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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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 Number 001-36306
 
Eagle Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
 
2834
 
20-8179278
(State or Other Jurisdiction of
Incorporation or Organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
50 Tice Boulevard, Suite 315
Woodcliff Lake, NJ 07677
(201) 326-5300
(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
 
Trading symbol
 
Name of each exchange on which registered
Common stock, $0.001 par value per share
 
EGRX
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer
Smaller reporting company
Emerging growth company 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
The number of shares outstanding of the registrant’s common stock as of May 4, 2020: 13,685,118 shares.



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Quarterly Report, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,”, “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “project,” “continue,” “potential,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:

our expectations regarding the impact of the ongoing coronavirus 2019, or COVID-19, pandemic including the expected duration of disruption and immediate and long-term delays, disruption in the sales of our marketed products, interruptions or other adverse effects to clinical trials, delays in regulatory review, manufacturing and supply chain interruptions, adverse effects on healthcare systems and disruption of the global economy, and the overall impact of the COVID-19 pandemic on our business, financial condition and results of operations;
the potential benefits and commercial potential of BENDEKA, RYANODEX® and BELRAPZO for approved indications and any expanded uses;
the commercial potential of additional indications for our products;
sales of our products in various markets worldwide, pricing for our products, level of insurance coverage and reimbursement for our products, timing regarding development and regulatory approvals for our products or for additional indications or in additional territories;    
future expansion of our commercial organization and transition to third-parties in certain jurisdictions to perform sales, marketing and distribution functions;
the initiation, timing, progress and results of our preclinical and clinical studies, and our research and development program;
our ability to obtain and maintain regulatory approval of our products and product candidates, and any related restrictions, limitations, and/or warnings in the label of an approved product;
our ability to obtain funding for our operations and to expand business and sales;
our plans to research, develop and commercialize our products and product candidates and our ability to successfully commercialize our products and product candidates;
our ability to attract collaborators with development, regulatory and commercialization expertise;
the size and growth potential of the markets for our products and product candidates, and our ability to serve those markets;
the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals and doctor offices serving as locations for administration of our products, including BENDEKA, and hospital staff supporting the conduct of such administration;
the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing COVID-19 pandemic;
the rate and degree of market acceptance of our products and product candidates;
our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;
the performance of our strategic collaborators and success of our current strategic collaborations;
regulatory developments in the United States and foreign countries;
the performance of our third-party suppliers and manufacturers;
the success of competing drugs that are or become available;
the retention of key scientific or management personnel;
the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
our ability to prevent or minimize the effects of Paragraph IV patent litigation; and    
future costs, operating expenses and capital requirements.


Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no



obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.


NOTE REGARDING COMPANY REFERENCES

References to the "Company," "Eagle Pharmaceuticals," "Eagle," "we," "us" or "our" mean Eagle Pharmaceuticals, Inc., a Delaware corporation and its its subsidiaries, references to "Eagle Biologics" mean Eagle Biologics, Inc. and references to “Eagle Research Lab” means Eagle Research Lab Limited.


NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or TM symbols.









TABLE OF CONTENTS
 
 
 
 
 
Page
Part I - Financial Information
 
 
 
Item 1.
Condensed Consolidated Financial Statements (unaudited)
 
 
Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019
 
Condensed Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 2020 and 2019
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019
 
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.
Item 3.
Item 4.
 
 
 
Part II - Other Information
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 





EAGLE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)


 
 
 
 
 
March 31, 2020
 
December 31, 2019
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
202,016

 
$
109,775

Accounts receivable, net
54,491

 
48,004

Inventories
8,434

 
6,566

Prepaid expenses and other current assets
10,631

 
15,104

Total current assets
275,572

 
179,449

Property and equipment, net
2,423

 
2,202

Intangible assets, net
14,917

 
15,583

Goodwill
39,743

 
39,743

Deferred tax asset, net
13,759

 
13,669

Other assets
15,530

 
3,908

Total assets
$
361,944

 
$
254,554

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
9,756

 
$
5,462

Accrued expenses and other liabilities
20,123

 
28,361

Current portion of long-term debt
116,000

 
5,000

Total current liabilities
145,879

 
38,823

Other long-term liabilities
3,454

 
3,000

Long-term debt, less current portion
30,781

 
33,557

Total liabilities
180,114

 
75,380

Commitments and Contingencies


 


Stockholders' equity:
 
 
 
Preferred stock, 1,500,000 shares authorized and no shares issued or outstanding as of March 31, 2020 and December 31, 2019

 

Common stock, $0.001 par value; 50,000,000 shares authorized; 16,597,814 and 16,537,846 shares issued as of March 31, 2020 and December 31, 2019, respectively
17

 
17

Additional paid in capital
285,044

 
278,518

Retained earnings
69,629

 
72,500

Treasury stock, at cost, 2,933,320 and 2,907,687 shares as of March 31, 2020 and December 31, 2019, respectively
(172,860
)
 
(171,861
)
Total stockholders' equity
181,830

 
179,174

Total liabilities and stockholders' equity
$
361,944

 
$
254,554

See accompanying notes to unaudited condensed consolidated financial statements.

1


EAGLE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)


 
Three Months Ended 
 March 31,

 
2020
 
2019

 




Revenue:




Product sales
$
17,694


$
14,472


Royalty revenue
28,326


26,313


License and other revenue


9,000


Total revenue
46,020


49,785


Operating expenses:




Cost of product sales
4,765


9,554


Cost of royalty revenue
3,038

 
3,546

 
Research and development
9,427


6,375


Selling, general and administrative
24,755


18,141


Total operating expenses
41,985


37,616


Income from operations
4,035


12,169


Interest income
346


494


Interest expense
(889
)

(686
)

Other expense
(6,500
)
 

 
Total other expense, net
(7,043
)

(192
)

(Loss) Income before income tax benefit (provision)
(3,008
)

11,977


Income tax benefit (provision)
137


(3,004
)

Net (Loss) Income
$
(2,871
)

$
8,973


(Loss) Earnings per share attributable to common stockholders:






Basic
$
(0.21
)

$
0.64


Diluted
$
(0.21
)

$
0.62


Weighted average number of common shares outstanding:






Basic
13,667,606


13,925,227


Diluted
13,667,606


14,418,211


See accompanying notes to unaudited condensed consolidated financial statements.


2


EAGLE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands)

 
Common Stock
 
Additional
Paid-In Capital
 
Treasury Stock
 
Retained Earnings
 
Total
Stockholders'
Equity
 
Number of
Shares
 
Amount
 
 
 
 
Balance at December 31, 2019
16,538

 
$
17

 
$
278,518

 
$
(171,861
)
 
$
72,500

 
$
179,174

Stock-based compensation expense

 

 
7,472

 

 

 
7,472

Issuance of common stock upon exercise of stock option grants
16

 

 
330

 

 

 
330

Payment of employee withholding tax upon vesting of stock-based awards

 

 
(1,276
)
 

 

 
(1,276
)
Issuance of common stock related to vesting of restricted stock units
44

 

 

 

 

 

Common stock repurchases

 

 

 
(999
)
 

 
(999
)
Net loss

 

 

 

 
(2,871
)
 
(2,871
)
Balance at March 31, 2020
16,598

 
$
17

 
$
285,044

 
$
(172,860
)
 
$
69,629

 
$
181,830



 
Common Stock
 
Additional
Paid-In Capital
 
Treasury Stock
 
Retained Earnings
 
Total
Stockholders'
Equity
 
Number of
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
16,504

 
$
17

 
$
256,458

 
$
(153,900
)
 
$
58,187

 
$
160,762

Stock-based compensation expense

 

 
5,782

 

 

 
5,782

Issuance of common stock upon exercise of stock option grants
7

 

 
42

 

 

 
42

Payment of employee withholding tax for net option exercise
 
 
 
 
(198
)
 

 

 
(198
)
Issuance of common stock related to vesting of restricted stock units
9

 

 

 

 

 

Net income

 

 

 

 
8,973

 
8,973

Balance at March 31, 2019
16,520

 
$
17

 
$
262,084

 
$
(153,900
)
 
$
67,160

 
$
175,361



See accompanying notes to unaudited condensed consolidated financial statements.

3


EAGLE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(2,871
)
 
$
8,973

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Deferred income taxes
(90
)
 
(287
)
Depreciation expense
472

 
503

Amortization expense
666

 
630

Fair value adjustments on equity investment
6,500

 

Stock-based compensation expense
7,472

 
5,782

Amortization of debt issuance costs
65

 
94

Changes in operating assets and liabilities which provided (used) cash:
 
 
 

Accounts receivable
(6,487
)
 
2,556

Inventories
(1,868
)
 
(1,961
)
Prepaid expenses and other current assets
4,473

 
4,368

Accounts payable
4,294

 
6,869

Accrued expenses and other liabilities
(8,238
)
 
(1,083
)
Other assets and other long-term liabilities, net
(1,230
)
 
(263
)
Net cash provided by operating activities
3,158

 
26,181

Cash flows from investing activities:
 
 
 
Purchase of equity investment security
(17,500
)
 

Purchase of property and equipment
(472
)
 
(177
)
Net cash used in investing activities
(17,972
)
 
(177
)
Cash flows from financing activities:
 
 
 
Proceeds from common stock option exercises
330

 
42

Employee withholding taxes related to stock-based awards
(1,276
)
 
(198
)
Proceeds from existing revolving credit facility
110,000

 

Payment of debt
(1,000
)
 
(2,500
)
Repurchases of common stock
(999
)
 

Net cash provided by (used in) financing activities
107,055

 
(2,656
)
Net increase in cash and cash equivalents
92,241

 
23,348

Cash and cash equivalents at beginning of period
109,775

 
78,791

Cash and cash equivalents at end of period
$
202,016

 
$
102,139

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 

 
 

Income taxes, net
$
24

 
$
(6,490
)
Interest
576

 
625

Right-of-use asset obtained in exchange for lease obligation - lease amendment
842

 
2,871

See accompanying notes to unaudited condensed consolidated financial statements.

4


EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share and per share amounts)

1. Interim Condensed Consolidated Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting quarterly information. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The condensed consolidated balance sheet at December 31, 2019 was derived from audited financial statements, but certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the financial information for the interim periods reported have been made. Results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results for the year ending December 31, 2020 or any period thereafter. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 2, 2020.
2. Organization and Business Activities
We are an integrated pharmaceutical company focused on finding ways to help medicines do more for patients. Eagle and our collaborators have the capabilities to take a molecule from preclinical research through regulatory approval and into the marketplace, including development, manufacturing and commercialization. Our business model applies our scientific expertise, proprietary research-based insights and marketplace proficiency to identify challenging-to-treat diseases of the central nervous system or metabolic critical care therapeutic areas as well as in oncology. By focusing on patients' unmet needs, Eagle strives to provide healthcare professionals with urgently needed treatment solutions that are designed to improve patient care and outcomes and create near- and long-term value for our stakeholders, including patients and healthcare providers and our employees, marketing partners, collaborators and investors.
Our science-based business model has a proven track record with U.S. Food and Drug Administration ("FDA") approval and commercial launches of three products: RYANODEX® (dantrolene sodium) ("RYANODEX"), bendamustine ready-to-dilute ("RTD") 500ml solution ("BELRAPZO"), and rapidly infused bendamustine RTD ("BENDEKA"). We market our products through marketing partners and/or our internal direct sales force. Eagle markets RYANODEX and BELRAPZO, and Teva Pharmaceutical Industries Ltd. ("Teva") markets BENDEKA through its subsidiary Cephalon, Inc. Reflecting further expansion of our oncology portfolio, in February 2020, we received final FDA approval for PEMFEXY®, our novel pemetrexed product ("PEMFEXY"), a branded alternative to ALIMTA® for metastatic nonsquamous nonsmall cell lung cancer and malignant pleural mesothelioma. We expect to launch PEMFEXY in early 2022.
With 11 pipeline projects underway and the potential for up to five or more product launches over the next several years, we believe we have growth opportunities ahead. We believe that each of our pipeline projects currently has the potential to enter the market as a first-in-class, first-to-file or best-in-class product. In particular, we are applying our expertise to conduct novel research regarding the potential for RYANODEX to address conditions including exertional heat stroke, Alzheimer's disease, traumatic brain injury/concussion, nerve agent exposure and acute radiation syndrome. In addition, our clinical development program includes a strategic partnership with Tyme Technologies (“Tyme”) for SM-88, a product candidate for the treatment of patients with pancreatic or other advanced cancers, as well as investigations of compounds such as EA-114, our fulvestrant product candidate, for patients with hormone receptor ("HR")-positive advanced breast cancer. Other products in development include Vasopressin, our first-to-file Abbreviated New Drug Application ("ANDA") that references Endo International plc's Vasostrict® indicated to increase blood pressure in adults with vasodilatory shock who remain hypotensive despite fluids and catecholamines; and EA-111, a new chemical entity and next-generation ryanodine receptor antagonist, in an intramuscular formulation that that would allow for easier and more rapid administration in emergency situations (military and civilian).


3. Summary of Significant Accounting Policies
Significant Accounting Policies
The Company’s significant accounting policies are described in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and the notes thereto filed with the SEC on March

5



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



2, 2020. Since the date of those consolidated financial statements, there have been no material changes to the Company’s significant accounting policies other than as listed below.
Significant Risks and Uncertainties
With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, the Company has taken active measures designed to address and mitigate the impact of the COVID-19 pandemic on its business, such as facilitating management’s daily communication to address employee and business concerns and frequent provision of updates to the Company’s Board of Directors (“Board”). The Company anticipates that the COVID-19 pandemic may have an impact on the clinical development timelines for certain of its clinical programs, such as EA-114, in addition to the clinical programs of its collaborators, such as Tyme’s clinical development of SM-88. The Company also anticipates that the COVID-19 pandemic may have an impact on the Company’s supply chain and sales for certain of its products, including BENDEKA. The extent to which the COVID-19 pandemic impacts the Company’s business, its clinical development and regulatory efforts, its supply chain and sales efforts, its corporate development objectives and the value of, and market for, its common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with research and development operations, including, without limitation, risks and uncertainties associated with: delays or problems in obtaining clinical supply; obtaining regulatory approval of its product candidates; loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing its intellectual property rights; and the challenges of complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
Use of Estimates
These financial statements are presented in U.S. dollars and are prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements including disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period and accompanying notes. The Company’s critical accounting policies are those that are both most important to the Company’s financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company anticipates that the COVID-19 pandemic may disrupt the Company’s supply chain and marketing and sales efforts for certain of its products, including BENDEKA, although the Company does not expect such disruption to be significant. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results may materially vary from these estimates, and any such differences may be material to the Company’s financial statements.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with the current year presentation. None of the reclassifications were significant.

6



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash and cash equivalents are held in United States financial institutions. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature.
The Company, at times, maintains balances with financial institutions in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit.
Fair Value Measurements

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The fair value of interest-bearing cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to their life being short term in nature, and are classified as Level 1 for all periods presented.
Our investment in restricted shares of Tyme’s common stock are classified as Level 1. Refer to Note 13, Collaboration with Tyme for further details.
The fair value of debt is classified as Level 2 for the periods presented and approximates its fair value due to the variable interest rate.
The fair value of the contingent consideration/accrued royalty is classified as Level 3 for the periods presented.
Intangible Assets
Other Intangible Assets, Net
The Company capitalizes and includes in intangible assets the costs of acquired product licenses and developed technology purchased individually or identified in a business combination. Intangible assets are recorded at fair value at the time of their acquisition and stated net of accumulated amortization. The Company amortizes its definite-lived intangible assets using either the straight-line or accelerated method, based on the useful life of the asset over which it is expected to be consumed utilizing expected undiscounted future cash flows. The Company will evaluate the potential impairment of intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Events giving rise to impairment are an inherent risk in our industry and many factors cannot be predicted. Factors that we consider in deciding when to perform an impairment review include significant changes in our forecasted projections for the asset or asset group for reasons including, but not limited to, significant under-performance of a product in relation to expectations, significant changes or planned changes in our use of the assets, significant negative industry or economic trends, and new or competing products that enter the marketplace. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group and its eventual disposition to the carrying value of the asset group. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the condensed consolidated statements of operations.

7



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



With respect to determining an asset’s fair value and useful life, because this process involves management making certain estimates and these estimates form the basis of the determination of whether or not an impairment charge should be recorded, these estimates are considered to be critical accounting estimates.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired in the Eagle Biologics acquisition. Goodwill is not amortized, but is evaluated for impairment on an annual basis, in the fourth quarter, or more frequently if events or changes in circumstances indicate that the reporting unit’s goodwill is less than its carrying amount. The Company did not identify any impairment to goodwill during the periods presented.
Acquisition-Related Contingent Consideration
Contingent consideration related to a business combination is recorded on the acquisition date at the estimated fair value of the contingent payments. The acquisition date fair value is measured based on the consideration expected to be transferred using probability-weighted assumptions and discounted back to present value. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods. The fair value of the acquisition-related contingent consideration is re-measured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense in the condensed consolidated statements of operations.
Concentration of Major Customers and Vendors
The Company is dependent on commercial partners to market and sell BENDEKA. The Company's customers for BENDEKA are its commercial and licensing partners; therefore, the Company's future revenues are highly dependent on these collaboration and distribution arrangements.
Teva markets BENDEKA pursuant to the BENDEKA License. Pursuant to the agreement, Teva pays the Company a royalty based on net sales of the product and also purchases the product from the Company. A disruption in this arrangement, caused by among other things, a supply disruption, loss of exclusivity or the launch of a superior product would have a material adverse effect of the Company’s financial position, results of operations and cash flows.
The total revenues and accounts receivables broken down by major customers as a percentage of the total are as follows:
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
Net revenues
 
 
 
 
Cephalon, Inc. (Teva) - See Revenue Recognition
65
%
 
84
%
 
Other
35
%
 
16
%
 
 
100
%
 
100
%
 
 
March 31,
 
December 31,
 
2020
 
2019
Accounts receivable
 
 
 
Cephalon, Inc. (Teva) - See Revenue Recognition
63
%
 
80
%
Other
37
%
 
20
%
 
100
%
 
100
%




8



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Inventories
Inventories are recorded at the lower of cost or expected net realizable value, with cost determined on a first-in first-out basis. The Company periodically reviews the composition of inventory in order to identify obsolete, slow-moving or otherwise non-saleable items. If non-saleable items are observed and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the decline in value is first recognized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is recorded over the estimated useful lives of the assets utilizing the straight-line method. Leasehold improvements are being amortized over the shorter of their useful lives or the lease term.
Research and Development Expense
Costs for research and development are charged to expense as incurred and include; employee-related expenses including salaries, benefits, travel and stock-based compensation expense for research and development personnel; expenses incurred under agreements with contract research organizations, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies; costs associated with preclinical activities and development activities, costs associated with regulatory operations; and depreciation expense for assets used in research and development activities.
Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid expenses or accrued expenses as deemed appropriate. Recoveries of previously recognized research and development expenses from third parties are recorded as a reduction to research and development expense in the period it becomes realizable.
Advertising and Marketing
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $1,113 and $626 for the three months ended March 31, 2020 and 2019, respectively.
Income Taxes
The Company accounts for income taxes using the liability method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 740 - Income Taxes (“ASC 740”).  Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled.  Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that the rate changes.  A valuation allowance is required when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. ASC 740 also prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction.  We recognize any interest and penalties accrued related to unrecognized tax benefits as income tax expense.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity 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 entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity 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.

9



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



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. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. Receivables from our product sales have payment terms ranging from 30 to 75 days with select extended terms to wholesalers on initial purchases of product launch quantities. Our receivables from royalty revenue are due 45 days from the end of the quarter.
Product revenue - The Company recognizes net revenue on sales to its commercial partners and to end users. In each instance, revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.
Revenue on sales to commercial partners relates to Argatroban and BENDEKA. Sales to our commercial partners are presented gross because the Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method to which the Company expects to be entitled. As such, revenue on sales to customers for BELRAPZO, Non-Alcohol Docetaxel Injection, RYANODEX and diclofenac-misoprostol are recorded net of chargebacks, rebates, returns, prompt pay discounts, wholesaler fees and other deductions. Our products are contracted with a limited number of oncology distributors and hospital buying groups with narrow differences in ultimate realized contract prices used to estimate our chargeback and rebate reserves. The Company has a product return policy on some of its products that allows the customer to return pharmaceutical products within a specified period of time both prior to and subsequent to the product’s expiration date. The Company's estimate of the provision for returns is analyzed quarterly and is based upon many factors, including historical experience of actual returns and analysis of the level of inventory in the distribution channel, if any. The Company has terms on sales of RYANODEX by which the Company does not accept returns. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration are made using the expected value method and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company believes that the estimates it has established are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in the estimated amounts to vary.
Royalty Revenue — The Company recognizes revenue from license arrangements with its commercial partners' net sales of products. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the commercial partner’s products occurs. The Company's commercial partners are obligated to report their net product sales and the resulting royalty due to the Company within 25 days for BENDEKA and 60 days for Argatroban from the end of each quarter. Based on historical product sales, royalty receipts and other relevant information, the Company accrues royalty revenue each quarter and subsequently determines a true-up when it receives royalty reports from its commercial partners. Historically, these true-up adjustments have been immaterial.
License and other revenue — The Company analyzes each element of its licensing agreements to determine the appropriate revenue recognition. The terms of the license agreement may include payment to us of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

10



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



The Company recognizes sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606-10-55-65. For those milestone payments which are contingent on the occurrence of particular future events, the Company determined that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty of the occurrence of these future events, the Company will not recognize revenue from the milestone until there is not a high probability of a reversal of revenue, which typically occurs near or upon achievement of the event.
When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2020.
Collaborative licensing and development revenue — The Company recognizes revenue from reimbursements received in connection with feasibility studies and development work for third parties when its contractual services are performed, provided collectability is reasonably assured. Its principal costs under these agreements include its personnel conducting research and development, its allocated overhead, as well as the research and development performed by outside contractors or consultants.
Upon termination of a collaboration agreement, any remaining non-refundable license fees received by the Company, which had been deferred, are generally recognized in full. All such recognized revenues are included in collaborative licensing and development revenue in its condensed consolidated statements of operations. The Company recognizes revenue from milestone payments received under collaboration agreements when earned, provided that the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, the Company has no further performance obligations relating to the event, and collectability is reasonably assured. If these criteria are not met, the Company recognizes milestone payments ratably over the remaining period of its performance obligations under the collaboration agreement.
Stock-Based Compensation
The Company accounts for stock-based compensation using the fair value provisions of ASC 718, Compensation - Stock Compensation that requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock-based payments including stock options and restricted stock. This topic requires companies to estimate the fair value of the stock-based awards on the date of grant for options issued to employees and directors and record expense over the employees' service periods, which are generally the vesting period of the equity awards.
The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all stock-based payments made to employees and directors based on estimated grant date fair values. The straight-line method is used to allocate compensation cost to reporting periods over each optionee's requisite service period, which is generally the vesting period. The fair value of the Company's stock-based awards to employees and directors is estimated using the Black-Scholes valuation model or a monte carlo simulation model. These models require the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs. The risk-free interest rate is determined with the implied yield currently available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options.
Earnings Per Share
Basic earnings per common share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed in a manner similar to the basic earnings per share, except that the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of warrants, options, convertible debt and other such convertible instruments. Diluted earnings per share contemplate a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.

11



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



The anti-dilutive common shares equivalents outstanding for the three months ended March 31, 2020 and 2019 were as follows:
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
Stock Options
2,927,306

 
2,194,399

 
Restricted stock units
253,777

 
44,383

 
Total
3,181,083

 
2,238,782

 


The following table sets forth the computation for basic and diluted net income (loss) per share for the three months ended March 31, 2020 and 2019:
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
Numerator
 
 
 
 
Numerator for basic and diluted earnings per share-net (loss) income
$
(2,871
)
 
$
8,973

 
Denominator
 
 
 
 
Basic weighted average common shares outstanding
13,667,606

 
13,925,227

 
Dilutive effect of stock awards

 
492,984

 
Diluted weighted average common shares outstanding
13,667,606

 
14,418,211

 
Basic net income (loss) per share
 
 
 
 
Basic net income (loss) per share
$
(0.21
)
 
$
0.64

 
Diluted net income (loss) per share
 
 
 
 
Diluted net income (loss) per share
$
(0.21
)
 
$
0.62

 


All potentially dilutive items were excluded from the diluted share calculation for the three months ended March 31, 2020 because their effect would have been anti-dilutive, as the Company was in a loss position.

Recent Accounting Pronouncements
Recent Accounting Pronouncements - Not Yet Adopted
In March 2020, the FASB issued Update 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR, formerly known as the London Interbank Offered Rate,
or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides optional expedients, including; (1) Simplify accounting analyses under current GAAP for contract modifications, such as modifications of contracts within the scope of Topic 470, Debt, that will be accounted for by prospectively adjusting the effective interest rate, as if any modification was not substantial. That is, the original contract and the new contract shall be accounted for as if they were not substantially different from one another; (2) Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue; (3) Allow a one-time election to sell or transfer debt securities classified as held to maturity before January 1, 2020 that reference a rate affected by reference rate reform. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The adoption of ASU 2020-4 is not expected to have a material impact on the Company's financial position or results of operations.

12



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019 and the Company adopted the standard effective January 1, 2020. The adoption of ASU 2016-13 had no material impact on the Company's financial position and results of operations.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into U.S. federal law, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. Assessing the impact of this legislation, the Company does not expect there to be a material impact to our financial statements at this time.

4. Property and equipment, net
Property and equipment consisted of the following:
 
March 31, 2020
 
December 31, 2019
 
Estimated Useful Life (years)
Furniture and fixtures
$
1,514

 
$
1,188

 
7
Office equipment
1,105

 
1,094

 
3
Equipment
3,203

 
3,095

 
7
Leasehold improvements
1,171

 
1,144

 
2
 
6,993

 
6,521

 
 
Less accumulated depreciation
(4,570
)
 
(4,319
)
 
 
Property and equipment, net
$
2,423

 
$
2,202

 
 


Depreciation expense related to property and equipment amounted to $251 and $242 for the quarter ended March 31, 2020 and 2019, respectively.


5. Inventories
Inventories consist of the following:
 
March 31,
 
December 31,
 
2020
 
2019
Raw material
$
5,195

 
$
2,460

Work in process
2,486

 
3,243

Finished products
753

 
863

 
$
8,434

 
$
6,566




13



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



6. Balance Sheet Accounts
Prepaid and Other Current Assets
Prepaid and other current assets consist of the following:
 
March 31,
 
December 31,
 
2020
 
2019
Prepaid income taxes
$
4,778

 
$
2,462

Prepaid FDA user fee and Advances to clinical research organization
2,080

 
6,345

Prepaid insurance
876

 
191

Advances to commercial manufacturers
2,206

 
4,661

All other
691

 
1,445

Total Prepaid expenses and other current assets
$
10,631

 
$
15,104


Accrued Expenses
Accrued expenses consist of the following:
 
March 31,
 
December 31,
 
2020
 
2019
Accrued sales reserves
$
6,019

 
$
8,364

Royalties payable to commercial partners
5,459

 
6,004

Accrued salary and other compensation
2,704

 
8,083

Accrued professional fees
2,441

 
1,926

Accrued research & development
873

 
1,686

Current portion of lease liability
1,267

 
1,101

Accrued other
1,360

 
1,197

Total Accrued expenses
$
20,123

 
$
28,361



Adoption of FASB ASU No. 2016-02, “Leases (Topic 842)” as of January 1, 2019
The Company leases its corporate office under an amended lease agreement that expires on June 30, 2025 (the "Corporate Office Lease"). The Corporate Office Lease was amended on August 8, 2019 to extend the term through such date and to increase the amount of leased office space. The Company also leases lab space under a lease agreement that expires on October 31, 2023 (the "Lab Space Lease"). The Company estimated the right of use asset and the corresponding lease liability, on a discounted basis, as of the adoption date of January 1, 2019. The future minimum lease payments under this Corporate Office Lease are approximately $6.6 million.
For the Company's two operating leases (the Corporate Office Lease and Lab Space Lease), the depreciation and interest expense components are combined and recognized ratably over the remaining term of the lease as research and development and selling, general and administrative in the Company's condensed consolidated statements of operations, respectively.
The Company used its estimated incremental borrowing rate to calculate the present value of the right of use ("ROU") assets and lease liabilities as of the date of adoption date. The implicit interest rate related to the Company’s two lease agreements was not known as of the date of adoption. Therefore, the Company calculated an incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

14



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Lease related disclosures consist of the following:
 
March 31,
 
December 31,
 
March 31,
 
2020
 
2019
 
2019
ROU asset, net included in Other assets
$
4,337

 
$
3,716

 
$
2,871

Lease liability included with Other long-term liabilities
$
3,454

 
$
3,000

 
$
2,871

Lease liability included with Accrued expenses and other liabilities
$
1,267

 
$
1,101

 
$

Quarter to date ("QTD") depreciation of ROU asset
$
221

 
n/a
 
$
261

QTD related rent expense
$
286

 
n/a
 
$
287

QTD operating cash flows from operating leases
$
286

 
n/a
 
$
287

QTD operating lease costs
$
286

 
n/a
 
$
287

Weighted-average remaining lease term - operating leases
4.7 years

 
5.0 years

 
2.8 years

Weighted-average discount rate - operating leases
6.5
%
 
6
%
 
6.4
%


As of March 31, 2020, the future minimum lease commitments for the Company's two leases were as follows:
 
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
Beyond
 
$
6,576

 
$
1,314

 
$
1,362

 
$
1,376

 
$
1,291

 
$
820

 
$
413

 
$



As of December 31, 2019, the future minimum lease commitments for the Company's two leases were as follows:
 
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
$
6,607

 
$
1,345

 
$
1,362

 
$
1,376

 
$
1,291

 
$
820

 
$
413



7. Intangible Assets, Net
The gross carrying amounts and net book value of the Company's intangible assets are as follows:
 
 
 
March 31, 2020
 
Useful Life (In Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
Net Book Value
RYANODEX intangible (i)
20
 
$
15,000

 
$
(2,715
)
 
 
$
12,285

Developed technology
5
 
8,100

 
(5,468
)
 
 
2,632

Total
 
 
$
23,100

 
$
(8,183
)
 
 
$
14,917


 
 
 
December 31, 2019
 
Useful Life (In Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
Net Book Value
RYANODEX intangible (i)
20
 
15,000

 
(2,454
)
 
 
12,546

Developed technology
5
 
8,100

 
(5,063
)
 
 
3,037

Total
 
 
$
23,100

 
$
(7,517
)
 
 
$
15,583

(i) Represent payments made to reduce the royalties payable to a third party on RYANODEX net sales.

15



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Amortization expense was $666 and $630 for the three months ended March 31, 2020 and 2019, respectively.
Estimated Amortization Expense for Intangible Assets
Based on definite-lived intangible assets recorded as of March 31, 2020, and assuming that the underlying assets will not be impaired and that the Company will not change the expected lives of the assets, future amortization expenses are estimated as follows:
 
Estimated Amortization Expense
 
Year Ending December 31,
 
2020 (remainder)
1,999

2021
2,623

2022
1,369

2023
1,570

2024
1,898

Thereafter
5,458

Total estimated amortization expense
$
14,917



8. Common Stock and Stock-Based Compensation
Common Stock
Share Repurchase Program

On March 17, 2020, the Company, announced that its Board approved a new share repurchase program, or the Share Repurchase Program, providing for the repurchase of up to an aggregate of $160.0 million of the Company’s outstanding common stock. The Share Repurchase Program replaces the Company’s existing share repurchase program, or the Previous Share Repurchase Program, which was announced on October 30, 2018 and was terminated in connection with the Board’s approval of the Share Repurchase Program. At termination, the Company had repurchased approximately $68.0 million of the Company’s outstanding common stock under the Previous Share Repurchase Program.

Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using the Company’s cash resources.

On October 30, 2018, the Company announced the Previous Share Repurchase Program was approved by the Board of Directors pursuant to which the Company may have repurchased of up to $150 million of its outstanding common stock, that consisted of (i) up to $50 million in repurchases pursuant to an accelerated share repurchase agreement (the “ASR”), with JPMorgan Chase Bank, N.A. (“JPMorgan”), and (ii) up to $100 million in additional repurchases.

As of March 31, 2020, the Company had repurchased an aggregate of 2,933,320 shares of common stock for an aggregate of $172.9 million pursuant to its share repurchase programs.


16



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Stock-Based Compensation
In November 2013, the Company's Board of Directors approved the 2014 Equity Incentive Plan (the "2014 Plan") which became effective on February 11, 2014. The 2014 Plan provides for the awards of incentive stock options, non-qualified stock options, restricted stock, restricted stock units and other stock-based awards. Awards generally vest equally over a period of four years from grant date. Vesting may be accelerated under a change in control of the Company or in the event of death or disability to the recipient. In the event of termination, any unvested shares or options are forfeited.
During the three months ended March 31, 2018, the Company introduced a new long-term incentive program with the objective to better align the stock-based awards granted to management with the Company's focus on improving total shareholder return over the long-term. The stock-based awards granted under this long-term incentive program consist of time-based stock options, time-based restricted stock units ("RSUs") and performance-based stock units ("PSUs"). PSUs are comprised of awards that vest upon achievement of certain share price appreciation conditions.
A summary of stock option, RSU and PSU activity under the 2014 Plan during the three months ended March 31, 2020 and 2019 is presented below:
 
Stock Options
 
RSUs
 
PSUs
Outstanding at December 31, 2018
2,556,365

 
54,219

 
117,219

Granted
550,433

 
211,829

 

Options Exercised/RSUs Vested/PSUs Vested
(4,914
)
 
(13,555
)
 

Forfeited or expired
(9,588
)
 
(531
)
 
(709
)
Outstanding at March 31, 2019
3,092,296

 
251,962

 
116,510

 
 
 
 
 
 
Outstanding at December 31, 2019
3,096,161

 
251,215

 
116,181

Granted
600,200

 
231,450

 

Options Exercised/RSUs Vested/PSUs Vested
(15,971
)
 
(66,142
)
 

Forfeited or expired
(60,294
)
 
(10,824
)
 
(2,431
)
Outstanding at March 31, 2020
3,620,096

 
405,699

 
113,750



Stock Options
The fair value of stock options granted to employees, directors, and consultants were estimated using the following assumptions:
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
Risk-free interest rate
0.47% - 1.65%
 
2.57% - 2.61%
 
Volatility
54.94%
 
50.47%
 
Expected term (in years)
6.03 years
 
5.98 years
 
Expected dividend yield
0.0%
 
0.0%
 


RSUs
Each vested time-based RSU represents the right of a holder to receive one share of the Company’s common stock. The fair value of each RSU granted was estimated based on the trading price of the Company’s common stock on the date of grant.

17



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



PSUs
The fair value of PSUs granted to employees was estimated using a Monte Carlo simulation model. Inputs used in the calculation include a risk-free interest rate of 2.06%, an expected volatility of 47%, contractual term of 3 years, and no expected dividend yield.
The Company recognized stock-based compensation in its condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 as follows:
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Stock options
$
4,993

 
$
4,428

 
RSUs
1,852

 
608

 
PSUs
627

 
746

 
Stock-based compensation expense
$
7,472

 
$
5,782

 
 
 
 
 
 
Selling, general and administrative
$
5,922

 
$
4,639

 
Research and development
1,550

 
1,143

 
Stock-based compensation expense
$
7,472

 
$
5,782

 


9. Commitments
Our future material contractual obligations as of March 31, 2020, include the following:
Obligations
 
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
Beyond
Operating leases (1)
 
$
6,576

 
$
1,314

 
$
1,362

 
$
1,376

 
$
1,291

 
$
820

 
$
413

 
$

Credit facility (2)
 
148,000

 
114,000

 
8,000

 
26,000

 

 

 

 

Purchase obligations (3)
 
21,033

 
21,033

 

 

 

 

 

 

Total obligations
 
$
175,609

 
$
136,347

 
$
9,362

 
$
27,376

 
$
1,291

 
$
820

 
$
413

 
$


(1) We lease our corporate office location. On August 8, 2019, we amended the lease for our corporate office location in order to rent additional office space and extend the term of our existing lease to June 30, 2025. The Company also leases its lab space under a lease agreement that expires on October 31, 2023. Rental expense for the operating leases was $286 and $287, for the three months ended March 31, 2020 and 2019. The remaining future lease payments under the operating leases are $6,576 as of March 31, 2020.
(2) Refer to Note 10 Debt for details of the Revised Credit Agreement entered into as of November 8, 2019.
(3) As of March 31, 2020, the Company has purchase obligations in the amount of $21,033 which represents the contractual commitments under contract manufacturing and supply agreements with suppliers. The obligation under the supply agreement is primarily for finished product, inventory, and research and development.

10. Debt
On November 8, 2019, the Company entered into the Second Amended and Restated Credit Agreement (the “Revised Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”) and the lenders party thereto, which replaced the Company’s existing credit agreement, dated as of August 8, 2017 (the "Amended Credit Agreement"). The terms and amounts borrowed under the Revised Credit Agreement includes a drawn term loan of $40.0 million and a undrawn

18



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



revolving credit facility of $110.0 million. The schedule of principal payments for the new term loan facility has been extended until November 8, 2022.
As of March 31, 2020, the terms and amounts borrowed under the Revised Credit Agreement includes a drawn term loan of $40.0 million and a drawn revolving credit facility of $110.0 million. The Company classified the current portion of long-term debt of $116.0 million on the consolidated balance sheet as of March 31, 2020. Per the terms of the Revised Credit Agreement, the Company is limited in its ability to pay dividends. As of March 31, 2020, the Company was in compliance with each of the senior secured net leverage ratio; total net leverage ratio; and fixed charge coverage ratio covenants. The Company has repaid the full $110.0 million drawn under its revolving credit facility as of the date of this Quarterly Report.
The new term loan facility shall bear interest at the Adjusted LIBOR (equal to (a) the LIBOR for such Interest Period multiplied by (b) the Statutory Reserve Rate as established by Board of Governors of the Federal Reserve System of the United States of America) for the Interest Period in effect for such Borrowing plus the Applicable Rate as described below. The Agent and the Company may amend the Revised Credit Agreement to replace the LIBOR with a Benchmark Replacement, described below.
Loans under the Revised Credit Agreement bear interest at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 2.25% to 3.0% per annum, based upon the total net leverage ratio (as defined in the Revised Credit Agreement), or (b) the Benchmark Replacement which is defined as the greatest of the prime lending rate, or the NYFRB Rate (the rate for a federal funds transaction) in effect on such day plus ½ of 1% or the Adjusted LIBO Rate for a one month Interest Period on such day plus 1% plus an applicable margin ranging from 1.25% to 2.0% per annum, based upon the total net leverage ratio. 
The Company is required to pay a commitment fee on the unused portion of the new revolving credit facility in the Revised Credit Agreement at a rate ranging from 0.35% to 0.45% per annum based upon the total net leverage ratio. The Company is obligated to repay a contractually agreed portion of the term loan on the last day of each March, June, September and December in accordance with the Revised Credit Agreement.
As of March 31, 2020, the Company has $1.2 million of unamortized deferred debt issuance costs as part of long-term debt in its condensed consolidated balance sheets.


Debt Maturities
As of March 31, 2020
     2020 (remainder)
$
114,000

     2021
8,000

     2022
26,000

Total
$
148,000





11. Income Taxes
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Income tax benefit (provision)
$
137

 
$
(3,004
)
 
Effective tax rate
5
%
 
25
%
 


For interim periods, we recognize an income tax (provision) benefit based on our estimated annual effective tax rate expected for the entire year plus the effects of certain discrete items occurring in the quarter. The interim annual estimated effective tax rate is based on the statutory tax rates then in effect, as adjusted for changes in estimated temporary and estimated permanent differences, and certain discrete items whose tax effect, when material, is recognized in the interim period in which they occur.
The provision for income taxes was based on the applicable federal and state tax rates for those periods. The effective tax rate for the three months ended March 31, 2020 reflects the impact of a valuation allowance established for the fair value adjustment on the Company’s investment in Tyme, certain non-deductible executive compensation partially offset by credits for research and

19



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



development activity. The effective tax rate for the three months ended March 31, 2019 reflects the impact of certain non-deductible executive compensation partially offset by credits for research and development activity.
Deferred income tax assets as of March 31, 2020 consist of temporary differences primarily related to stock-based compensation and research and development tax credit carryforwards, partially offset by temporary differences related to intangible assets.
The Company files income tax returns in the U.S. federal jurisdiction and several states. Given that the Company has incurred tax losses since its inception, all of the Company’s tax years are effectively open to examination. The Company is currently under audit by one State tax jurisdiction. The Company has no amount recorded for any unrecognized tax benefits as of March 31, 2020. The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions. The Company reflects interest and penalties attributable to income taxes, to the extent they arise, as a component of income tax provision or benefit.

12. Legal Proceedings
In addition to the below legal proceedings, from time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters, or matters discussed below, will not have a material adverse effect on the Company's business nor has the Company recorded any loss in connection with these matters because the Company believes that loss is neither probable nor estimable. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Commercial Litigation

In Re: Taxotere (Docetaxel)
On February 1, 2017, the Company was named as a defendant, among various other manufacturers, in several product liability suits that are consolidated in the U.S. District Court for the Eastern District of Louisiana as part of MDL 2740 (Civil Action No 2:16 md-2740). The claims are for personal injuries allegedly arising out of the use of docetaxel.

In March 2017, the Company reached agreements in principle with the Plaintiffs’ Steering Committee in this matter to voluntarily dismiss the Company from all of the lawsuits in which it was named and from the master complaint. The Company is in the process of working with the other parties in this matter to have it removed from the Multidistrict litigation entirely.  As part of the agreement, in the event a case is brought in the future with facts that justify the Company’s inclusion, the plaintiffs reserved the right to include the Company in such matter.  The plaintiffs have filed several additional lawsuits since the parties’ agreement in principle to dismiss, and the Company is in the process of working with plaintiffs to explore the possibility of dismissing those lawsuits.  

Eagle v. Burwell
On April 27, 2016, the Company filed an action in the U.S. District Court for the District of Columbia (the “District Court”) against the FDA and other federal defendants seeking an order requiring the FDA to recognize orphan drug exclusivity for Bendeka for the treatment of CLL and indolent B-cell NHL.  On June 8, 2018, the District Court issued a decision requiring the FDA to recognize seven years of orphan drug exclusivity in the U.S. for Bendeka, and on July 6, 2018 the FDA recognized such ODE until December 7, 2022.  In addition, on July 6, 2018, the FDA submitted a Motion to Alter or Amend the Judgement Pursuant to Rule 59(e), pursuant to which the FDA requested that the District Court amend its decision to make clear that the decision does not affect any applications referencing TREANDA.  The FDA’s motion was denied by the District Court on August 1, 2018 on the grounds that the FDA had not satisfied the standard for altering or amending the judgment. The FDA and two intervenors appealed the District Court’s final judgment to the U.S. Court of Appeals for the District of Columbia Circuit (the “Court of Appeals”).  Oral arguments occurred on October 17, 2019, and on March 13, 2020 a panel of the Court of Appeals affirmed the District Court’s decision. FDA has until May 27, 2020 to file a petition for rehearing en banc. Previously, on February 20, 2019, the FDA issued a decision in favor of the Company, regarding the scope of orphan drug exclusivity for

20



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Bendeka. Pursuant to the FDA’s decision, no bendamustine product used to treat the same indications (including generic versions of TREANDA) may launch in the United States until December 7, 2022 unless it is clinically superior to Bendeka.
  
Eagle v. Eli Lilly
On August 24, 2017, the Company filed an antitrust complaint in the United States District Court for the District of New Jersey (“New Jersey District Court”) against Eli Lilly and Company (“Lilly”).  The complaint alleges that Lilly engaged in anticompetitive conduct which restrained competition by delaying and blocking the Company’s launch of a competing pemetrexed injection product (to compete with Lilly’s Alimta). Lilly accepted service and answered the complaint on October 27, 2017. Lilly also filed a motion to transfer this case to Delaware on October 27, 2017. The Company filed a motion to oppose such transfer on November 6, 2017. On July 20, 2018, the New Jersey District Court transferred the case to Delaware. On November 27, 2018, the Delaware Court stayed the case at least until conclusion of the PEMFEXYTM patent trial described below. On December 16, 2019, the Delaware Court entered the Company and Lilly’s stipulation dismissing this case with prejudice.

Chiesi v. Eagle
On October 3, 2018, Chiesi USA, Inc. ("Chiesi") filed a complaint against Eagle in the Superior Court of Wake County, North Carolina. The complaint alleges that Eagle has failed to provide adequate information regarding the sales of Argatroban pursuant to a License and Development Agreement between the parties. On July 17, 2019, Chiesi dismissed the actions without prejudice.
Patent Litigation
Eli Lilly and Company. v. Eagle Pharmaceuticals, Inc. (PEMFEXYTM (Pemetrexed))
On August 14, 2017, Lilly filed suit against the Company in the United States District Court for the Southern District of Indiana (the “Indiana Suit”).  Lilly alleged patent infringement based on the filing of the Company’s 505(b)(2) NDA seeking approval to manufacture and sell the Company’s EP-5101.  EP-5101, if finally approved by FDA, will be a branded alternative to Alimta®.
On September 8, 2017, Eagle moved to dismiss the Indiana Suit for improper venue.  On September 11, 2017, Lilly voluntarily dismissed the Indiana Suit.  It then filed a complaint in the United States District Court for the District of Delaware, alleging similar patent infringement claims (the “Delaware Suit”).  Eagle answered and filed various counterclaims in the Delaware Suit on October 3, 2017.  Lilly answered Eagle’s counterclaims on October 24, 2017. The Court held a scheduling conference on December 11, 2017 and set trial in the Delaware Suit to begin on September 9, 2019, but later rescheduled trial to begin October 28, 2019. On May 31, 2018, Eagle filed a Motion for Judgment on the Pleadings, which the Court denied on October 26, 2018. On January 23, 2019, the Court held a Markman hearing. Trial took place from October 28, 2019 to October 31, 2019 and is scheduled to continue on December 12, 2019 through December 13, 2019. On December 13, 2019, the Company and Lilly settled this litigation. The agreement provides for a release of all claims by the parties and allows for an initial entry of PEMFEXYTM into the market (equivalent to approximately a three week supply of current ALIMTA® utilization) on February 1, 2022 and a subsequent uncapped entry on April 1, 2022. On December 16, 2019, the District Court entered the Company and Lilly’s stipulation dismissing this case with prejudice.

Eagle Pharmaceuticals, Inc., et al. v. Slayback Pharma Limited Liability Company; Eagle Pharmaceuticals, Inc., et al. v. Apotex Inc. and Apotex Corp.; Eagle Pharmaceuticals, Inc., et al. v. Fresenius Kabi USA, LLC; Eagle Pharmaceuticals, Inc., et al. v. Mylan Laboratories Limited; Eagle Pharmaceuticals, Inc. et al. v. Hospira, Inc; Eagle Pharmaceuticals, Inc. et al. v. Lupin, Ltd. and Lupin Pharmaceuticals, Inc.; Eagle Pharmaceuticals, Inc. et al v. Aurobindo Pharma, Ltd, Aurobindo Pharma USA, Inc., and Eugia Pharma Specialities Ltd - (Bendeka®)
Bendeka, which contains bendamustine hydrochloride, is an alkylating drug that is indicated for the treatment of patients with chronic lymphocytic leukemia, as well as for the treatment of patients with indolent B-cell non-Hodgkin's lymphoma that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. Slayback Pharma Limited Liability Company (“Slayback”), Apotex Inc. and Apotex Corp. (“Apotex”), Fresenius Kabi USA, LLC (“Fresenius”),

21



EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Mylan Laboratories Limited (“Mylan”), Lupin, Ltd. and Lupin Pharmaceuticals, Inc. (“Lupin”), and Aurobindo Pharma, Ltd, Aurobindo Pharma USA, Inc., and Eugia Pharma Specialities Ltd (“Aurobindo”) have filed Abbreviated New Drug Applications (“ANDA’s”) referencing Bendeka® that include challenges to one or more of the Bendeka® Orange Book-listed patents. Hospira, Inc. (“Hospira”) filed a 505(b)(2) NDA.
The Company, Cephalon, Inc. and/or Teva Pharmaceuticals International GMBH (together the “Patentees”), filed separate suits against Slayback, Apotex, Fresenius, Mylan, Hospira, Lupin, and Aurobindo in the United States District Court for the District of Delaware on August 16, 2017 (Slayback (“Slayback I”)), August 18, 2017 (Apotex), August 24, 2017 (Fresenius), December 12, 2017 (Mylan), January 19, 2018 (Slayback (“Slayback II”)), July 19, 2018 (Hospira), and July 2, 2019 (Lupin) In these Complaints, the Patentees allege infringement of the challenged patents, namely U.S. Patent Nos. 8,791,270 and 9,572,887 against Slayback (Slayback I and Slayback II), and of U.S. Patent Nos. 8,609,707, 8,791,270, 9,000,021, 9,034,908, 9,144,568, 9,265,831, 9,572,796, 9,572,797, 9,572,887, 9,579,384, 9,597,397, 9,597,398, 9,597,399 against Fresenius, Apotex, and Mylan, and of U.S. Patent Nos. 9,572,887, 10,010,533, 9,034,908, 9,144,568, 9,597,397, 9,597,398, 9,597,399, 9,000,021, 9,579,384 against Hospira, and of U.S. Patent Nos. 8,609,707, 9,000,021, 9,034,908, 9,144,568, 9,265,831, 9,572,796, 9,572,797, 9,572,887, 9,579,384, 9,597,397, 9,597,398, 9,597,399, 10,010,533, and 10,052,385 against Lupin. Patentees expect to file suit against Aurobindo the week of May 11, 2020. The parties stipulated to dismiss without prejudice U.S. Patent No. 8,791,270 as to Apotex, Fresenius and Mylan on July 24, 2018, August 2, 2018, and August 3, 2018, respectively. Slayback, Apotex, Fresenius, and Mylan answered their Complaints and some filed various counterclaims on September 29, 2017 (Slayback I), February 12, 2018 (Slayback II), November 27, 2017, September 15, 2017, and February 14, 2018, respectively. The Patentees answered the Slayback I, Slayback II, Fresenius, and Apotex counterclaims on October 20, 2017, March 5, 2018, October 6, 2017, and December 18, 2017, respectively. On October 15, 2018, the Patentees filed a suit against Fresenius and Mylan in the United States District Court for the District of Delaware, alleging patent infringement of U.S. Patent Nos. 10,010,533 and 10,052,385. The Slayback I, Slayback II, Apotex, Fresenius and Mylan cases have been consolidated for all purposes (the “Consolidated Bendeka Litigation”), and a bench trial in these cases was held September 9-19, 2019. On April 27, 2020, the district court held that the asserted patents are valid and infringed by Slayback, Apotex, Fresenius and Mylan. Under this decision, the FDA cannot approve Slayback, Apotex, Fresenius and Mylan before 2031. Hospira filed a motion to dismiss, which was fully briefed on November 16, 2018. On December 16, 2019, the United States District Court for the District of Delaware denied Hospira’s motion to dismiss with respect to U.S. Patent No. 9,572,887 and granted that motion with respect to the remaining patents. Trial is set for November 15, 2021. The case remains pending.
The FDA is stayed from approving Hospira’s 505(b)(2) application until the earlier of (1) December 20, 2020 (the “30-month stay date”); and (2) a court decision that the ‘887 patent is not infringed, invalid, or unenforceable. The 30-month stay dates may be shortened or lengthened if either party to the action fails to reasonably cooperate in expediting the action.

Eagle Pharmaceuticals, Inc. v. Slayback Pharma Limited Liability Company
Slayback filed an ANDA referencing Eagle's BELRAPZO NDA. Slayback’s ANDA includes challenges to one or more of the BELRAPZO Orange Book-listed patents. On September 20, 2018, the Company filed a suit against Slayback in the United States District Court for the District of Delaware, alleging patent infringement of U.S. Patent Nos. 8,609,707, 9,265,831, 9,572,796, 9,572,797 and 10,010,533. On October 10, 2018, Slayback answered the Complaint and filed various counterclaims. On October 31, 2018, the Company answered Slayback’s counterclaims. Pursuant to a stipulation between the parties, Slayback is bound by any final judgment entered in the Consolidated Bendeka Litigation. This case is currently stayed.

Eagle Pharmaceuticals, Inc. v. Slayback Pharma Limited Liability Company
Slayback filed a 505(b)(2) NDA referencing Eagle’s BELRAPZO NDA. Slayback’s NDA includes challenges to one or more of the BELRAPZO Orange Book-listed patents. On December 11, 2018, the Company filed a suit against Slayback in the United States District Court for the District of Delaware, alleging patent infringement of U.S. Patent Nos. 9,265,831, 9,572,796, 9,572,797, and 10,010,533. On January 4, 2019, Slayback filed a motion for judgment on the pleadings. On May 9, 2019, the United States District Court for the District of Delaware granted Slayback’s motion for judgment on the pleadings. On July 23, 2019, the Company filed an appeal of this decision with the United States Court of Appeals for the Federal Circuit. On May 8, 2020, the Federal Circuit upheld the district court’s decision.


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EAGLE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)



Par Pharmaceutical, Inc. et al. v. Eagle Pharmaceuticals, Inc. (Vasopressin)
On May 31, 2018, Par Pharmaceutical, Inc., Par Sterile Products, LLC, and Endo Par Innovation Company, LLC (together “Par”) filed suit against the Company in the United States District Court for the District of Delaware. Par alleged patent infringement based on the filing of the Company’s ANDA seeking approval to manufacture and sell the Company’s vasopressin product. The Company’s vasopressin product, if approved by FDA, will be an alternative to Vasostrict, which is indicated to increase blood pressure in adults with vasodilatory shock (e.g., post-cardiotomy or sepsis) who remain hypotensive despite fluids and catecholamines. The Company answered the complaint on August 6, 2018, and filed an amended answer and counterclaims on October 30, 2019. The court issued a Markman ruling on July 1, 2019. On December 20, 2019, Par dismissed with prejudice claims of three of the patents asserted against Eagle, and the Court entered an Order reflecting that dismissal on December 27, 2019. Mediation took place on March 3, 2020. On April 17, 2020, the Company submitted a letter requesting leave to file a motion for summary judgment of non-infringement. Par’s responsive letter was submitted on May 8, 2020. Due to the COVID-19 pandemic, trial, which was scheduled to begin May 18, 2020, has been adjourned to a future date. The court scheduled a status conference on May 18, 2020. This suit is pending.
 
Eagle Pharmaceuticals, Inc. et al. v. Accord (Argatroban)
On March 27, 2019, the Company and Chiesi filed suit against Accord Healthcare, Inc. (“Accord”) in the United States District Court for the District of New Jersey (the “New Jersey suit”) and in the United States District Court for the Middle District of North Carolina (the “North Carolina suit”) (together “the suits”). The suits alleged patent infringement based on Accord’s 505(b)(2) NDA seeking approval to manufacture and sell Accord’s proposed argatroban product. On May 21, 2019, the Company and Chiesi voluntarily dismissed the North Carolina suit. On July 10, 2019, Accord moved for judgment on the pleadings in the New Jersey suit. The New Jersey suit is currently pending.

13. Collaboration with Tyme
On January 7, 2020, Tyme and the Company announced a strategic collaboration to advance SM-88, an oral product candidate for the treatment of patients with cancer. SM-88 is an investigational agent in two Phase II studies, one for pancreatic cancer and another for prostate cancer.

Under the terms of the related agreements, Tyme is entitled to receive up to a total $40.0 million as follows:
(a) an initial $20.0 million upfront payment. In return, we received 10 million restricted shares of Tyme’s common stock at $2.00 per share. The Company is contractually restricted from selling its investment in Tyme for up to three years; and
(b) a second potential $20.0 million milestone payment upon the earlier of  (i) the successful completion of a pivotal trial in pancreatic cancer or (ii) FDA approval of SM-88 in any cancer indication within the United States. Upon occurrence of such milestone event, this payment would be split into a $10.0 million one-time milestone cash payment and a $10.0 million additional investment in Tyme's preferred stock. The preferred shares will be convertible into common stock with a conversion price at a 15% premium to the then-prevailing common stock market price per share.

Under the terms of a related co-promotion agreement, we would be responsible for 25% of the promotional sales effort of SM-88 and would receive 15% royalty on the net revenues of SM-88 in the United States. Tyme is be responsible for clinical development, regulatory approval, commercial strategy, marketing, reimbursement and manufacturing of SM-88. Tyme retains the remaining 85% of net U.S. revenues and reserves the right to repurchase our U.S. co-promotion right for $200.0 million.

Under the terms of the agreement, the initial $20.0 million paid to Tyme, was accounted for as a $17.5 million readily determinable fair value equity investment based on the closing price per share of Tyme's common stock on January 7, 2020. The remainder was treated as an upfront collaboration payment of $2.5 million that was recorded as selling, general and administrative expense in the first quarter of 2020. The investment in Tyme represents approximately 9% of the total shares outstanding of Tyme's common stock.
 
As of March 31, 2020, the Company included its investment in Tyme in Other Assets (non-current) on its condensed consolidated balance sheet. For the three months ended March 31, 2020, the fair value adjustments for the equity investment was $6.5 million which was recorded in Other expense of our condensed consolidated statements of operations.


23


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, or the Quarterly Report, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or the SEC, on March 2, 2020, or the Annual Report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under “Risk Factors” included elsewhere in this Quarterly Report. Such factors may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. Unless otherwise indicated or required by context, references throughout to “Eagle,” the “Company,” “we,” “our,” or “us” refer to financial information and transactions of Eagle Pharmaceuticals, Inc.


Overview
We are an integrated pharmaceutical company focused on finding ways to help medicines do more for patients. Along with our collaborators, we have the capabilities to take a molecule from preclinical research through regulatory approval and into the marketplace, including development, manufacturing and commercialization of our products and product candidates. Our business model applies our scientific expertise, proprietary research-based insights and marketplace proficiency to identify challenging-to-treat diseases of the central nervous system or metabolic critical care therapeutic areas as well as in oncology. By focusing on patients’ unmet needs, we strive to provide healthcare professionals with urgently needed treatment solutions that are designed to improve patient care and outcomes and create near- and long-term value for our stakeholders, including patients and healthcare providers and our employees, marketing partners, collaborators and stockholders.
Our science-based business model has a proven track record with FDA approval and commercial launches of three products: RYANODEX, BELRAPZO and BENDEKA. We market our products through marketing partners and/or our internal direct sales force. We market RYANODEX and BELRAPZO, and Teva markets BENDEKA through its subsidiary, Cephalon, Inc. Reflecting further expansion of our oncology portfolio, in February 2020, we received final FDA approval for PEMFEXY, a branded alternative to ALIMTA for metastatic nonsquamous nonsmall cell lung cancer and malignant pleural mesothelioma. We expect to launch PEMFEXY in early 2022.
With 11 pipeline projects underway and the potential for up to five or more product launches over the next several years, we believe we have many growth opportunities ahead. We believe that each of our pipeline projects currently has the potential to enter the market as a first-in-class, first-to-file or best-in-class product. In particular, we are applying our expertise to conduct novel research regarding the potential for RYANODEX to address conditions including exertional heat stroke, Alzheimer’s disease, traumatic brain injury/concussion, nerve agent exposure and acute radiation syndrome. In addition, our clinical development program includes a strategic partnership with Tyme for SM-88, a product candidate for the treatment of patients with pancreatic or other advanced cancers, as well as investigations of compounds such as EA-114 and our Fulvestrant product candidate for patients with HR-positive advanced breast cancer. Other products in development include Vasopressin, our first-to-file ANDA that references Endo International plc’s Vasostrict indicated to increase blood pressure in adults with vasodilatory shock who remain hypotensive despite fluids and catecholamines; and EA-111, a new chemical entity and next-generation ryanodine receptor antagonist, in an intramuscular formulation that that would allow for easier and more rapid administration in emergency situations (military and civilian).
 
Recent Developments

Clinical Trial of RYANODEX
On April 16, 2020, we announced that our product RYANODEX (dantrolene sodium) for injectable suspension was demonstrated to inhibit the growth of SARS-CoV-2, the virus causing the COVID-19 pandemic, in a controlled in vitro laboratory test. On April 14, 2020, we submitted Investigational New Drug (“IND”) application to U.S. Food and Drug Administration (“FDA”) for a Phase 2 clinical trial in partnership with Hackensack University Medical Center to evaluate the efficacy of RYANODEX (dantrolene sodium) in patients infected with SARS-CoV-2, the virus causing the COVID-19 pandemic. We have been in contact with the FDA’s Coronavirus Treatment Acceleration Program, or CTAP, to request potential expedited review of the IND application with the aim of beginning the clinical trial as soon as possible. We are partnering with Hackensack University Medical Center to conduct the controlled Phase 2 clinical trial in patients with COVID-19 to evaluate the effectiveness and safety of RYANODEX for the treatment of COVID-19 as adjunctive treatment to current standard of care. The World Health Organization Ordinal Scale of Severity, the Sequential Organ Failure Assessment and other relevant clinical

24


measurements will be used as efficacy endpoints. If we receive FDA authorization of our IND application, we expect the trial to begin enrolling approximately 60 adult patients hospitalized with COVID-19 and with confirmed SARS-CoV-2 infection in May 2020.

New Share Repurchase Program
On March 17, 2020, we announced that our Board approved a new share repurchase program, or the Share Repurchase Program, providing for the repurchase of up to an aggregate of $160.0 million of our outstanding common stock. The Share Repurchase Program replaces our existing share repurchase program, or the Previous Share Repurchase Program, which was announced on October 30, 2018 and was terminated in connection with the Board’s approval of the Share Repurchase Program. At termination, we had repurchased approximately $68.0 million of our outstanding common stock under the Previous Share Repurchase Program. On October 30, 2018, we announced that our Board had approved a share repurchase program providing for the repurchase of up to $150.0 million of our outstanding common stock, that consisted of (i) up to $50.0 million in repurchases pursuant to an accelerated share repurchase agreement, or the ASR, with JPMorgan Chase Bank, N.A., or JPMorgan, and (ii) up to $100.0 million in additional repurchases, or, collectively, the 2018 Share Repurchase Program. In connection with its approval of the 2018 Share Repurchase Program, the Board terminated our 2016 Share Repurchase Program and 2017 Share Repurchase Program in October 2018. As of March 31, 2020, we have repurchased an aggregate of 2,933,320 shares of common stock for $172.9 million.

COVID-19 Business Update
With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, we have taken precautions to help ensure the safety and well-being of our team members and the patients and healthcare providers who rely on our products, and have implemented processes and technologies to minimize disruption to our business and mitigate the impact of the COVID-19 pandemic on our stakeholders. While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to closely monitor the COVID-19 situation as we evolve our business plans and response strategy. The impact of COVID-19 pandemic on our business and financial condition is more fully described below in Trends and Uncertainties.


Financial Operations Overview

Revenue

Our revenue consists of product sales, royalty revenue and license and other revenue.
Product Sales. Through March 31, 2020, we have recognized revenues from product sales of BENDEKA, Argatroban, RYANODEX and BELRAPZO. Sales of BENDEKA were made to our commercial partner Teva, while Argatroban was sold directly to our commercial partners Chiesi and Sandoz AG, or Sandoz. Sales to our commercial partners are typically made at little or no profit for resale. RYANODEX and BELRAPZO were sold directly to wholesalers, hospitals and surgery centers through a third-party logistics partner.
We typically enter into agreements with group purchasing organizations acting on behalf of their hospital members, in connection with the hospitals’ purchases of our direct commercial products. Based on these agreements, most of our hospital customers have contracted prices for products and volume-based rebates on product purchases. These amounts are estimated and recorded at the time of sale. In the case of discounted pricing, we typically pay a chargeback, representing the difference between the price invoiced to the wholesaler and the customer contract price.
Royalty Revenue. We recognize revenue from royalties based on a percentage of Teva’s net sales of BENDEKA and Sandoz’s and Chiesi’s gross profit of Argatroban, both net of discounts, returns and allowances incurred by our commercial partners. Royalty revenue is recognized as earned in accordance with contract terms when it can be reasonably estimated and collectability is reasonably assured.
License and Other Revenue. Our revenues may either be in the form of the recognition of deferred revenues upon milestone achievement for which cash has already been received or recognition of revenue upon milestone achievement the payment for which is reasonably assured to be received in the future.
The primary factors that determine our revenues derived from BENDEKA are:
the level of orders submitted by our commercial partner, Teva;
the rate at which Teva can convert the current market to BENDEKA;
the level of institutional demand for BENDEKA;

25


unit sales prices charged by Teva, net of any sales reserves; and
the level of orders submitted by wholesalers, hospitals and surgery centers.
The primary factors that may determine our revenues derived from Argatroban are:
the level of orders submitted by our commercial partners, Sandoz and Chiesi;
the level of institutional demand for Argatroban; and
unit sales prices charged by Sandoz and Chiesi, net of any sales reserves.
The primary factors that may determine our revenues derived from RYANODEX, BELRAPZO and our future products are:
the effectiveness of our sales force;
the level of orders submitted by wholesalers, hospitals and surgery centers;
the level of institutional demand for our products; and
unit sales prices, net of any sales reserves.

Cost of Revenues
Cost of revenue consists of the costs associated with producing our products for our commercial partners. In particular, our cost of revenue includes production costs of our products paid to a contract manufacturing organization coupled with shipping and customs charges, cost of royalty and the amortization of intangible assets. Cost of revenue may also include the effects of product recalls, if applicable.

Research and Development
Costs for research and development are charged to expenses as incurred and include: employee-related expenses including salaries, benefits, travel and stock-based compensation expense for research and development personnel; expenses incurred under agreements with contract research organizations, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies; costs associated with preclinical activities and development activities; costs associated with regulatory operations; and depreciation expense for assets used in research and development activities.
Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid expenses or accrued expenses as deemed appropriate.

Selling, General and Administrative
Selling, general and administrative costs consist primarily of salaries, benefits and other related costs, including stock-based compensation for executive, finance, sales and operations personnel. Selling, general and administrative expenses also include facility and related costs, professional fees for legal, consulting, tax and accounting services, insurance, selling, marketing, market research, advisory board and key opinion leaders, depreciation and general corporate expenses.

Income Taxes
We account for income taxes using the liability method in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 740, “Income Taxes,” or ASC 740.  Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled.  Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that the rate changes.  A valuation allowance is required when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. ASC 740 also prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction.  We recognize any interest and penalties accrued related to unrecognized tax benefits as income tax expense.

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Results of Operations
Comparison of Three Months Ended March 31, 2020 and 2019
Revenues
 
Three Months Ended 
 March 31,
 
Increase / (Decrease)
 
2020
 
2019
 
 
(in thousands)
Product sales
$
17,694

 
$
14,472

 
$
3,222

Royalty revenue
28,326

 
26,313

 
2,013

License and other revenue

 
9,000

 
(9,000
)
Total revenue
$
46,020

 
$
49,785

 
$
(3,765
)
Product sales increased $3.2 million in the three months ended March 31, 2020 as compared to the three months ended March 31, 2019. The contributing factors to the increase primarily included an increase of $7.4 million in product sales of RYANODEX®(dantrolene sodium) and a $1.3 million increase in BELRAPZO. These increased sales were partially offset by a decrease of $5.0 million in product sales of BENDEKA primarily due to volume decrease.
Royalty revenue increased $2.0 million in the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 as a result of a $2.0 million increase in royalty revenue from our share of Teva's BENDEKA sales.

The decrease in License and other revenue for the quarter ended March 31, 2020 was due to the non-recurrence of an upfront cash payment of $9.0 million upon execution of an amendment to the Cephalon License to terminate Teva’s obligation to pay future milestones and royalties on Bendeka sales outside of the U.S that was executed in the three months ended March 31, 2019.

Cost of Revenue
 
Three Months Ended 
 March 31,
 
Decrease
 
2020
 
2019
 
 
(in thousands)
Cost of product sales
$
4,765

 
$
9,554

 
$
(4,789
)
Cost of royalty revenue
3,038

 
3,546

 
(508
)
Total cost of revenue
$
7,803

 
$
13,100

 
$
(5,297
)

Cost of product sales decreased $4.8 million in the three months ended March 31, 2020 to $4.8 million as compared to $9.6 million in the three months ended March 31, 2019, primarily as a result of the decrease in product sales for BENDEKA of $5.0 million.

Cost of royalty revenue decreased $0.5 million in the three months ended March 31, 2020 to $3.0 million as compared to $3.5 million in the three months ended March 31, 2019, primarily as a result of the decrease in royalty revenue for BENDEKA.

Research and Development
The table below details the Company’s research and development expenses by significant project for the periods presented.
 
Three Months Ended March 31,
 
Increase / (Decrease)
 
2020
 
2019
 
 
(in thousands)
Fulvestrant “EGL-5385-C-1701”
$
2,801

 
$
187

 
$
2,614

Vasopressin
283

 
1,317

 
(1,034
)
RYANODEX EHS “EP-4104”
1,287

 
$
555

 
732

All other projects
641

 
$
926

 
(285
)
Salary and other personnel related
$
4,415

 
$
3,390

 
1,025

Research and development
$
9,427

 
$
6,375

 
$
3,052




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Research and development expenses increased $3.1 million in the three months ended March 31, 2020 to $9.4 million as compared to $6.4 million in the three months ended March 31, 2019. The increase primarily resulted from our increased project spending for EGL-5385-C-1701 (the Company’s Fulvestrant formulation) of $2.6 million