copies of all substantive correspondence Fosun has had with any Regulatory Health Authority, and
contact reports concerning substantive conversations or substantive meetings with any Regulatory Health Authority, in each case
relating to any such BLA equivalent or Drug Approval Application.
(f) Fosun shall be responsible for, at its own cost, any and all translations, including the accuracy and fidelity thereof, of
documents to be provided, whether to the Regulatory Authority or to Revance, under Section 4.06.
Section 4.07 Adverse Event Reporting and Product Recall.
(a) Each Party agrees to provide the other Party with the necessary safety information required by Regulatory Health
Authorities to comply with Applicable Laws. Revance will hold the safety database for the Product and Fosun will provide safety
information as required by Applicable Laws, in a timely manner. As promptly as possible following the Effective Date, but no later
than six (6) months after the Effective Date or otherwise agreed by both Parties, the Parties will enter into a detailed
pharmacovigilance agreement (the “Pharmacovigilance Agreement”), governing, among other things, appropriate adverse event
reporting procedures and pharmacovigilance responsibilities of the Parties relating to Product and reflecting the provisions set forth
above in this Section 4.07(a).
(b) In the event that any government agency or authority issues or requests a recall or takes similar action in connection
with the Product, or in the event either Party determines that an event, incident or circumstance has occurred that may result in the
need for a recall or market withdrawal, the Party notified of or desiring such recall or market withdrawal shall promptly advise the
other Party thereof. Fosun shall be responsible for any costs associated with a Product recall that is caused by damage during
distribution, sales and marketing and related Commercialization activities in the Territory, while Revance shall be responsible for
any costs associated with a Product recall that is caused by damage during manufacturing.
Section 4.08 General Provisions Regarding Commercialization. Fosun will control and perform, itself or through its
Affiliates, or Sublicensees, the Commercialization of the Product throughout the Territory and, as a result, shall be obligated and
responsible for using Commercially Reasonable Efforts to carry out such Commercialization in accordance with the
Commercialization Plan (as defined below). Except to the extent otherwise described in this Agreement, Fosun will be solely
responsible for, and will bear all costs relating to, the Commercialization of the Products in the Territory.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
21
Section 4.09 Commercialization Plan. Fosun shall be responsible for providing to the JDC for approval a reasonably
detailed plan specifying the major Commercialization activities, including revenue targets and regional price strategy, planned for
the Product in the Territory with respect to each Indication for which it is seeking Regulatory Approval, and the timelines for
achieving such activities (the “Commercialization Plan”). Fosun shall deliver an initial draft of the Commercialization Plan to
Revance for Revance’s review no later than [*]. Revance shall have the right to comment where appropriate prior to the submission
of the Commercialization Plan to the JDC for approval. Thereafter, from time to time, but at least every [*], Fosun shall propose
updates or amendments to the Commercialization Plan in consultation with Revance to reflect changes in the plans, including those
in response to changes in the marketplace, relative commercial success of the Product, and other relevant factors that may influence
such plan and activities. Fosun shall submit the proposed updated or amended Commercialization Plan to the JDC for review and
approval.
Section 4.10 Reports of Commercialization Activities. For each Calendar Year following the first Regulatory Approval
of the Product in the Territory, Fosun shall provide to Revance annually within [*] after the end of such Calendar Year a written
report that summarizes the Commercialization activities performed by or on behalf of Fosun, its Affiliates and Sublicensees in the
Territory since the prior report by Fosun. Such report shall contain sufficient detail to enable Revance to assess Fosun’s compliance
with its Commercialization obligations in Section 4.08. Such reports shall be Confidential Information to Fosun pursuant to Article
VII. Fosun shall provide updates to any such reports at JDC meetings, as necessary.
Section 5.01 Supply.
ARTICLE V.
SUPPLY
(a) Revance shall supply Product to Fosun to allow Fosun to conduct its Development and Commercialization activities in
the Territory under this Agreement, as the Parties shall agree to in a separate supply agreement (“Supply Agreement”). Such
Supply Agreement shall be entered into between the Parties within six (6) months of the Effective Date. The Supply Agreement
shall provide specific terms and obligations concerning, among other things, forecasts, purchase orders, and supply of Product for
the Territory, in accordance with Sections 5.01(b)-(e) below. The Parties shall also enter into a separate Quality Assurance
Agreement (“Quality Agreement”) within six (6) months upon the Effective Date. Such Quality Agreement shall define the
manufacturing and supply quality responsibilities negotiated in good faith between the Parties.
(b) Development Supply. For supply of Product related to Fosun’s Development activities (including all clinical or
regulatory supplies necessary to obtain Regulatory Approval in the Territory), Revance shall supply the first [*] vials of Product for
each Indication (the strength of each vial to meet one treatment per protocol) free of cost to Fosun, such free supply intended to be
used by Fosun for all Development activities related to such indication, regardless of the number of clinical trials or other
Development activities performed by Fosun or necessary for Regulatory Approval of such Indication. Any supply for Development
purposes in excess of such [*] limit shall be supplied at the Transfer Price.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
22
(c) Commercial Supply. For supply of Product for Commercialization purposes, Revance shall supply such Product to
Fosun at the Transfer Price.
(d) The Supply Agreement shall specify, among other things: (i) a rolling forecast with binding periods (subject to
mutually agreed upon variances); (ii) a binding purchase order requirement with a sufficient lead time for Revance to incorporate
such orders under its then-current contract manufacturing orders with Third Party Manufacturers; and (iii) the Product to be
supplied FCA (Incoterms 2010).
(e) In the event Revance is unable to supply Fosun’s Product requirements pursuant to the Supply Agreement, the Parties
shall agree upon mechanisms for safety stock and/or penalties to be specified in the Supply Agreement.
Section 5.02 Restrictions on Manufacture and Supply. Notwithstanding anything to the contrary herein, Fosun shall not
(i) Manufacture or have Manufactured, itself or through an Affiliate or Sublicensee, nor authorize or license any Third Party to
Manufacture or have Manufactured the Product; (ii) supply any Product it receives from Revance or its designated Manufacturer
under this Agreement to any Third Party for any Third Party use, other than to Develop and Commercialize the Product in
compliance with this Agreement; or (iii) purchase any Product from any party other than Revance or its designated Manufacturer
pursuant to the Supply Agreement.
ARTICLE VI.
CONSIDERATION
Section 6.01 Upfront. As payment for the rights and licenses granted to Fosun by Revance under this Agreement, Fosun
shall pay to Revance a nonrefundable payment of thirty million U.S. dollars (USD $30 million) within thirty (30) Business Days
after the Effective Date. The upfront payment shall not be creditable against any other payments Fosun is obligated to make to
Revance under this Agreement.
Section 6.02 Milestone Payments.
(a) Fosun shall make the following one-time, nonrefundable milestone payments to Revance within [*] Business Days
following the first achievement of each of the following milestone events for a Product, subject to the limitations and additional
provisions set forth below in this Section 6.02:
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
23
Milestone Event for Product
Milestone Payment (USD)
1a. Acceptance of Submission of BLA by FDA for 1st Aesthetic Indication
1b. Approval of BLA by FDA for 1st Aesthetic Indication
1c. Approval of BLA by NMPA for 1st Aesthetic Indication
2a. Approval of BLA by FDA for 1st Therapeutic Indication*
2b. Approval of BLA by NMPA for 1st Therapeutic Indication
3a. Approval of BLA by FDA for 2nd Therapeutic Indication
3b. Approval of BLA by NMPA for 2nd Therapeutic Indication
4a. Approval of BLA by FDA for 3rd Therapeutic Indication
4b. Approval of BLA by NMPA for 3rd Therapeutic Indication
$[*]
$[*]
$[*]
$[*]
$[*]
$[*]
$[*]
$[*]
$[*]
* If the Therapeutic Indication approved by the FDA in Milestone Nos. 2-4 above is related to either of two preferred Therapeutic
Indications to be defined in the Development Plan (each of which a “Preferred Indication”), then the “a” of such milestone
payment shall be increased by USD $[*] and the “b” of such milestone payment shall be increased by USD $[*]. If either or both of
the Preferred Indication is not among the above three (3) approved Therapeutic Indications by the FDA, then USD $[*] shall be
paid within [*] Business Days upon the approval of BLA by NMPA for each Preferred Indication. However, [*] and [*] shall be the
Preferred Indication if [*] the Preferred Indication in the Development Plan.
(b) Each of the milestones set forth in Section 6.02(a) is eligible to be earned individually.
(c) No payments pursuant to Section 6.02(a) shall be creditable against any other payments Fosun is obligated to make to
Revance under this Agreement.
Section 6.03 Sales Related Milestones.
(a) Fosun shall make the following one-time, nonrefundable milestone payments to Revance within [*] Business Days
following the first achievement of each of the following milestones, subject to the limitations and additional provisions set forth
below in this Section 6.03.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
24
First time Calendar Year Net Sales (USD) in Territory exceed the
following amounts
Milestone Payment (USD)
[*]
[*]
[*]
[*]
[*]
$[*]
$[*]
$[*]
$[*]
$[*]
(b) Sales between Fosun, its Affiliates and Sublicensees shall not be subject to sales milestones hereunder. Sales
milestones shall be calculated on Fosun’s, its Affiliates’ and Sublicensees’ sales of the Products to a Third Party.
(c) In the event that more than one of the sales milestones set forth in Section 6.03(a) are achieved in the same Calendar
Year, the payment associated with each sales milestone achieved in such Calendar Year shall be due and payable by Fosun to
Revance within [*] Business Days following the end of such Calendar Year.
(d) No payments pursuant to Section 6.03(a) shall be creditable against any other payments Fosun is obligated to make to
Revance under this Agreement.
Section 6.04 Royalties.
(a) Subject to the provisions set forth below in Section 6.04(c) through Section 6.04(e), and Section 6.05, Fosun shall pay
to Revance a royalty on aggregate Annual Net Sales of the Product in the Territory made by Fosun, its Affiliates, or its
Sublicensees at the following rate:
Range of Annual Net Sales (USD)
Royalty Rate
On that portion less than $[*]
On that portion greater than or equal to $[*] but less than $[*]
On that portion greater than or equal to $[*] but less than $[*]
On that portion greater than or equal to $[*]
[*]%
[*]%
[*]%
[*]%
Each Royalty Rate set forth in the table above shall apply only to that portion of the Net Sales in the Territory during a
given Calendar Year that falls within the indicated range.
For illustration purposes only, if Net Sales resulting from the sale of a Product in the Territory during a Calendar Year total
$[*] USD, then the aggregate royalties payable with respect
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
25
thereto will be $[*] USD, calculated as follows: (i) $[*] multiplied by [*]% = $[*], plus (ii) $[*] multiplied by [*]% = $[*],
plus (iii) $[*] multiplied by [*]% = $[*].
(b) Sales between Fosun, its Affiliates and Sublicensees shall not be subject to royalties hereunder. Royalties shall be
calculated on Fosun’s, its Affiliates’ and Sublicensees’ sales of the Product to a Third Party.
(c) Royalty Term. The royalty payments payable under this Section 6.04 shall be payable on an aggregated Annual Net
Sales basis from the First Commercial Sale of Product in the Territory until the latest of: (i) the expiration of the last Valid Claim
(including any patent term adjustments or extensions) within the Revance Patents that covers the Product (including composition of
matter, method of use or making) in the Territory; (ii) the expiration of all Regulatory Exclusivity for the Product in the Territory;
(iii) the first commercial sale of a Biosimilar of the Product in the Territory; and (iv) [*] years after the First Commercial Sale of
the Product in the Territory (the “Royalty Term”).
(d) Patent Expiration Step-Down. The royalties that would otherwise be payable on Net Sales of the Product in the
Territory shall be reduced by [*] during any period in which there exists no Valid Claim of a Revance Patent that covers the Product
in the Territory.
(e) Biosimilar Step-Down. If a Product is generating Net Sales in the Territory during the applicable Royalty Term at a
time when one or more Biosimilar(s) with respect to the Product is being sold in the Territory, then the royalties that would
otherwise be payable on Net Sales of the Product in the Territory in such Calendar Quarter under Section 6.04(a) and, if applicable,
Sections 6.04(d) and (f), shall be reduced by the following percentage for so long as the Biosimilar is being sold in the Territory
during the Royalty Term: (i) [*] if [*]; (ii) [*] if [*]; or (iii) [*] if [*].
(f) Third Party Compensation. If (i) Fosun determines that it is necessary (x) to obtain a license from any Third Party in
order to avoid infringement of such Third Party’s Patent in the Territory, or (y) to make any payment of any kind in order to
maintain the right to sell the Product in the Territory, and (ii) Fosun is required to pay to Third Party a royalty, milestone payments,
or other monetary compensation in consideration for the grant of such license or maintenance of the right to Commercialization
(“Third Party Compensation”), then, provided that (i) [*], or (ii) [*], for the period during which Fosun owes royalties to
Revance hereunder, the royalties that would otherwise be payable on Net Sales of the Product in the Territory [*], shall be reduced
by an amount of [*] of all Third Party Compensation payable by or on behalf of Fosun to such Third Party during the same period.
(g) Royalty Floor. Notwithstanding the foregoing, during any Calendar Quarter in the Royalty Term for a Product in the
Territory, the operation of Sections 6.04(d), (e), and (f), individually or in combination shall not reduce the final royalty obligation
by more than [*] of the royalties that would otherwise by payable on Net Sales of the Product in the Territory under Section
6.04(a).
Section 6.05 Sales by Sublicensees. In the event Fosun grants sublicenses to one or more Sublicensees to sell Product to
the extent permitted hereunder, such sublicenses shall include without limitation an obligation for the Sublicensee to account for
and report its Net Sales of such Product
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
26
on the same basis as if such sales were Net Sales by Fosun, and Fosun shall pay royalties and sales milestones to Revance as if the
Net Sales of the Sublicensee were Net Sales of Fosun.
Section 6.06 Royalty Payments and Reports. The royalties payable under Section 6.04 shall be calculated quarterly as of
the last day of March, June, September and December respectively for the Calendar Quarter ending on that date. Fosun shall deliver
to Revance a report summarizing the Net Sales of Product during each Calendar Quarter following the First Commercial Sale of
Product in the Territory. A draft of such report shall be provided within [*] Business Days following the end of each Calendar
Quarter for which royalties are due from Fosun to allow Revance to estimate its royalty payments from Fosun. A final report,
certified under IFRS, shall be delivered within [*] Business Days following the end of each Calendar Quarter. Any royalties
payable to Revance or its designee under this Agreement shall be paid on the date that final report for the Calendar Quarter is
delivered to Revance under this Section 6.06.
Section 6.07 Taxes.
(a) The royalties, milestones and other amounts payable by Fosun to Revance pursuant to this Agreement (“Payments”)
shall not be reduced on account of Taxes unless required by Applicable Laws. To the extent any payments made by Fosun pursuant
to this Agreement become subject to withholding income Taxes under Applicable Laws, Fosun shall deduct and withhold the
amount of such Taxes for the account of Revance to the extent required by Applicable Laws; such amounts payable to Revance
shall be reduced by the amount of withholding income Taxes deducted and withheld; and Fosun shall pay the amounts of such
Taxes to the proper governmental authority in a timely manner and transmit to Revance an official tax certificate or other evidence
of such tax obligations together with proof of payment from the relevant governmental authority of all amounts deducted and
withheld sufficient to enable Revance to claim such payment of Taxes. Any such withholding income Taxes required under
Applicable Laws to be paid or withheld shall be an expense of, and borne solely by, Revance. Except as provided in this
Section 6.07(a), all taxes or duties in connection with payments made by Fosun for Indirect Taxes, including any value added or
similar tax or local tax or surcharge on value added taxes and any import duty or fees, shall be borne by Fosun. Notwithstanding the
foregoing, if Revance is entitled (whether under any applicable tax treaty or otherwise under Applicable Laws) to a reduction in the
rate of, or the elimination of, withholding income Tax, it may deliver to Fosun or the appropriate governmental authority (with the
assistance of Fosun to the extent that this is reasonably required and is expressly requested in writing) the prescribed forms
necessary to reduce the applicable rate of withholding or to relieve Fosun of its obligation to withhold Tax, and Fosun shall apply
the reduced rate of withholding, or dispense with withholding, as the case may be. Fosun agrees to take reasonable and lawful
efforts to minimize such withholding income Taxes that would otherwise be borne by Revance. Fosun shall cooperate with
Revance as reasonably requested in any claim for refund or application to any Tax Authority. If Fosun intends to withhold income
Tax from any Payment, Fosun shall inform Revance reasonably in advance of making such Payment to permit Revance an
opportunity to provide any forms or information or obtain any Tax Authority approval as may be available to reduce or eliminate
such withholding.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
27
(b) Tax Gross-up. Notwithstanding anything to the contrary herein, if (i) Fosun redomiciles or assigns its rights or
obligations under this Agreement, (ii) as a result of such redomiciliation or assignment, Fosun (or its assignee) is required by
Applicable Law to withhold taxes, or such redomiciliation or assignment results in the imposition of Indirect Taxes that were not
otherwise applicable, from or in respect of any amount payable under this Agreement, and (iii) such withholding taxes or Indirect
Taxes exceed the amount of withholding taxes or Indirect Taxes that would have been applicable but for such redomiciliation or
assignment, then any such amount payable to Revance pursuant to this Agreement shall be increased to take into account such
withholding taxes or Indirect Taxes as may be necessary so that, after making all required withholdings (including withholdings on
the additional amounts payable) and/or paying such Indirect Taxes, as the case may be, Revance receives an amount equal to the
sum it would have received had no such increased withholding been made and no such Indirect Taxes had been imposed. The
obligation to pay additional amounts pursuant to the preceding sentence shall not apply, however, to the extent such increased
withholding tax or Indirect Taxes would not have been imposed but for the assignment by Revance of its rights or obligations under
this Agreement or the redomiciliation of Revance outside of the United States, to the extent such assignment or redomiciliation
occurs after the redomiciliation or assignment by Fosun described in the first sentence of this Section 6.07(b). Solely for purposes
of this Section 6.07(b), a Party’s “domicile” shall include its jurisdiction of incorporation or tax residence and a “redomiciliation”
shall include a reincorporation or other action resulting in a change in tax residence of the applicable Party or its assignee.
(c) Notwithstanding anything to the contrary contained in this Section 6.07 or elsewhere in this Agreement, the following
shall apply with respect to Indirect Taxes. If any Indirect Taxes are chargeable in respect of any Payments, Fosun shall be
responsible for such Indirect Taxes and shall not reduce any Payments due Revance hereunder as a result of such Indirect Taxes.
Fosun shall pay such Indirect Taxes at the applicable rate in respect of any such Payments following the receipt, where applicable,
of an Indirect Taxes invoice issued by Revance in respect of those Payments, such Indirect Taxes to be payable on the due date of
the payment of the Payments to which such Indirect Taxes relate or at the time such Indirect Taxes are required to be collected by
Revance, in the case of payment of Indirect Taxes to Revance. The sum of the net amount received by Revance and the withholding
income Tax levied by China Tax Authority discussed in Section 6.07(a) above for each payment shall not be less than the amount
of the Upfront and Milestone Payments set forth in Section 6.01, 6.02 and 6.03. The Parties shall issue invoices for all goods and
services supplied under this Agreement consistent with Indirect Tax requirements, and to the extent any invoice is not initially
issued in an appropriate form, Fosun shall promptly inform Revance and shall cooperate with Revance to provide such information
or assistance as may be necessary to enable the issuance of such invoice consistent with Indirect Tax requirements.
Section 6.08 Payments or Reports by Affiliates. Any Payment required under any provision of this Agreement to be
made to Revance or any report required to be made by Fosun shall be made by an Affiliate of Fosun if such Affiliate is designated
by Fosun as the appropriate payer or reporting entity.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
28
Section 6.09 Mode of Payment. All payments set forth in this Article VI shall be remitted by wire transfer to the bank
account of Revance as designated in writing to Fosun.
Section 6.10 Payment Currency. All amounts payable and calculations under this Agreement shall be in United States
dollars. As applicable, Net Sales and any adjustments to payments under this Agreement shall be translated into United States
dollars at an exchange rate determined by using the 30-day trailing average of the daily middle exchange rate for the renminbi of
People’s Bank
at
http://www.safe.gov.cn/wps/portal/english/Home, as of the date of the applicable invoice.
of China)
government
of China
published
central
daily
bank
(the
the
as
of
Section 6.11 Imports. For the avoidance of doubt, the Parties acknowledge and agree that none of the milestones or
royalties payable under this Agreement are related to the license (or right) to import or any import of Products. Fosun shall be
responsible for any import clearance, including payment of any import duties and similar charges, in connection with the Product
transferred to Fosun under this Agreement. The Parties shall co-operate in accordance with Applicable Laws to ensure where
permissible that no import duties are paid on imported materials. Where import duties are payable, the Parties shall co-operate to
ensure that the Party responsible for shipping values the materials in accordance with Applicable Laws and minimizes where
permissible any such duties and any related import taxes that are not reclaimable from the relevant authorities.
Section 6.12 Discounted Sales. In the event that the Product is included as part of a package of products offered to
customers of Fosun, and discounts on packages including Product are offered independently in the Territory, Fosun shall not
discount the price of the Product sold as part of a package unreasonably compared to the discount Fosun offers on prices of the
other products included in such package.
ARTICLE VII.
CONFIDENTIALITY
Section 7.01 Confidentiality. The Parties agree that the Party receiving Confidential Information disclosed by or on
behalf of the other Party pursuant to this Agreement is entitled to disclose Confidential Information to its officers, directors,
employees, agents, Affiliates and Sublicensees and other Persons to which a sublicense is granted, only for the purpose of the
Agreement on a need-to-know basis, and shall cause the aforesaid persons to keep confidential and not publish or otherwise
disclose or use for any purpose other than to conduct its activities under this Agreement or otherwise as expressly authorized by
this Agreement any Confidential Information furnished to it by or on behalf of the other Party pursuant to this Agreement.
Section 7.02 Exceptions. Notwithstanding the foregoing, the obligations set forth in Section 7.01 shall not apply in
respect of Confidential Information to the extent that it can be established by the receiving Party that such Confidential
Information:
(a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by
or on behalf of the other Party;
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
29
(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving
Party;
(c) was independently developed without use of the disclosing Party’s information, as evidenced by contemporaneous
written records;
(d) became generally available to the public or otherwise part of the public domain after its disclosure to the receiving
Party and other than through any act or omission of the receiving Party in breach of this Agreement; or
(e) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no
obligation to the disclosing Party not to disclose such information to others.
Section 7.03 Receipt of Third Party Information. Neither Party shall not knowingly receive documents relating to the
Product under an obligation of confidentiality to Third Parties that requires the Party to withhold access to the other Party without
such Party’s written consent.
Section 7.04 Authorized Disclosure. The receiving Party may disclose Confidential Information of the disclosing Party to
a Third Party only upon reasonable advanced notice to the disclosing Party and only to the extent that such disclosure is:
(a) required by law, order, or regulation of a government agency or a court of competent jurisdiction, or by the rules of a
securities exchange, provided that the receiving Party required to make such disclosure shall, after providing reasonable advanced
notice to the disclosing Party before the disclosure, (i) give the disclosing Party an opportunity to comment on any such required
disclosure, (ii) if requested by the disclosing Party, use Commercially Reasonable Efforts to obtain protective orders or any
available limitations on or exemptions from such disclosure requirement where applicable and practicable;
(b) made to a patent office for the purposes of filing or enforcing a Patent as permitted in this Agreement, provided,
however, the receiving Party (i) receives written consent from the disclosing Party for such disclosure, and (ii) takes reasonable
measures to assure confidential treatment of such information, to the extent such protection is available;
(c) made by a Party or its Affiliates, or Sublicensees to the Regulatory Health Authority for the purposes of any filing,
application or request for Regulatory Approval for the Product as permitted in this Agreement;
(d) made to advisors, actual or potential Third Party partners, investors, licensees, sublicensees or acquirers of all or
substantially all of the assets to which this Agreement relates; provided, however, the receiving Party (i) receives written consent
from the disclosing Party for such disclosure, and (ii) takes reasonable measures to assure confidential treatment of such
information, to the extent such protection is available;
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
30
(e) made by Fosun or its Affiliates, or Sublicensees to Third Parties as may be necessary or useful in connection with the
Exploitation of the Product as contemplated by this Agreement, including subcontracting or sublicensing transactions in connection
therewith;
provided that with respect to disclosures as per subsection (b), (d) and (e) of the following sentence, the Party making such
disclosures shall ensure that each Third Party recipient is bound by obligations of confidentiality no less restrictive than those
contained in this Agreement and shall be liable to the other Party for any breach of such confidentiality obligations by the relevant
recipient.
Section 7.05 Survival. This Article VII (other than Section 7.03) shall survive for a period of [*] years following the
termination or expiration of the Agreement, provided however, that all Trade Secret information shall be safeguarded by the
receiving Party as required by this Agreement in perpetuity or for so long as such information remains a Trade Secret under
Applicable Law.
Section 7.06 Termination of Prior Agreements. This Agreement supersedes the Confidentiality Agreement between
Revance and Fosun dated as of [*], (the “CDA”). All Information and Materials exchanged between the Parties under the CDA
shall be deemed Confidential Information and shall be subject to the terms of this Article VII.
Section 7.07 Publications. Except as required by law, Fosun agrees that it shall not publish or publicly present any
scientific, technical, or academic information relating to the Product (a) without the opportunity for prior review by Revance and
(b) other than in compliance with this Section 7.07. For the avoidance of doubt, advertising information shall not be subject to this
Section 7.07. Fosun shall provide to Revance the opportunity to review any proposed publications or presentations (including
without limitation information to be presented verbally) that relate to the Product as early as reasonably practical, but at least [*]
days prior to their intended submission for publication or presentation, and Fosun agrees, upon written request from Revance
within the Review Period (as defined below), not to submit such abstract or manuscript for publication or to make such presentation
until Revance agrees, which agreement shall not be unreasonably withheld. Revance shall have [*] days after its receipt of any such
publication or presentation (the “Review Period”) to notify Fosun in writing of any specific objections to the intended publication
or presentation. Fosun shall, in any such publication or presentation, delete from the proposed disclosure any Confidential
Information of Revance. Additionally, if Revance notifies Fosun within the Review Period that it objects to such disclosure on the
basis that a patent application claiming information contained in such disclosure should be filed prior to such disclosure, Fosun
agrees to reasonably delay disclosure of the relevant information, for up to [*] days after Revance’s timely notification of its
objection as per the above, or until such application has been filed, if earlier. Once any such abstract or manuscript is accepted for
publication, Fosun will provide Revance with a copy of the final version of the manuscript or abstract.
ARTICLE VIII.
OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
Section 8.01 Ownership. Except as expressly provided in this Agreement, Revance shall retain sole and exclusive Control
of the Revance Technology, including Revance Know-How, Revance Patents, and Revance Trademarks. Except as expressly
provided herein, no right, title, or
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
31
interest is granted by Revance to Fosun in, to, or under any Revance Technology, and, except as expressly provided herein, Fosun
shall have no right to assign to any Third Party any right or interest received under Revance Technology under the terms of this
Agreement. Fosun shall retain sole and exclusive Control of any Fosun Technology.
Section 8.02 Assignment of Product-related IPR. Fosun hereby assigns to Revance all of Fosun’s right, title, and
interest to and in any Product-related IPR that it or its Affiliates or Sublicensees may acquire throughout the Term of this
Agreement. Fosun shall be responsible for ensuring its employees, Affiliates, and Sublicensees are obligated to assign such rights
and execute appropriate documents consistent with Fosun’s obligations under this Section 8.02. Upon request, Fosun shall
reasonably cooperate with Revance, including executing appropriate documentation, regarding: (i) the perfection of Revance’s
ownership rights in the Product-related IPR; (ii) the prosecution of any patent or trademark applications; and (iii) the enforcement
or defense of any action related to the Product-related IPR. For the avoidance of doubt, Fosun’s assignment of Product-related IPR
to Revance under this Section 8.02 shall automatically convert such Product-related IPR into Revance Technology that is licensed
to Fosun under Section 2.01.
Section 8.03 Prosecution and Maintenance of Patent Rights.
(a) Revance shall be primarily responsible for and control the preparation, filing, prosecution, and maintenance of the
Revance Patents in the Territory. Revance shall, at its own cost, file, prosecute, and maintain all Revance Patents in the Territory
after taking into account Fosun’s reasonable interests and requests after reasonable consultation with Fosun. Revance shall provide
Fosun with advance copies of, and a reasonable opportunity to comment upon, proposed patent filings, related prosecution
strategies and proposed correspondence with patent officials, all to the extent in the Territory and relating to any Revance Patents,
and will consider comments received from Fosun with respect to such proposed filings, strategies and correspondence in the
Territory in good faith and will not unreasonably reject such comments. Revance agrees to discuss in good faith any changes
reasonably requested by Fosun to such filings, strategies and correspondence in the Territory upon their being received. As relevant
to the activities and interests of Fosun under this Agreement, Revance shall promptly inform Fosun in writing of any change in the
status of the Revance Patents in the Territory.
(b) Each Party agrees to bring to the attention of the other Party any Third Party Patent it discovers, or has discovered, and
which relates to the subject matter of this Agreement.
Section 8.04 Enforcement Rights.
(a) Infringement by Third Parties in the Territory. Revance shall have the initial right, but not the obligation, at its
expense and in its own name or in the name of any of its Affiliates, to initiate, maintain, and control any legal action on account of
any infringement within the Territory of any Revance Patent or Revance Trademark by a Third Party, by counsel of its own choice.
Revance shall promptly notify Fosun in writing its intention to initiate legal action against a Third Party for such infringement
within the Territory. If Revance exercises its first right, Fosun will, at Revance’s expense, provide Revance cooperation as
reasonably necessary, including being named as a party. With respect to actions, proceedings or settlements in the Territory, Fosun
shall have the right, in
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
32
Fosun’s sole discretion and at Fosun’s expense, to join or otherwise participate in such legal action in the Territory with legal
counsel selected by Fosun. If Revance does not exercise its first right, Fosun will thereafter have the right, but not the obligation, at
its expense and in its own name or in the name of any of its Affiliates, to initiate, maintain, and control such legal action on
Revance’s behalf by counsel of its choice. In the event that Fosun initiates and thereafter maintains such legal action against a Third
Party for infringement of a Revance Patent or Revance Trademark in the, Revance, at Fosun’s expense, will provide Fosun
cooperation as reasonably necessary, including agreeing to be named as a party to such legal action.
(b) The Party first having Knowledge that any Revance Patent or Revance Trademark claiming or covering inventions that
are necessary or useful to Exploit the Product in the Territory is infringed, or misappropriated by a Third Party, or suspected of
being infringed or misappropriated by a Third Party in the Territory shall promptly notify the other Party thereof in writing. Such
notice shall set forth the facts of that infringement, misappropriation, or suspected infringement or misappropriation in reasonable
detail.
(c) Third Party Infringement Claims Against Product in the Territory. If a Third Party asserts that a Patent or other
right owned or controlled by it is infringed by the Development or Commercialization of the Product in the Territory, Revance shall
have the initial right, but not the obligation, at its expense and in its own name or in the name of any of its Affiliates, to defend,
control and settle such legal action with counsel of its own choice, provided that any such settlement shall require Fosun’s written
consent. Revance shall notify Fosun in writing within ten (10) calendar days after receiving notice of such legal action. If Revance
exercises its first right, Fosun shall, upon Revance’s reasonable request, provide Revance cooperation as reasonably necessary;
provided Revance shall reimburse for reasonable costs and expenses directly related to such cooperation. If Revance does not
exercise its first right, Fosun will thereafter have the right, but not the obligation, at its expense and in its own name or in the name
of any of its Affiliates, to defend and control such legal action on Revance’s behalf, at its own expense and with counsel of its
choice; provided that any settlement shall require Revance’s written consent.
(d) Allocation of Expenses and Recoveries. Except as otherwise agreed by the Parties in writing, the Party controlling
the legal action under Section 8.04 shall be solely responsible for any expenses incurred by such party as a result of such action. If
the Parties are recovered monetary damages in such action, such amounts shall be allocated first to the reimbursement of any
expenses incurred by the Parties in such action, and any remaining amounts shall be shared as follows: [*]. If such recovery is
insufficient to reimburse the expenses of the Parties, then each Party shall receive a pro rata portion of the recovery based on [*]. If
Fosun exercises its right, in its sole discretion and at its own expense, to join or otherwise participate in such legal action in the
Territory with legal counsel selected by Fosun, any remaining amounts (after fully reimbursing the expenses of the Parties) shall be
shared [*].
(e) Settlement of Third Party Claims for Infringement in the Territory; Payment of Third Party Royalties. If a
Third Party asserts that a Patent or other right owned or controlled by it is infringed by the Development or Commercialization or
other Exploitation of the Product in the Territory, and as a result of settlement procedures or litigation under Section 8.04 (c), Fosun
is
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
33
required to pay the Third Party a royalty or make any payment of any kind for the right to sell the Product in the Territory, such
expense shall be borne solely by Fosun provided that Fosun may deduct certain Third Party Compensation from its royalty or
payment obligations to Revance in accordance with Section 6.04(f).
(f) Oppositions by Parties. If either Party desires to bring an opposition, action for declaratory judgment, nullity action,
interference, reexamination, or other attack upon the validity, title, or enforceability of any Patents Controlled by a Third Party in
the Territory that claim the use or sale or other Exploitation of the Product, such Party shall so notify the other Party in writing, and
the Parties shall promptly confer to discuss whether to bring such action or the manner in which to settle such action; provided, if
the Parties cannot reach agreement on whether to bring such action within thirty (30) days of such written notice, then such issue
shall be subject to the dispute resolution procedures of Article XIII. The Party not bringing an action under this Section 8.04(f)
shall be entitled to separate representation in such proceeding by counsel of its own choice and at its own expense, and shall
otherwise cooperate fully with the Party bringing such action at the other Party’s expense.
(g) Oppositions by Third Parties. If any Revance Patent in the Territory becomes the subject of any proceeding
commenced by a Third Party in connection with an opposition, reexamination request, action for declaratory judgment, nullity
action, third party observation interference, or other attack upon the validity, title, or enforceability thereof in the Territory, then the
Party having the right to prosecute such Patent at such time pursuant to Section 8.03 shall control such defense, at its sole cost. The
prosecuting Party shall permit the non-prosecuting Party to participate in the proceeding to the extent permissible under law, and to
be represented by its own counsel in such proceeding, at the non‑prosecuting Party’s expense. The non-prosecuting Party shall
reasonably cooperate with the prosecuting Party in such proceeding. If either Party decides that it does not wish to defend against
such action, then the other Party shall have a backup right to assume defense of such Third Party action at its own expense. Any
recoveries obtained in such action shall be shared, as set forth in Section 8.04(d).
(h) Protective Order. If, in any action brought pursuant to this Section 8.04 any information is the subject of a protective
order that may be reviewed by counsel only, the Parties will endeavor to structure such protective order so as to enable their
respective internal counsel to be included as permitted reviewers of such information.
ARTICLE IX.
REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 9.01 Representations, Warranties, and Covenants.
(a) Each of the Parties hereby represents and warrants to the other Party that:
(i) this Agreement is a legal and valid obligation binding upon such Party and enforceable in accordance with its
terms. The execution, delivery, and performance of the Agreement by such Party does not conflict with any company bylaw,
agreement, instrument, or understanding, oral or written, to which it is a Party or by which it is bound, nor violate
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
34
any law or regulation of any court, Governmental Body, or administrative or other agency having jurisdiction over it;
(ii) such Party has not, and during the Term will not, grant any right to any Third Party relating to its respective
Patents and Know-How which would conflict with the rights granted to the other Party hereunder; and
(iii) such Party will at all times and in all material respects comply with all Applicable Laws relating to its
activities under this Agreement.
(iv) such Party shall implement appropriate processes and controls with respect to technology and work flow
methodologies in connection with its activities under or in connection with this Agreement so as to protect the security and
privacy of personally identifiable information in accordance with Applicable Laws.
(b) Revance represents, warrants and covenants as of the Effective Date (or as of such other/additional time as may be
explicitly specified below) to Fosun that:
(i) Revance is the sole and exclusive owner, or exclusive licensee, of the entire right, title and interest in the
Revance Patents existing as of the Effective Date and during the Term. Revance has all rights necessary to grant the licenses
under the Revance Technology existing as of the Effective Date and during the Term that it grants to Fosun in this
Agreement. The Revance Patents are not subject to any encumbrance, lien or claim of ownership by any Third Party. To
Revance’s Knowledge, the Revance Technology had not infringed and will not infringe any Intellectual Property Rights of
any Third Party in the Territory.
(ii) To Revance’s Knowledge, all applicable fees due to patent authorities with respect to the filing and prosecution
of the Revance Patents existing as of the Effective Date have been paid on or before the due date for payment (as such due
date may be extended in accordance with Applicable Law or patent authority rules and regulations) and will be paid in time
during the Term.
(iii) As of the Effective Date, to Revance’s Knowledge, there is no actual or threatened infringement or
misappropriation of the Revance Technology by any Person.
(iv) Revance has not been debarred by the FDA, is not subject to any similar sanction of other Regulatory Health
Authorities in the Territory, and is not subject to any such debarment or similar sanction by any such Regulatory Health
Authority, and Revance has not used, and will not engage, in any capacity, in connection with this Agreement, any Person
who either has been debarred by such a Regulatory Health Authority, or is the subject of a conviction described in
Section 306 of the FFDCA (21 U.S.C. §335a). Revance shall inform Fosun in writing immediately if it or any Person
engaged by Revance who is performing services under this Agreement is debarred or is the subject of a conviction
described in Section 306 of the FFDCA (21 U.S.C. §335a) or if any action, suit, claim, investigation or legal or
administrative proceeding is pending or, to Revance’s Knowledge,
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
35
is threatened, relating to the debarment or conviction of Revance or any such Person performing services hereunder.
(c) Fosun represents, warrants and covenants as of the Effective Date (or as of such other/additional time as may be
explicitly specified below) to Revance that:
(i) Fosun has not been debarred by the FDA (and is not subject to any similar sanction of other Regulatory Health
Authorities in the Territory), and is not subject to any such debarment or similar sanction by any such Regulatory Health
Authority, and Fosun has not used, and will not engage, in any capacity, in connection with this Agreement, any Person who
either has been debarred by such a Regulatory Health Authority, or is the subject of a conviction described in Section 306 of
the FFDCA (21 U.S.C. §335a). Fosun shall inform Revance in writing immediately if it or any Person engaged by Fosun
who is performing services under this Agreement is debarred or is the subject of a conviction described in Section 306 of
the FFDCA (21 U.S.C. §335a), or if any action, suit, claim, investigation or legal or administrative proceeding is pending
or, to Fosun’s Knowledge, is threatened, relating to the debarment or conviction of Fosun or any such Person performing
services hereunder.
(ii) To the extent permissible under Applicable Laws, each employee and contractor of Fosun performing
obligations under this Agreement shall, prior to conducting any such obligations hereunder, be obligated by Applicable
Law, or written contract to (i) promptly disclose to Fosun of all inventions and Know-How conceived or reduced to practice
by such employee or contractor during any performance under this Agreement, (ii) automatically assign to Fosun all right,
title and interest in and to all such inventions and Know-How and all Intellectual Property Rights therein, including all
Product-related Inventions and Product-related Data, and (iii) adhere to similar obligations of confidentiality as are set forth
in this Agreement. Fosun shall not knowingly engage in any activities that use the inventions covered or claimed in the
Revance Patents, or any Revance Know-How a manner that is outside the scope of the license rights expressly granted to it
hereunder.
(d) Each of the Parties hereby covenants to the other Party that:
(i) Revance shall perform, or cause its Affiliates or other licensees or sublicensee to perform, its obligations and
responsibilities under this Agreement in compliance with this Agreement, all Applicable Laws, applicable FDA (or foreign
equivalent) requirements, including, without limitation, then-current GLP and GCP.
(ii) Fosun shall perform, or cause its Affiliates or Sublicensee to perform, its obligations and responsibilities under
this Agreement in compliance with this Agreement, all Applicable Laws, applicable NMPA (or foreign equivalent)
requirements, including, without limitation, then-current GLP and GCP.
Section 9.02 No Debarment. In the course of the Development of the Product in the Territory in accordance with this
Agreement and during the term of this Agreement, neither Party will use, any employee or consultant that is debarred by any
Regulatory Health Authority or, to the
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
36
best of such Party’s Knowledge, is the subject of debarment proceedings by any Regulatory Health Authority. If either Party learns
that its employee or consultant performing on behalf under this Agreement has been debarred by any Regulatory Health Authority,
or has become the subject of debarment proceedings by any Regulatory Health Authority, such Party shall so promptly notify the
other Party and shall prohibit such employee or consultant from performing on its behalf under this Agreement. The foregoing shall
be without prejudice to the warranties stipulated in Section 9.01(b)(iv).
Section 9.03 Privacy, Anti-Bribery, and Anti-Corruption Compliance.
(a) Compliance with Privacy Laws. Each Party shall implement appropriate processes and controls with respect to
technology and work flow methodologies in connection with its activities under or in connection with this Agreement so as to
protect the security and privacy of personally identifiable information in accordance with Applicable Law.
(b) Compliance With Applicable Anti-Corruption Laws. Each party understands and agrees that it has complied and will
continue to comply with all applicable Anti-Corruption Laws in connection with this Agreement.
(i) Each Party represents and warrants that no payments of money or anything of value have been or will be
offered, promised, or paid, whether directly or indirectly, by any of its directors, officers, employees, Affiliates, or third
party representatives to any Government Official in connection with this Agreement: (a) to influence any official act or
decision of any Government Official; (b) to induce any Government Official to do or omit to do any act in violation of
lawful duty; (c) to secure any improper business advantage; or (d) to obtain or retain business for, or otherwise direct
business to, any Party in connection with this Agreement.
(ii) Each Party warrants and represents that, in connection with this Agreement, such Party, its directors, officers,
employees, and third party representatives: (a) have not and will not request, accept, offer, promise, or give any bribe,
kickback, or other corrupt payment to any person, including any representative of any commercial entity, in violation of any
applicable Anti-Corruption Law; and (b) have not and will not request, offer, promise, or give any financial or other
advantage to induce another person to perform a function or activity in order to obtain or retain an improper business
advantage in any way relating to this Agreement.
(iii) Each Party warrants and represents that (a) it does not have any interest which directly or indirectly conflicts
with its proper and ethical performance of the Agreement, and (b) it shall maintain arms-length relations with all Third
Parties with which it deals for or on behalf of the other party in performance of the Agreement.
(c) Notification Of Investigations Into Potential Non-Compliance With Applicable Anti-Corruption Laws. Each Party
warrants and represents that it will promptly inform the other party if such party, or any of its directors, officers, employees,
Affiliates, third party representatives, or Sublicensees becomes subject to any investigation relating to any actual or potential
violation of
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
37
any applicable Anti-Corruption Law in connection with this Agreement, including any meeting, interview, inspection, or audit
requested by any Governmental Body.
(d) Cooperation With Due Diligence And Investigations. Each Party will provide reasonable cooperation in connection
with any good faith investigation conducted by the other party into potential violations of applicable Anti-Corruption Laws in
connection with this Agreement.
(e) Compliance Program. Each Party will adopt, implement, and/or update and, throughout the course of this Agreement,
have, maintain, and enforce an appropriate and risk‑based anti-corruption compliance program designed to reasonably ensure
compliance with the representations contained in this Section 9.03 of the Agreement and all applicable Anti-Corruption
Compliance Laws.
(f) Periodic Compliance Certifications. On an annual basis following the execution of this Agreement, or as reasonably
requested in good faith by the other Party, each Party agrees to submit a compliance certificate to the other Party which restates the
representations and warranties that are set forth in this Section 9.03 and provides certification by such Party that it has adhered,
during the period covered by the compliance certificate, to the representations and warranties.
ARTICLE X.
RECORD RETENTION, AUDIT AND USE OF NAME
Section 10.01 Records Retention; Audit.
(a) Each Party shall keep or cause to be kept accurate records of account in accordance with PRC GAAP, in the case of
Fosun, and in accordance with U.S. GAAP, in the case of Revance, showing information that is necessary for the accurate
determination of the Cost of Goods, the royalties and other payments due under Article VI, or any other payment due hereunder.
Such records or books of account shall be kept until the [*] anniversary of December 31 of the Calendar Year in which the Product
is relevant Product is sold (in the case of royalty or other payments due under Section 6.04) or in the period for which any other
payment hereunder is required to be made. For clarity, Fosun shall cause its Affiliates to keep, and shall require pursuant to a
written agreement that any Sublicensee or subcontractor performing activities hereunder keep accurate records or books of account
in a manner that will permit such Party to comply with its obligations under the foregoing sentence.
(b) Upon the written request of the other Party, each Party shall permit a qualified accounting firm acceptable to both
Parties to inspect during regular business hours and no more than once a year and once in any given Calendar Year, and going back
no more than [*] years preceding the current Calendar Year, all or any part of the audited Party’s records and books necessary to
check the accuracy of any Cost of Goods calculated or payments made or required to be made hereunder. The accounting firm shall
enter into appropriate obligations with the audited Party to treat all information it receives during its inspection in confidence. The
accounting firm shall disclose to Revance and Fosun only whether Cost of Goods calculated or the payments made are correct and
details concerning any discrepancies, but no other information shall be disclosed to the Party requesting the inspection. The charges
of the accounting firm shall be paid by the Party
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
38
requesting the inspection, except that if the Cost of Goods being audited have been overcalculated, or the payments being audited
have been underpaid or the costs being reimbursed have been overstated, in each case by more than [*], the charges will be paid by
the Party whose records and books are being inspected. Any failure by a Party to exercise its rights under this Section 10.01 with
respect to a Calendar Year within the [*] year period allotted therefor shall constitute a waiver by such Party of its right to later
object to any payments made by the other Party under this Agreement during such Calendar Year.
Section 10.02 Publicity Review. Subject to the further provisions of this Section 10.02, no Party shall originate any
written publicity, news release, or other announcement relating to this Agreement or to performance hereunder or the existence of
an arrangement between the Parties (collectively, “Written Disclosure”), without the prior prompt review of a copy of the
materials proposed to be disclosed and written approval of the other Party. This Section 10.02, shall not prohibit the disclosure
under Section 7.04(a). Notwithstanding the foregoing provisions of this Section 10.02, each Party may make any public Written
Disclosure it believes in good faith based upon the advice of counsel is required under the Securities Laws of the United States,
Hong Kong SAR or P. R. China, or any listing or trading agreement concerning its publicly traded securities, or under any
applicable securities laws, or any rule or order of stock exchange; provided that, prior to making such Written Disclosure, Revance
or Fosun shall where reasonably practicable provide the other Party with a copy of the materials proposed to be disclosed and an
opportunity to promptly review and comment on the proposed Written Disclosure. To the extent that Fosun reasonably requests that
any information in the materials proposed to be disclosed be deleted, Revance shall use reasonable efforts to request confidential
treatment of such information pursuant to Rule 406 of the Securities Act of 1933 or Rule 24b-2 of the Securities Exchange Act of
1934, as applicable (or any other applicable regulation relating to the confidential treatment of information) so that any information
that Fosun reasonably requests to be deleted, to the extent permitted by the applicable government agency, are omitted from such
materials. Notwithstanding the foregoing, each Party may issue an individual press release regarding the transaction contemplated
by this Agreement; and the contents of such press release may, in each Party’s discretion, be substantially similar to the press
release attached at Exhibit C hereto. For clarity, Revance shall have the right to issue press releases and other public
announcements regarding the Development or Commercialization of the Product outside of the Territory without the prior review
or written approval of Fosun.
Section 10.03 Use of Names. Neither Party shall use the name, insignia, symbol, trademark, trade name or logotype of the
other Party or its Affiliates in relation to this transaction or otherwise in any public announcement, press release, or other public
document without the prior written consent of such other Party; provided, however, that either Party may use the name of the other
Party in any document required to be filed with any government authority, including without limitation the FDA and the Securities
and Exchange Commission, or foreign equivalent bodies, or otherwise as may be required by Applicable Law, provided that such
disclosure shall be governed by Section 7.04. Further, the restrictions imposed on each Party under this Section 10.03 are not
intended, and shall not be construed, to prohibit a Party from identifying the other Party in its internal business communications,
provided that any Confidential Information in such communications remains subject to Article VII.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
39
ARTICLE XI.
TERM AND TERMINATION
Section 11.01 Term. The term of this Agreement shall commence as of the Effective Date and, unless sooner terminated
as provided herein, shall continue in effect until the date on which all of Fosun’s payment obligations under Article VI have been
performed or have expired (the “Term”).
Section 11.02 Termination Rights.
(a) Termination for Cause. Subject to the provisions of this Section 11.02, if either Party (the “Breaching Party”) shall
have committed a material breach of any of its material obligations under this Agreement, and such material breach shall remain
uncured and shall be continuing for a period of [*] days following the Breaching Party’s receipt of notice of such breach from the
other Party (the “Non-Breaching Party”) stating the Non-Breaching Party’s intent to terminate this Agreement in its entirety
pursuant to this Section 11.02(a) if such breach remains uncured, then, in addition to any and all other rights and remedies that may
be available, the Non-Breaching Party shall have the right to terminate this Agreement effective upon the expiration of such [*] day
period (subject, however, to the provisions set forth below in this Section 11.02(a)). Notwithstanding the above, if (i) such material
breach cannot reasonably be cured within such [*] day period, (ii) the Breaching Party provides, within such [*] day period, the
Non-Breaching Party with a written detailed plan that contains measures that can be reasonably expected to cure such breach in a
time frame reasonably acceptable to both Parties, which shall not extend beyond [*] from the date the plan is presented to the Non-
Breaching Party, and (iii) the Breaching Party commences to perform such measures in accordance with such plan, and (iv) the
Breaching Party thereafter diligently continues to perform such measures as detailed in such plan, then the Non-Breaching Party
shall not be entitled to terminate this Agreement (and any notice of termination issued pursuant to the foregoing sentence shall not
become effective) unless and until the earlier of (x) the Breaching Party ceases to diligently perform such measures despite then not
having cured the breach, or (y) the Breaching Party fails to cure the breach in the time frame agreed to by the Non-Breaching Party
in the plan, which shall not exceed [*] from the date the plan is presented to the Non-Breaching Party.
(b) Termination for Challenge of Licensed Patents. Prior to its expiration, Revance may terminate this Agreement in its
entirety by written notice to Fosun if (i) Fosun or its Affiliates challenges the validity, scope or enforceability of or otherwise
opposes any Revance Patent or corresponding Patents inside or outside the Territory and (ii) Fosun does not cause such measures to
cease within [*] days after having received written notice thereof from Revance, requesting such measures to cease and stating
Revance’s intention to terminate this Agreement if such measures are not ceased within the prescribed time. If a Sublicensee of
Fosun challenges the validity, scope or enforceability of or otherwise opposes any Revance Patent or corresponding Patents under
which such Sublicensee is sublicensed or corresponding Patents inside or outside of the Territory, then Fosun shall, upon written
notice from Revance terminate such sublicense or cause the Sublicensee to cease such measures within [*] days. Fosun shall
include provisions in all agreements under which a Sublicensee obtains a sublicense under any Revance Patent providing that if the
Sublicensee
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
40
challenges the validity or enforceability of or otherwise opposes any such Patent under which the Sublicensee is sublicensed, Fosun
may terminate such sublicense.
(c) Termination for Insolvency. A Party may terminate this Agreement effective immediately upon written notice to the
other Party if at any time during the Term, the other Party (the “Debtor”) (i) becomes insolvent, (ii) has a case commenced by or
against it under the Bankruptcy Code, (iii) files for or is subject to the institution of bankruptcy, liquidation or receivership
proceedings, (iv) assigns all or a substantial portion of its assets for the benefit of creditors, (v) has a receiver or custodian
appointed for the Debtor’s business, or (vi) has a substantial part of its business being subject to attachment or similar process;
provided, however, that in the event of any involuntary case under the Bankruptcy Code, the first Party shall not be entitled to
terminate this Agreement pursuant to this subsection (d) if the case is dismissed within [*] days after the commencement thereof.
(d) Termination for Revance Change of Control. Pursuant to Section 2.07, the Revance, or its CoC Successor if
applicable, shall have the right to terminate this Agreement based on Revance CoC in accordance with the terms of Section 2.07.
(e) Termination for Convenience. Prior to its expiration, this Agreement may be terminated in its entirety at any time by
Fosun effective upon one hundred and twenty (120) days (or such longer period as Fosun may elect at its sole discretion) prior
written notice to Revance.
Section 11.03 Consequences of a Fosun Triggered Termination. In the event (a) Revance terminates this Agreement
pursuant to Section 11.02(a) for Fosun’s material breach; (b) Revance terminates this Agreement pursuant to Section 11.02(b) for
patent challenge by Fosun; (c) Revance terminates this Agreement pursuant to Section 11.02(c) for Fosun’s insolvency; or (d)
Fosun terminates this Agreement pursuant to Section 11.02(e) (a termination as per (a) through (d) being a “Fosun Triggered
Termination”), both Revance and Fosun shall, subject to Section 11.03(a), continue to be obligated during the termination notice
period (as applicable) to perform as far as reasonably practicable all of its obligations under this Agreement and any other
agreements concluded between the Parties in accordance with this Agreement. If a Fosun Triggered Termination occurs after the
first Regulatory Approval of the Product in the Territory, Fosun shall continue to use Commercially Reasonable Efforts to
Commercialize such Product in the Territory until the earlier of (i), if applicable, the expiration of the fifteen (15) day notice period,
in the event of a termination by Fosun pursuant to Section 11.02(d); (ii) receipt of Revance’s written notice that Fosun may cease
such Commercialization activities; or (iii), if applicable, the effective date of the termination notice issued pursuant to
Section 11.02(a), Section 11.02(b), or Section 11.02(c). In addition, as a result of a Fosun Triggered Termination the following shall
apply:
(a) All licenses and rights to the Revance Technology granted to Fosun hereunder shall terminate as of the effective date of
such termination, except to the extent and for so long as is necessary to permit Fosun to finish work-in-progress, sell any inventory
of Product that remains on hand as of the date of the termination and otherwise perform any responsibilities in connection with any
then ongoing clinical trial or other activity that cannot be terminated as of such date under Applicable Laws, including GCP, it
being agreed that all such activities and responsibilities shall be discontinued and ceased (unless otherwise agreed or required under
Applicable Laws by
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
41
transitioning such activities and responsibilities to Revance) as promptly as possible, subject to Applicable Laws, including GCP.
Fosun shall reasonably cooperate to transfer all responsibilities and activities related to its Development and Commercialization
activities to Revance in an orderly fashion so as to not disrupt current Development and Commercialization efforts in the Territory.
(b) Each Party shall return all data, files, records and other Materials in its possession or Control containing or comprising
the other Party’s Confidential Information to which such first Party does not retain rights hereunder (except one copy thereof,
which may be retained by the returning Party solely for legal archive purposes). For the avoidance of doubt, Fosun shall return all
Revance Know-How and Product-related IPR (assigned under Section 8.02), including but not limited to all clinical trial data and
records, regulatory submissions and correspondence, and marketing and sales information, all to the extent related to the Product.
(c) Fosun shall, where permitted under Applicable Laws, as promptly as reasonably practical transfer to Revance all INDs,
BLAs, Drug Approval Applications, Regulatory Approvals, and any other Product-related IPR with respect to the Product in the
Territory, and shall take such other actions and execute such other instruments, assignments, and documents as may be necessary to
affect the transfer of rights hereunder to Revance. Without limiting the generality of the foregoing, Fosun agrees to submit to the
NMPA and other Regulatory Authorities where reasonably appropriate and permitted under Applicable Laws in jurisdictions in
which any regulatory filings have been made with respect to the Product, within ten (10) Business Days after the effective date of
such termination, a letter (with copy to Revance) notifying the NMPA and such other Regulatory Authorities of the transfer of any
regulatory filings for the Product in such jurisdictions from Fosun to Revance. Additionally, Fosun will provide Revance with
copies of regulatory filings necessary to practice the rights granted to it under this Section 11.03(c).
(d) Fosun will assign (or cause its Affiliates to assign) to Revance, at Revance’s request, all of Fosun’s (or its Affiliates’)
rights and obligations under agreements with Third Parties with respect to (i) the conduct of clinical trials for the Product, including
Agreements with CROs, clinical sites and investigators that relate to clinical trials in support of Regulatory Approvals in the
Territory, and (ii) any other Third Party agreements involving the Development or Commercialization of the Product, unless in each
of (i) or (ii), such agreement is not permitted to be assigned pursuant to its terms or relates to products other than the Product, in
which case Fosun will cooperate with Revance in all reasonable respects to transfer as promptly as reasonably practical to Revance
the benefit of such contract in another mutually acceptable manner and upon Revance’s request facilitate discussions between
Revance and such Third Parties to assist Revance in entering into a direct agreement with such Third Parties.
(e) To the extent they are assignable and as requested by Revance, Fosun shall execute any documents necessary to
transfer to Revance rights under any Third Party licenses obtained by Fosun pursuant to and during the course of the term of this
Agreement for the purpose of Exploiting the Product, and Revance shall thereafter be responsible for all costs, expenses and
obligations associated with such Third Party licenses.
(f) Except where expressly provided for otherwise in this Agreement, termination of this Agreement shall not relieve the
Parties of any liability, including without limitation any
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
42
obligation to make payments hereunder, which accrued hereunder prior to the effective date of such termination, nor preclude any
Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this
Agreement, nor prejudice any Party’s right to obtain performance of any obligation. In the event of such termination, this
Section 11.03 shall survive in addition to others specified in this Agreement to survive in such event.
(g) Fosun shall be entitled, during a period of [*] days following the Fosun Triggered Termination, to finish any work-in-
progress, unless Revance requests the transfer thereof in accordance with the terms of Section 11.03, and to sell any inventory of
Product that remains on hand as of the date of the termination, so long as Fosun pays to Revance the royalties applicable to said
subsequent sales in accordance with the terms and conditions set forth in this Agreement; provided that if such termination is by
Revance pursuant to Section 11.02(a), that Fosun’s rights under this Section 11.03(g) shall be subject to Revance’s prior written
consent, which shall not be unreasonably withheld, delayed or conditioned.
(h) Notwithstanding anything else set forth in this Agreement, (i) Fosun shall not have any obligations to continue any
Development or Commercialization with respect to particular doses of the Product if Fosun has terminated this Agreement pursuant
to Section 11.02(e) with reference to any material safety concerns regarding such doses, as determined by the JDC; and (ii) should
Revance elect to pursue any Development or Commercialization of Product following any such termination by Fosun, Revance
shall - without prejudice to or limitation of any other or further obligations under this Agreement (including Section 12.01(b)) -
indemnify Fosun for any Third Party claims arising from Revance’s Development or Commercialization after the effective date of
such termination as set forth in Section 12.01(b).
Section 11.04 Consequences of Termination (or Right to Terminate) by Fosun for Revance’s breach or insolvency. If
Fosun is entitled to terminate this Agreement pursuant to Section 11.02(a) as a result of a material breach by Revance or
Section 11.02(c) for an insolvency or other transaction described therein affecting Revance. Fosun may elect to terminate this
Agreement subject to the provisions set forth in Section 11.04(a), or to continue the Agreement subject to the provisions set forth in
Section 11.04(b).
(a) If Fosun terminates the Agreement under Section 11.02(a) or under Section 11.02(c), the terms and obligations under
Section 11.03 shall apply as if such termination were a Fosun Triggered Termination, except that (i) notwithstanding anything set
forth to the contrary in Section 11.03, Revance shall [*] in connection with performing any of the activities [*], and (ii) [*] the
transfer or assignment of data, files, records, Materials and, if applicable, INDs, BLAs, Drug Approval Applications, Regulatory
Approvals, Product-related IPR and any other rights granted under the above provisions in Section 11.03, if this Agreement is
terminated pursuant to Section 11.02(a) or Section 11.02(c) [*], Revance shall [*] as if [*] or [*]; provided, however, that the
applicable [*] set forth in Section [*], subject to the remaining subsections included in Section [*], and the provisions of Section [*]
and Section [*]; provided that [*] shall not [*] in connection with its activities pursuant to this Agreement. The foregoing shall be
in addition and without prejudice to any other remedies that may be available to Fosun due to Revance’s breach, including any
money
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
43
damages that may be awarded to Fosun in connection with its termination pursuant to Section 11.02(a).
(b) If Fosun has the right to terminate this Agreement under Section 11.02(a) or Section 11.02(c), but elects to continue
this Agreement, this Agreement shall continue in full force and effect, except that if Fosun is entitled to terminate this Agreement
under Section 11.02(a) due to Revance breach (but not if Fosun’s right to terminate is based solely on Revance’s insolvency
pursuant to Section 11.02(c)), [*] Revance shall [*], or [*].
(c) Except where expressly provided for otherwise in this Agreement, termination of this Agreement by either Party shall
not relieve the Parties of any liability, including without limitation any obligation to make payments hereunder, which accrued
hereunder prior to the effective date of such termination, nor preclude any Party from pursuing all rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice any Party’s right to obtain performance
of any obligation. In the event of such termination, this Section 11.04 shall survive in addition to others specified in this Agreement
to survive in such event.
(d) Consequences of a Termination for Revance Change of Control. In the event this Agreement is terminated pursuant
to Section 2.07 and Section 11.02(d), the terms and obligations under Section 11.03 shall apply as if such termination were a Fosun
Triggered Termination, and shall become effective upon payment to Fosun of the full amount of economic compensation provided
in Section 2.07. Revance or its CoC Successor shall further fully compensate Fosun for any reasonable costs or expenses incurred
by itself or its Affiliates in connection with performing any of the activities contemplated by termination under Section 11.03 and
this Section 11.04(d).
Section 11.05 Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by a Party are, and shall
otherwise be deemed to be, for the purposes of Section 365(n) of the United States Bankruptcy Code, licenses of rights to
“intellectual property” as defined under Section 101 of the United States Bankruptcy Code or equivalent provisions of applicable
legislation in any other jurisdiction. The Parties agree that the Parties, as licensees of such rights under this Agreement, shall retain
and may fully exercise all of their rights and elections under the United States Bankruptcy Code, or equivalent provisions of
applicable legislation in any other jurisdiction. The Parties further agree that, in the event of the commencement of a bankruptcy
proceeding by or against either Party under the Unites States Bankruptcy Code or equivalent provisions of applicable legislation in
any other jurisdiction, the Party that is not a party to such proceeding shall be entitled to a complete duplicate of (or complete
access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, which, if not already in
the non-subject Party’s possession, shall be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding
upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of
its obligations under this Agreement, or (b) if not delivered under subsection (a) above, following the rejection of this Agreement
by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.
Section 11.06 Surviving Rights and Obligations. The rights and obligations set forth in this Agreement shall extend
beyond the expiration or termination of the Agreement only to the extent expressly provided for herein, or to the extent that the
survival of such rights or obligations
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
44
are necessary to permit their complete fulfillment or discharge. Without limiting the foregoing, the Parties have identified various
rights and obligations which are understood to survive, as follows: In the event of expiration or termination of this Agreement for
any reason, the following provisions shall survive in addition to others specified in this Agreement to survive in such event:
Article I, Article VI (outstanding payment obligations accrued), Article VII (with the exception of Section 7.03), Article X, Article
XI, Article XII (solely as to actions arising during the term of this Agreement, or as to activities conducted in the course of a Party’s
exercise of licenses surviving after the term of this Agreement), Article XIII and Article XIV, and Section 4.01.
Section 11.07 Accrued Rights. Termination, relinquishment, or expiration of the Agreement for any reason shall be
without prejudice to any rights that shall have accrued to the benefit of either Party prior to such termination, relinquishment, or
expiration, including without limitation damages arising from any breach hereunder. Such termination, relinquishment, or
expiration shall not relieve either Party from obligations that are expressly indicated to survive termination or expiration of the
Agreement.
Section 12.01 Indemnification.
ARTICLE XII.
INDEMNIFICATION
(a) Fosun hereby agrees to indemnify, defend, and hold harmless Revance, its Affiliates, and each of its and their
respective employees, officers, directors and agents from and against any and all Losses incurred by them resulting from or arising
out of or in connection with any suits, claims, actions or demands made or brought by a Sublicensee or other Third Party
(collectively, “Third Party Claims”) against Revance, its Affiliates or their respective employees, officers, directors or agents, that
result from or arise out of: (i) the importation, Development, or Commercialization of the Product in the Territory; (ii) any violation
of Applicable Law by Fosun, its Affiliates or Sublicensees in performing Fosun’s obligation under this Agreement; and (iii) any
material breach by Fosun, its Affiliates or Sublicensees of Fosun’s representations, warranties and/or obligations under this
Agreement; except in any case, to the extent such Losses are Losses for which Revance has an obligation to indemnify Fosun, its
Affiliates or their respective employees, officers, directors or agents pursuant to Section 12.01(b), as to which Losses each Party
shall indemnify the other to the extent of their respective liability for such Losses.
(b) Revance hereby agrees to indemnify, defend and hold harmless Fosun, its Affiliates, and each of its and their
respective employees, officers, directors and agents from and against any and all Losses incurred by them resulting from or arising
out of or in connection with any Third Party Claims against Fosun, its Affiliates or their respective employees, officers, directors or
agents, that result from or arise out of: (i) the Manufacture, Development or Commercialization of Product outside the Territory;
(ii) any violation of Applicable Law by Revance or its Affiliates in performing Revance’s obligations under this Agreement; and
(iii) any material breach by Revance or its Affiliates of Revance’s representations, warranties and/or obligations under this
Agreement; except in any case, to the extent such Losses are Losses for which Fosun has an obligation to indemnify Revance, its
Affiliates or their respective employees, officers, directors or agents pursuant to Section 12.01(a),
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
45
as to which Losses each Party shall indemnify the other to the extent of their respective liability for such Losses.
Section 12.02 Mechanism.
(a) In the event that a Party (the “Indemnified Party”) is seeking indemnification under Section 12.01(a) or
Section 12.01(b), it shall notify the other Party (the “Indemnifying Party”) in writing of the relevant Third Party Claim and the
relevant Loss for which indemnification is being sought as soon as reasonably practicable after it becomes aware of such claim.
Each such notice shall contain a description of the Third Party Claim and the nature and amount of the Loss claimed (to the extent
that the nature and amount of such Loss is known at such time). The Indemnified Party shall furnish promptly to the Indemnifying
Party copies of all papers and official documents received in respect of any such Third Party Claim or Losses. For the avoidance of
doubt, all indemnification claims in respect of a Party, its Affiliates, and each of its and their respective employees, officers,
directors and agents shall be made solely by such Party to this Agreement. The Indemnified Party shall permit the Indemnifying
Party to assume direction and control of the defense of the relevant Third Party Claim (including without limitation the right to
settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of the Indemnifying Party) in
the defense of the claim. The assumption of the defense of a Third Party Claim by the Indemnifying Party shall not be construed as
an acknowledgement that the Indemnifying Party is liable to indemnify any Indemnified Party in respect of the Third Party Claim,
nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnified Party’s claim for
indemnification.
(b) Notwithstanding Section 12.01, the failure to give timely notice to the Indemnifying Party shall not release the
Indemnifying Party from any liability to the Indemnified Party to the extent the Indemnifying Party is not prejudiced thereby and,
for the avoidance of doubt, the Indemnifying Party shall not be liable to the extent any Loss is caused by any delay by the
Indemnified Party in providing such notice. Notwithstanding the provisions of Section 12.02(a) requiring the Indemnified Party to
tender to the Indemnifying Party the exclusive ability to defend such claim, if the Indemnifying Party declines to or fails to timely
assume control of the relevant Third Party Claim, the Indemnified Party shall be entitled to assume such control, conduct the
defense of, and settle such claim, all at the sole costs and expense of the declining or failing Party; provided, however, that neither
Party shall settle or dispose of any such claim in any manner that would adversely affect the rights or interests or admit fault, of the
other Party without the prior written consent of such other Party, which shall not be unreasonably withheld, delayed or conditioned.
Each Party, at the other Party’s expense and reasonable request, shall cooperate with such other Party and its counsel in the course
of the defense or settlement of any such claim, such cooperation to include without limitation using reasonable efforts to provide or
make available documents, information, and witnesses.
Section 12.03 Mitigation of Loss. Each Indemnified Party shall take and shall ensure that its Affiliates take all such
reasonable steps and action as are reasonably necessary or as the Indemnifying Party may reasonably require in order to mitigate
any claims (or potential losses or
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
46
damages) under this Article XII. Nothing in this Agreement shall or shall be deemed to relieve any Party of any common law or
other duty to mitigate any losses incurred by it.
Section 12.04 Insurance. Both Parties shall use Commercially Reasonable Efforts, at their own discretion, to procure and
maintain insurance, including product liability insurance, with respect to its activities hereunder and which is consistent with
normal and customary in the pharmaceutical industry generally for Persons similarly situated, and shall upon request provide the
other Party with a copy of its policies of insurance in that regard, along with any amendments and revisions thereto. Each party
shall still be responsible for its liability at its own risk whether it does or doesn’t procure or maintain such insurance. Such
insurance shall not be construed to create a limit of both Party’s liability with respect to its indemnification obligations under this
Article XII.
ARTICLE XIII.
DISPUTE RESOLUTION
Section 13.01 Referral of Disputes to the Parties Senior Executives. Subject to Section 3.05, in the event of any dispute
between the Parties arising out of or in connection with this Agreement, either Party may, by written notice to the other, have such
dispute referred to the Senior Executives for attempted resolution by good faith negotiations within [*] days after such notice is
received.
Section 13.02 Mechanism.
(a) If (i) Revance at any time has a good faith belief that Fosun may be in material breach of its obligations [*], (ii)
Revance has notified Fosun of its belief in writing and the Parties are not in agreement as to whether or not such breach [*] exists,
and (iii) the Parties have not resolved the dispute through good faith negotiations pursuant to Section 13.01 within the prescribed
time, then Revance shall have the right (but not the obligation) to request, through written notice to Fosun (a “Mediation Notice”)
within [*] days after the expiry of the time period set forth in Section 13.01, that the Parties shall attempt in good faith to settle such
dispute by mediation administered by the [*] under its then-current [*] Mediation Rules, as such rules may be modified by this
Section 13.02(a) or otherwise by subsequent written agreement of the Parties. For clarity, Revance shall not be obligated to exercise
its right to initiate mediation pursuant to this Section 13.02(a) before initiating arbitration pursuant to Section 13.02(b), or before
notifying Fosun that it is exercising its right of termination under Section 11.02(a). If Revance elects to exercise its right to initiate
mediation within the prescribed time, then the following shall apply: If the Parties are unable to reach agreement on the selection of
the mediator within [*] Business Days after Fosun’s receipt of the Mediation Notice from Revance, then either or both Parties shall
immediately request the [*] to select a mediator with the requisite background, experience and expertise in the biopharmaceutical
industry to assist the Parties in resolving the dispute amicably. The place of mediation shall be [*], and all negotiations and
communications shall be in English. The Parties shall have the right to be represented by counsel during the mediation. Each Party
shall bear its own costs and expenses and attorneys’ fees, and the Parties shall share equally all costs of engaging such mediator and
using the [*] to mediate such matter. Any decisions or recommendations of the mediator shall be confidential and non-binding on
the Parties. If the Parties are unable to resolve the dispute through mediation pursuant to this Section 13.02(a) within a period of [*]
days following Fosun’s receipt of the Mediation
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
47
Notice from Revance, then Revance or Fosun shall thereafter have the right to refer the dispute to arbitration pursuant to
Section 13.02(b) or notify Fosun that it is exercising its right of termination under Section 11.02(a).
(b) Subject to Section 13.01 and Section 13.01(a), any dispute, controversy or claim arising out of or relating to this
Agreement, including the existence, negotiation, validity, formation, interpretation, breach, performance or application of this
Agreement shall be settled by binding arbitration administered by the [*] in accordance with its then-current [*] Arbitration Rules,
as such rules may be modified by this Section 13.02(b) or otherwise by subsequent written agreement of the Parties. The number of
arbitrators shall be three (3), of whom the Parties shall select one (1) each. The two arbitrators so selected will select the third and
final arbitrator. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the [*] shall select the
third arbitrator. The place of arbitration shall be [*], and all proceedings and communications shall be in English. The Parties shall
have the right to be represented by counsel. Any judgment or award rendered by the arbitrators shall be final and binding on the
Parties. The Parties agree that such judgment or award may be enforced in any court of competent jurisdiction. The cost of the
arbitration, including the fees of the arbitrators, shall be borne by the Party the arbitrators determine has not prevailed in the
arbitration.
Section 13.03 Preliminary Injunctions. Notwithstanding anything to the contrary, a Party may seek a temporary
restraining order or a preliminary injunction from any court of competent jurisdiction in order to prevent immediate and irreparable
injury, loss, or damage on a provisional basis, pending the decision of the arbitrator(s) on the ultimate merits of any dispute.
Section 13.04 Patent Disputes. Notwithstanding anything to the contrary, any and all issues regarding the scope,
inventorship, construction, validity, or enforceability of Patents shall be determined arbitration administered by the [*] Arbitration
under the local patent laws of the jurisdictions having issued the Patents in question.
Section 13.05 Confidentiality. All proceedings and decisions of a mediator or arbitrator(s) in connection with
proceedings pursuant to Section 13.02 shall be deemed Confidential Information of each of the Parties and shall be subject to
Article VII.
Section 14.01 Assignment; Performance by Affiliates.
ARTICLE XIV.
MISCELLANEOUS
(a) Neither Party may assign any of its rights or obligations under this Agreement in any country in whole or in part
without the prior written consent of the other Party, except that each Party shall have the right, without such consent, (i) to perform
any of its obligations and exercise any of its rights under this Agreement through, and to assign all of its rights and obligations
under this Agreement to, any of its Affiliates, provided that such performance or exercise by such Affiliate, or such assignment, as
applicable, could not reasonably be expected to subject the other Party to any adverse Tax consequences with regard to any
payments under this Agreement; and (ii) on written notice to the other party, to assign all of its rights and obligations under this
Agreement to a non-
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
48
Affiliate successor in interest, whether by Change of Control, merger, consolidation, reorganization, acquisition, stock purchase,
asset purchase or other similar transaction, to all or substantially all of the business to which this Agreement relates; however,
provided that both under (i) and (ii) the assignees shall have at least the same capability and capacity of such Party to perform any
obligations and exercise any rights under this Agreement. In the event that a Party performs its obligations or exercises its rights
under this Agreement through an Affiliate (without having assigned all of its rights and obligations to such Affiliate as permitted
under this Section 14.01), doing so shall not relieve the relevant Party of its responsibilities for the performance of its obligations
under this Agreement, and the relevant Party shall remain responsible for the performance by its Affiliates and shall cause its
Affiliates to comply with the provisions of this Agreement in connection with such performance).
(b) This Agreement shall survive any succession of interest permitted pursuant to Section 14.01(a)(ii), whether by Change
of Control, merger, consolidation, reorganization, acquisition, stock purchase, asset purchase or other similar transaction, provided,
that, in the event of such merger, consolidation, reorganization, acquisition, stock purchase, asset purchase or other similar
transaction, no Intellectual Property Rights of the acquiring corporation shall be included in the technology licensed hereunder,
unless such Intellectual Property Rights arise as a result of the performance of this Agreement by such corporation after such
transaction becomes effective.
(c) This Agreement shall be binding upon and inure to the benefit of the successors, and permitted assigns of the Parties.
Any assignment not in accordance with this Agreement shall be void.
Section 14.02 Force Majeure. In this Agreement, “Force Majeure” means an event which is beyond a non-performing
Party’s reasonable control, including an act of God, strike, lock-out or other industrial/labor disputes (whether involving the
workforce of the Party so prevented or of any other Person), war, riot, civil commotion, terrorist act, epidemic, quarantine, fire,
flood, storm, earthquake, natural disaster or compliance with any law or governmental order, rule, regulation or direction, whether
or not it is later held to be invalid. A Party that is prevented or delayed in its performance under this Agreement by an event of
Force Majeure (a “Force Majeure Party”) shall, as soon as reasonably practical but no later than ten (10) days after the occurrence
of a Force Majeure event, give notice in writing to the other Party specifying the nature and extent of the event of Force Majeure,
its anticipated duration and any action being taken to avoid or minimize its effect. Subject to providing such notice and to this
Section 14.02, the Force Majeure Party shall not be liable for delay in performance or for non‑performance of its obligations under
this Agreement, in whole or in part, except as otherwise provided in this Agreement, where non-performance or delay in
performance has resulted from an event of Force Majeure. The suspension of performance allowed hereunder shall be of no greater
scope and no longer duration than is reasonably required and the Force Majeure Party shall exert all reasonable efforts to avoid or
remedy such Force Majeure.
Section 14.03 Further Actions. Each Party agrees to execute, acknowledge, and deliver such further instruments, and to
do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
49
Section 14.04 Notices. All notices, requests, waivers and other communications made hereunder shall be in writing and
shall be deemed given (a) upon delivery, if delivered personally; (b) upon confirmation of receipt, if by electronic mail during
normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next Business Day, (c)
seven (7) Business Days after deposit in the mail as registered or certified mail (unless earlier return receipt requested), (d) three (3)
Business Days after deposit with postage prepaid, or sent by internationally recognized overnight delivery service that maintains
earlier records of delivery, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like
notice; provided, that notices of a change of address shall be effective only upon receipt thereof).
If to Revance, addressed to:
Revance Therapeutics, Inc.
7555 Gateway Boulevard
Newark, California 94560
Attention: Mukul Agarwal, VP Business Development
Email: magarwal@revance.com
With a copy to:
O’Melveny & Myers LLP
2765 Sand Hill Road
Menlo Park, California 94025
Attention: Portia Ku, Esq.
Email: pku@omm.com
If to Fosun, addressed to:
Strategic Product Development Center
Shanghai Fosun Pharmaceutical Industrial Development Co., Ltd.
Building A, 1289 Yishan Road
Minhang District, Shanghai 200233
P.R.China
Attention: Ning Yuan, General Manager
Email: yuann@fosunpharma.com
Section 14.05 Waiver. Except as specifically provided for herein, the waiver from time to time by either of the Parties of
any of their rights or their failure to exercise any remedy shall not operate or be construed as a waiver of any other of such Party’s
rights or remedies provided in this Agreement.
Section 14.06 Severability. If any term, covenant or condition of this Agreement or the application thereof to any Party or
circumstance shall, to any extent, be held to be invalid or unenforceable, then (a) the remainder of this Agreement, or the
application of such term, covenant, or condition to Parties or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term, covenant, or condition of this Agreement shall be valid and be enforced
to the fullest extent permitted by law, and (b) the Parties covenant
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
50
and agree to renegotiate any such term, covenant, or application thereof in good faith in order to provide a reasonably acceptable
alternative to the term, covenant, or condition of this Agreement or the application thereof that is invalid or unenforceable, it being
the intent of the Parties that the basic purposes of this Agreement are to be effectuated.
Section 14.07 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of New
York, USA, without giving effect to any conflict of law principle that would otherwise result in the application of the laws of any
State or jurisdiction other than the State of New York, USA.
Section 14.08 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
Section 14.09 Entire Agreement. This Agreement, including without limitation all exhibits attached hereto, sets forth all
the covenants, promises, agreements, warranties, representations, conditions, and understandings between the Parties and
supersedes and terminates all prior and contemporaneous agreements and understanding between the Parties, including without
limitation the agreements and amendments set forth in Section 7.06. There are no covenants, promises, agreements, warranties,
representations, conditions, or understandings, either oral or written, between the Parties other than as set forth in this Agreement.
No subsequent alteration, amendment, change, or addition to this Agreement shall be binding upon the Parties unless reduced to
writing and signed by the respective authorized officers of the Parties.
Section 14.10
Limitation of Liability. EXCEPT IN CIRCUMSTANCES OF GROSS NEGLIGENCE OR
INTENTIONAL MISCONDUCT BY A PARTY OR ITS AFFILIATES, OR WITH RESPECT TO THIRD PARTY CLAIMS
UNDER Section 12.01, IN NO EVENT SHALL EITHER PARTY OR ITS RESPECTIVE AFFILIATES AND SUBLICENSEES
BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT,
WARRANTY, TORT, STRICT LIABILITY, OR OTHERWISE, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS,
REVENUE, MILESTONES OR ROYALTIES. This Section 14.10 shall not limit either Party’s obligations under Article XII.
Section 14.11 No Partnership. It is expressly agreed that the relationship between Revance and Fosun shall not constitute
a partnership, joint venture, or agency. Neither Revance nor Fosun shall have the authority to make any statements, representations,
or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior consent of such
other Party to do so.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[SIGNATURE PAGE FOLLOWS]
51
[SIGNATURE PAGE]
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate by their respective duly
authorized officers or representatives.
Revance Therapeutics Inc.
By: /s L. Daniel Browne
Name: L. Daniel Browne
Title: President & Chief Executive Officer
Shanghai Fosun Pharmaceutical Industrial Development Co., Ltd.
By: /s/ Yifang Wu
Name: Yifang Wu
Title: President
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
52
EXHIBIT A
(Revance Patents)
Ref. No.
Country
[*]
Title
Patent
Application No.
Int’l
Filing Date
Patent No.
[*]
[*]
[*]
[*]
Expiration
Date
[*]
Status
[*]
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit A to License Agreement]
EXHIBIT B
(Fosun Affiliates)
[*]
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit B to License Agreement]
EXHIBIT C
(Draft Press Release Attached)
[Exhibit C to License Agreement]
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Revance Announces China Market License Agreement with Fosun Pharma for RT002
– Upfront payment of $30 million, plus potential milestone payment and tiered royalties on future sales –
NEWARK, Calif., December 4 - Revance Therapeutics, Inc. (NASDAQ:RVNC), a biotechnology company developing next- generation
neuromodulators for use in treating aesthetic and therapeutic conditions, today announced that the company has entered into a license
agreement with Shanghai Fosun Pharmaceutical Industrial Development Co., Ltd., (Fosun Pharma Industrial), a wholly-owned subsidiary of
Shanghai Fosun Pharmaceutical (Group) Co., Ltd (Fosun Pharma), providing Fosun Pharma Industrial with the exclusive rights to develop and
commercialize Revance’s proprietary DaxibotulinumtoxinA for Injection (RT002) in mainland China, Hong Kong and Macau (the Territory).
RT002 is a novel, long-lasting neuromodulator in development for the treatment of aesthetic conditions, including glabellar and upper facial
lines, and neuroscience conditions including cervical dystonia, plantar fasciitis, adult upper limb spasticity and chronic migraine.
Under the terms of the agreement, Revance will receive an upfront payment of $30 million within 30 business days of entering into the license
agreement and is eligible to receive additional potential development and sales milestone payments of up to $230.5 million, as well as tiered
low-double-digit to high-teen royalty payments on future net sales. Fosun Pharma Industrial will be responsible for conducting necessary
clinical studies, marketing and sales in the Territory, while Revance will be responsible for manufacturing drug substance and finished drug
product for both the clinical and commercial activities in the Territory. There will be no transfer of intellectual property.
"Fosun Pharma is one of the leading healthcare companies in China, with the expertise and access to reach both the aesthetics and
therapeutic markets. We see Fosun Pharma as an ideal partner to commercialize RT002 in the fast-growing Chinese market for
neuromodulators, " said Dan Browne, president and chief executive officer at Revance. Fosun Pharma already has a growing portfolio of
products in facial aesthetics where we plan to gain the first approval for RT002, backed by assets in a broad range of important therapeutics
indications. We look forward to working with the Fosun Pharma team on the clinical, regulatory and commercial pathways to introduce RT002
in this important, developing geography."
"We are pleased to partner with Revance to bring a truly next generation neuromodulator to China," said Yifang Wu, president and chief
executive officer of Fosun Pharma, the parent company of Fosun Pharma Industrial. "At Fosun Pharma, our values are based on the care for
life, innovation, excellence and sustained partnership. Revance shares those values. The safety profile, high response rates and long duration
of effect provides consumers and patients with an improved experience and gives us the confidence that RT002 will be a highly effective
neuromodulator treatment."
About RT002
DaxibotulinumtoxinA for Injection (RT002) is an investigational product and the first neuromodulator with long-acting duration. It is a novel,
next-generation neuromodulator in development for the treatment of aesthetic indications and a number of potential therapeutic conditions,
including movement disorders, pain and other neuroscience-based targets. RT002 is the only neuromodulator using a Revance proprietary
stabilizing excipient peptide technology in its formulation, which results in high efficacy, long duration and provides two-year product stability
requiring no refrigeration. RT002 is the first and only botulinum toxin product sourced, processed and manufactured in the US and formulated
without human blood- derived products or manufactured using animal-derived proteins.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit C to License Agreement]
Revance has four active clinical programs for RT002 injectable under way. The SAKURA 1, SAKURA 2 and SAKURA 3 trials to treat
glabellar lines are complete. For cervical dystonia, the company was granted orphan drug designation from the FDA and initiated a Phase 3
program in mid-2018. The company plans to announce first patient dosing for Phase 2 trials for RT002 for the management of plantar fasciitis
and for adult upper limb spasticity before year-end 2018.
About Shanghai Fosun Pharmaceutical (Group) Co., Ltd.
Established in 1994, Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (stock code: 600196.SH, 02196.HK) is a leading healthcare group in
the People’s Republic of China. Adhering to the mission of improving human health, Fosun Pharma’s business covers all key sectors of
healthcare industry chain, including pharmaceutical manufacturing and R&D, healthcare services, medical devices and medical diagnosis, as
well as pharmaceutical distribution and retail. Fosun Pharma always regards innovation as the driving force for its business growth. The
company continuously optimized its pharmaceutical R&D system that integrates biosimilars and innovative drugs and has established
international R&D teams in China, the United States, India, etc., forming a globally interactive R&D system. Fosun Pharma maintains a
national recognized enterprise technology center and establishes innovative chemical drugs platform, biologics platform, high-value generic
drugs platform and cell-therapy platform. At present, Fosun Pharma maintains the leading position with its core products in various therapeutic
areas, including oncology, cardiovascular system, central nervous system, blood system, metabolism and alimentary system and anti-
infection. All products occupy the leading position in each market segment.
About Revance Therapeutics, Inc.
Revance Therapeutics is an emerging Silicon Valley biotechnology leader developing neuromodulators for the treatment of aesthetic and
therapeutic conditions. Revance uses a unique proprietary, stabilizing excipient peptide technology to create novel, differentiated therapies.
The company’s lead compound, DaxibotulinumtoxinA for Injection (RT002), is in clinical development for a broad range of aesthetic and
therapeutic indications, including glabellar lines, cervical dystonia, plantar fasciitis, upper limb spasticity and chronic migraine. RT002 has the
potential to be the first long-acting neuromodulator. The company is advancing a robust pipeline of injectable and topical formulations of
daxibotulinumtoxinA. More information on Revance may be found at www.revance.com.
“Revance Therapeutics” and the Revance logo are registered trademarks of Revance Therapeutics, Inc.
Forward-Looking Statements
This press release contains forward-looking statements, including statements related to the anticipated receipt of payments and potential
receipt of development and sales milestones, as well as royalties on potential future sales of RT002 under the license with Fosun Pharma; the
timing and conduct of regulatory, developmental and commercial activities to be conducted under the license with Fosun Pharma; the process
and timing of, and ability to complete, current and anticipated future clinical development of our investigational drug product candidates, the
initiation, design, timing and results of our clinical studies, and related results and reporting of such results, including the SAKURA 3 study of
RT002; statements about our business strategy, timeline and other goals and market for our anticipated products, plans and prospects;
including our pre- commercialization plans for RT002 to treat glabellar (frown) lines; and statements about our ability to obtain regulatory
approval with respect to our drug; and potential benefits of our drug product candidates and our excipient peptide and other technologies.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations.
These risks and uncertainties include, but are not limited to: the fact that we may not receive any milestone, royalty or other payments from
Fosun Pharma, our dependence on Fosun Pharma to timely and successfully develop and commercialize RT002 in the China market, that we
may not obtain the anticipated financial and other benefits of the license
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit C to License Agreement]
agreement with Fosun Pharma; the outcome, cost, and timing of our product development activities and clinical trials; the uncertain clinical
development process, including the risk that clinical trials may not have an effective design or generate
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit C to License Agreement]
positive results; our ability to obtain and maintain regulatory approval of our drug product candidates; our ability to obtain funding for our
operations; our plans to research, develop, and commercialize our drug product candidates; unanticipated costs or delays in research,
development, and commercialization efforts; the size and growth potential of the markets for our drug product candidates; our ability to
successfully commercialize our drug product candidates and the timing of commercialization activities; our ability to develop sales and
marketing capabilities; the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for financing; our
ability to continue obtaining and maintaining intellectual property protection for our drug product candidates; and other risks. Detailed
information regarding factors that may cause actual results to differ materially from the results expressed or implied by statements in this press
release may be found in Revance’s periodic filings with the Securities and Exchange Commission (the "SEC"), including factors described in
the section entitled "Risk Factors" of our quarterly report on Form 10-Q filed November 2, 2018. These forward-looking statements speak only
as of the date hereof. Revance disclaims any obligation to update these forward-looking statements.
###
Contacts for Revance
INVESTORS
Revance Therapeutics, Inc.:
Jeanie Herbert (714) 325-3584
jherbert@revance.com
or
Burns McClellan, Inc.:
Ami Bavishi (212) 213-0006
abavishi@burnsmc.com
or
MEDIA
General Media:
TOGORUN:
Mariann Caprino (917) 242-1087
m.caprino@togorun.com
or
Trade Media: Nadine Tosk (504) 453-8344
nadinepr@gmail.com
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit C to License Agreement]
Contact for Fosun Pharma
Anjiang Liu (646) 490-9833
liuanj@fosunpharma.com
Source: Revance Therapeutics, Inc.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit C to License Agreement]
EXHIBIT D
(List of JDC Members)
Revance Initial List of JDC Members:
• Chief Operating Officer or SVP Clinical Development
• VP Business Development/Alliance Management
• General Counsel
Fosun Initial List of JDC Members:
• Chief Medical Officer
• Vice General Manager Business Development Department
• Head of Regulatory Affairs
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit D to License Agreement]
The Cost of Goods for a vial of Product supplied for Commercialization purposes [*], subject to [*], provided that [*].
EXHIBIT E
(Cost of Goods Condition)
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
[Exhibit E to License Agreement]
REVANCE THERAPEUTICS, INC.
LIST OF SUBSIDIARIES
1. Revance Therapeutics LTD, a wholly owned subsidiary incorporated in England and Wales.
2. Revance International Limited, a wholly owned subsidiary incorporated in the Cayman Islands.
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Forms S‑8 (Nos. 333-223433, 333-216342, 333-209949, 333-208543,
333-203235, 333-198499, and 333-193963) and the Registration Statements on Forms S-3 (Nos. 333-210001, 333-207469 and 333-221911) of Revance
Therapeutics Inc. of our report dated February 28, 2019 relating to the financial statements and the effectiveness of internal control over financial reporting,
which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
February 28, 2019
CERTIFICATIONS
Exhibit 31.1
I, L. Daniel Browne, certify that:
1. I have reviewed this annual report on Form 10-K of Revance Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: February 28, 2019
/s/ L. Daniel Browne
L. Daniel Browne
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS
Exhibit 31.2
I, Tobin C. Schilke, certify that:
1. I have reviewed this annual report on Form 10-K of Revance Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: February 28, 2019
/s/ Tobin C. Schilke
Tobin C. Schilke
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), L. Daniel Browne, President and Chief Executive Officer of Revance Therapeutics, Inc.
(the “Company”), hereby certifies that, to the best of his knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the period ended December 31, 2018 (the “Annual Report”), to which this Certification is attached
as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
In Witness Whereof, the undersigned has set his hand hereto as of the 28th day of February, 2019.
/s/ L. Daniel Browne
L. Daniel Browne
President and Chief Executive Officer
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Revance Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.”
CERTIFICATION
Exhibit 32.2
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Tobin C. Schilke, Chief Financial Officer of Revance Therapeutics, Inc. (the
“Company”), hereby certifies that, to the best of his knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the period ended December 31, 2018 (the “Annual Report”), to which this Certification is attached
as Exhibit 32.2, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
In Witness Whereof, the undersigned has set his hand hereto as of the 28th day of February, 2019.
/s/ Tobin C. Schilke
Tobin C. Schilke
Chief Financial Officer
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Revance Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.”