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EX-32.1 - EX-32.1 - JUNIPER PHARMACEUTICALS INCjnp-ex321_10.htm
EX-31.1 - EX-31.(I).1 - JUNIPER PHARMACEUTICALS INCjnp-ex311_201.htm
EX-23.2 - EX-23.2 - JUNIPER PHARMACEUTICALS INCjnp-ex232_203.htm
EX-23.1 - EX-23.1 - JUNIPER PHARMACEUTICALS INCjnp-ex231_287.htm
EX-21 - EX-21 - JUNIPER PHARMACEUTICALS INCjnp-ex21_264.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

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 1-10352

 

JUNIPER PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

59-2758596

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

33 Arch Street

Boston, Massachusetts

02110

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code:

(617) 639-1500

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.01 par value

NASDAQ Global Select Market

(Title of each class)

(Name of exchange on which registered)

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or a smaller reporting 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

 

 

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.  Yes  ☐    No  ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

The aggregate market value of Common Stock held by non-affiliates of the registrant on June 30, 2017, based on the adjusted closing price on that date of $5.05, was $52,653,764.

Number of shares of Common Stock of Juniper Pharmaceuticals, Inc. issued and outstanding as of March 2, 2018 is 10,975,208.

 

 

 

 


Index to Annual Report on Form 10-K

Fiscal Year Ended December 31, 2017

 

 

 

Page

 

 

 

Part I

 

 

 

Item 1

Business

 

4

Item 1A

Risk Factors

 

31

Item 1B

Unresolved Staff Comments

 

59

Item 2

Properties

 

59

Item 3

Legal Proceedings

 

59

Item 4

Mine Safety Disclosures

 

59

 

 

 

 

Part II

 

 

 

Item 5

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

60

Item 6

Selected Financial Data

 

62

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

63

Item 7A

Quantitative and Qualitative Disclosures about Market Risks

 

81

Item 8

Financial Statements and Supplementary Data

 

81

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

81

Item 9A

Controls and Procedures

 

81

Item 9B

Other Information

 

83

 

 

 

 

Part III

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

 

84

Item 11

Executive Compensation

 

84

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

84

Item 13

Certain Relationships and Related Transactions, and Director Independence

 

84

Item 14

Principal Accountant Fees and Services

 

84

 

 

 

 

Part IV

 

 

 

Item 15

Exhibits and Financial Statement Schedules

 

85

Item 16

Form 10K Summary

 

89

 

 

 

SIGNATURES

 

90

 

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Forward-Looking Information

This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements that involve risk and uncertainties. Generally, forward-looking statements can be identified by words such as “may,” “will,” “plan,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “should,” “estimate,” “predict,” “project,” “would,” and similar expressions, which are generally not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future – including statements relating to our future operating or financial performance or events, our strategy, goals, plans and projections regarding our financial position, our liquidity and capital resources, and our product development – are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain known and unknown risks, uncertainties and factors that may cause actual results to differ materially from our Company’s historical experience and our present expectations or projections.

Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important risk factors in the cautionary statements included in this Annual Report, particularly in Part 1 – Item 1A and in our other public filings with the Securities and Exchange Commission (the “SEC”) that could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Annual Report and the documents that we have filed as exhibits to the Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

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PART I

Item  1.

Business

OVERVIEW

We are a diversified healthcare company with core businesses consisting of our Crinone® (progesterone gel) (“Crinone”) franchise and our fee-for-service pharmaceutical development and manufacturing business called Juniper Pharma Services (“JPS”). In addition, we are seeking to use our differentiated intravaginal ring (“IVR”) technology to advance a pipeline of product candidates intended to address unmet needs in women’s health, through either internal development or external partnering. We are actively exploring business development collaborations, including opportunities that could leverage our IVR technology and/or the pharmaceutical development capabilities of JPS.

In January 2018, we announced that we would be exploring strategic alternatives in order to enhance shareholder value. We engaged Rothschild Global Advisory Group as our independent financial advisor to assist us and our Board of Directors in evaluating potential strategic alternatives.

In September 2017, we announced a reduction of approximately 8% of our workforce, primarily in the areas of new product research and development, in order to focus our resources on our core businesses. In addition, as part of our more focused research and development strategy, we completed our in vivo preclinical studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018. At the completion of the in vivo preclinical studies and based on our preliminary assessment of the relative clinical data and development funding requirements of our three IVR product candidates, we plan to seek the support of one or more partners for our IVR product candidates to potentially include our entire IVR platform.

Our commercial product and product development programs utilize our proprietary drug delivery technologies, which we believe are suited to applications in women’s health. These technologies consist of our bioadhesive delivery system (“BDS”), a polymer designed to adhere to epithelial surfaces or mucosa and achieve sustained and controlled delivery of active drug product, and our novel IVR technology.

We currently receive product revenues from Crinone, an 8% progesterone bioadhesive vaginal gel designed for progesterone supplementation or replacement as part of an assisted reproductive technology (“ART”) treatment for infertile women with progesterone deficiency. We supply Crinone to Merck KGaA (“Merck KGaA”) internationally, and sold the rights to Crinone to Allergan, plc (“Allergan”) in the United States (the “U.S.”). In January 2018, we announced the extension of the supply agreement with Merck KGaA for an additional 4.5-years through at least December 31, 2024.

Through our subsidiary, JPS, we offer a range of sophisticated technical services to the pharmaceutical and biotechnology industry on a fee-for-services basis. Within our services offering, we provide our customers expertise on the characterization, development and manufacturing of small molecule compounds. Our services model allows us to take our customers’ drug candidates from early development through to clinical trials manufacturing. We also support our customers with advanced analytical and consulting services for intellectual property issues, and we have particular expertise in problem solving for challenging compounds that are considered “difficult to progress.”

Our strategy is to support the growth of Crinone in key markets and expand both the JPS technical and geographic reach, while at the same time advancing a pipeline of new product candidates through external partnering. We believe this strategy positions us well for capital-efficient growth. Internally-funded research and development expenditures were $6.9 million, $9.7 million and $7.0 million for the fiscal years ended December 31, 2017, 2016 and 2015, respectively.

Our commercial product and product development programs are described below: 

 

 

CRINONE, an 8% progesterone bioadhesive vaginal gel for progesterone supplementation or replacement as part of an ART treatment for infertile women with progesterone deficiency, is approved for marketing in the United States, Europe, and many additional countries around the world. Crinone is the primary source of our commercial revenue. We have licensed Crinone to our commercial partner, Merck KGaA, for all markets outside the United States, and we received product

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revenues from the manufacture and sale of Crinone to Merck KGaA internationally. We sold the U.S. intellectual property rights to Crinone to Allergan in 2010, and received royalty revenues from Allergan based on its U.S. sales through October 2016.  In November 2016, we entered into an agreement with Allergan to monetize future royalty payments due to us. Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments to us.

 

JNP-0101 is an IVR product candidate designed to deliver oxybutynin for the treatment of overactive bladder (“OAB”) in women. Oxybutynin is currently approved for the treatment of OAB, however, oral oxybutynin therapy is frequently discontinued by patients due to undesirable side effects including dry mouth, blurred vision, and constipation. We expect that the delivery of oxybutynin using our IVR technology will provide an improved side effect profile as the drug will bypass first pass hepatic metabolism issues. In the case of oxybutynin the drug is metabolized in the liver to an active metabolite resulting in increased central nervous system (“CNS”) side effects.  In addition, we believe that delivery using our IVR technology will improve patient compliance and convenience versus other routes of administration, including oral therapies, patches, and gels. We completed our preclinical animal studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018.  Pending the final results of these studies, we plan to seek a partner for our JNP-0101 product candidate, on a stand-alone basis or in combination with one or more of our other IVR program candidates.

 

JNP-0201 is a segmented IVR product candidate containing both natural progesterone and natural estradiol to be used for HRT in menopausal women. JNP-0201 has been designed to deliver natural hormones locally to vaginal tissue. This is another example where avoiding first pass, hepatic metabolism of estradiol may result in an improved side-effect profile. We also believe our delivery approach will provide an improvement in the beneficial effects of estradiol when compared to the currently approved combination HRT therapies; these include orally administered formulations utilizing synthetic progestogens, which have been associated in published clinical trials with higher risk of side effects including cardiovascular events. In addition, we believe that delivery using our IVR technology will improve patient compliance and convenience versus other routes of administration, including oral therapies and patches.  We completed our preclinical animal studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018.  Pending the final results of these studies, we may seek a partner for our JNP-0201 product candidate, on a stand-alone basis or in combination with one or more of our other IVR program candidates.

 

JNP-0301 is a natural progesterone IVR product candidate for the prevention of preterm birth (“PTB”) in women with a short cervical length. Short cervical length at mid-pregnancy is a critical predictor of preterm birth in women. Medical guidelines issued by the American College of Obstetricians and Gynecologists and the Society of Maternal Fetal Medicine, among others, support use of vaginal progesterone in women with a short cervical length at mid-pregnancy to reduce the risk of PTB. There is no FDA approved therapy to prevent PTB in women at risk due to short cervix. We believe JNP-0301 can enable the consistent local delivery of progesterone while facilitating patient compliance. We completed our preclinical animal studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018.  Pending the final results of these studies, we plan to seek a partner for our JNP-0301 product candidate, on a stand-alone basis or in combination with one or more of our other IVR program candidates.

In August 2016, we announced that the Phase 2b clinical trial evaluating COL-1077 (10% lidocaine bioadhesive vaginal gel) for the reduction of pain intensity in women undergoing an endometrial biopsy with tenaculum placement did not achieve its primary and secondary endpoints. The safety and pharmacokinetic (PK) profiles of COL-1077 were consistent with what has been observed in prior clinical trials of the lidocaine bioadhesive vaginal gel. Based on the outcome of this study we discontinued further development of COL-1077 and reallocated resources to our preclinical programs.

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OUR STRATEGY

Our strategy is to grow Crinone in key markets and expand both the JPS technical and geographic reach. Key elements of our strategy include:

 

Supplying Crinone to our commercial partner, Merck KGaA, for sale in over 90 countries around the world;

 

Growing revenue from our formulation, analytical and product development capabilities at JPS, and potentially deploying those same capabilities for the advancement of our in-house product candidates; and

 

Finalizing the results of our in vivo preclinical animal studies for our IVR program in the first half of 2018 with the goal of seeking one or more partners for our IVR product candidates or IVR platform.

OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES

We have two key proprietary drug delivery technologies:

Bioadhesive Delivery System

Our BDS is a unique drug delivery technology that facilitates binding to mucosal surfaces (buccal and vaginal areas) upon administration, and allows release of the active drug in a controlled and sustained manner until the BDS gel is discharged upon normal cell turnover. This occurs every three to five days for the vaginal epithelium, and up to every 24 hours for the oral mucosa. Our BDS is utilized in Crinone.

The key BDS ingredient is polycarbophil, which is a non-immunogenic, hypo-allergenic, bioadhesive polymer. Polycarbophil bonds to the cells of the body’s mucosal surfaces upon administration. This happens because polycarbophil mimics negatively charged mucin, the glycoprotein component of mucus that is responsible for its attachment to underlying epithelial surfaces.

Intravaginal Ring Technology

In March 2015, we obtained an exclusive worldwide license to the intellectual property rights for a novel segmented IVR technology. This IVR technology has the potential to deliver one or more drugs, including hormones and larger molecules such as peptides, at different dosages and release rates within a single segmented ring. Drugs such as progesterone and leuprolide have already been tested using the technology and demonstrated sustained release for up to three weeks.

We believe our proprietary multi-segment IVR may have advantages over currently available intravaginal rings for the reasons described below.

Homogenized, Membrane-Free-Design

Currently marketed intravaginal rings utilize a polymer membrane to control the delivery of a single drug to the patient from the ring. The two membrane ring types in use are reservoir-type and sandwich type. Reservoir rings utilize a drug-loaded core that is encapsulated by a polymer membrane. Sandwich-type rings utilize a drug-loaded layer between a core, typically silicone, and a polymer membrane. The inherent risk associated with membrane rings is “drug dumping” which occurs if the membrane ruptures or tears.

By contrast, our IVR has a solid homogenous cross-section with drug and specific excipients distributed within an ethylene vinyl acetate (“EVA”) polymer. The ring is manufactured using hot melt extrusion with no drug reservoirs or layers and active drug is released to the patient by diffusions through the polymer.

Molecular Weight Not Limited to Small Molecules

Reservoir and sandwich type rings are limited in the size of molecules, typically small molecules, they are able to deliver due to the use of a polymer membrane. By contrast, to date, no molecular weight limit has been

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identified for our IVR, and preclinical and clinical studies, including a study by Kimball et al, published in the Journal of Controlled Release in May 2016, have demonstrated its ability to deliver larger sized peptides and lipophilic hormones1.

This publication describes a Phase 1 clinical trial in which our IVR was used to administer leuprolide, a nine amino acid peptide. Serum leuprolide levels rose within eight hours to levels typically seen following parenteral injections. This was the first demonstration of trans-epithelial delivery of leuprolide across the vaginal mucosa, and provided proof-of-concept demonstrating that we could achieve therapeutic levels with our IVRs.

Segmentation Capability

To date, membrane rings have been limited to delivering a single drug at a single dosage range. Our IVR technology allows a ring to be designed to deliver one or more drugs in a single ring using specific drug segments, with each segment designed based on its own dose delivery criteria. Each segment is specifically designed and produced and the segmented ring is assembled using proprietary know-how, thus allowing generation of new intellectual property as each new combined drug-device is created.

We believe our IVR technology may provide the basis for developing products we could bring to market ourselves as well as products in which we expect there would be significant partnering interest.

In September 2017, we announced a strategic reprioritization to allow us to focus our resources on our core business of Crinone and JPS. In addition, as part of our more focused research and development strategy, we completed our in vivo preclinical animal studies for our IVR program, and based on the final results of these studies in the first half of 2018, we plan to seek the support of one or more partners for our IVR product candidates.

COMMERCIAL PRODUCT

CRINONE

Crinone is a progesterone gel designed for progesterone supplementation or replacement as part of ART for infertile women with progesterone deficiency. Crinone is approved for marketing in the United States, Europe, Asia, Japan and certain other markets, and the primary source of our commercial revenue. We have licensed Crinone to our commercial partner, Merck KGaA, for the markets outside the United States and we receive product revenues from the manufacture and sale of Crinone internationally. In 2010, we sold the U.S. intellectual property rights of Crinone to Allergan, and received royalty revenues from Allergan based on their U.S. sales through October 2016.  In November 2016, we entered into an agreement with Allergan to monetize future royalty payments due to us. Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments to us.

Crinone continues to be introduced in new countries by Merck KGaA. In April 2013, our license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five-year term, extending the expiration date to May 19, 2020. Under the terms of our current license and supply agreement with Merck KGaA, we sell Crinone to Merck KGaA on a country-by-country basis at the greater of (i) direct manufacturing cost plus 20% or (ii) a percentage of Merck KGaA’s net selling price based on a tiered structure. Additionally, we are jointly cooperating with Merck KGaA to evaluate and implement clinical manufacturing cost reductions, with both parties sharing any benefits realized from these initiatives. In January 2018, we announced the extension of this supply agreement for an additional 4.5-years through at least December 31, 2024. This extension allows for a volume tiered, fixed price per unit with minimum annual volume guarantees, beginning on July 1, 2020.

If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all of the Company’s assets related to the Crinone supply chain and to transfer the manufacturing to a third party or take over the management of the supply of the product. See “– Collaboration Agreements – Merck KGaA.”

 

1 

Kimball A et al, A novel approach to administration of peptides in women: Systemic absorption of a GnRH agonist via transvaginal ring delivery system. J Control Release, 2016 Jul 10;233;19-28.

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PHARMACEUTICAL SERVICE BUSINESS

JPS, our pharmaceutical service business, offers a range of sophisticated technical services to the pharmaceutical and biotechnology industry. Our customers range from start-up biotechnology firms to global pharmaceutical companies.

Within our services offering, we provide expertise to our customers on the characterization, development, and manufacturing of pharmaceutical compounds for clinical trials. We believe we have particular expertise in problem solving for challenging compounds that are considered “difficult to progress.” Our service model allows us to take our customers’ product candidates from early development through clinical trial manufacturing. We also support our customers with advanced analytical and consulting services for intellectual property issues. We deploy these same capabilities for our in-house proprietary product development activities.

Through JPS, we also manage the global supply chain and contract manufacturing of Crinone, for our partner, Merck KGaA.

OUR PRECLINICAL PROGRAMS

In September 2017, we announced a strategic reprioritization to allow us to focus our resources on the core businesses of Crinone progesterone gel and JPS and, as part of our more focused research and development strategy, we completed our in vivo preclinical animal studies for our IVR program and based on the final results of these studies, we plan to seek the support of one or more partners for our IVR product candidates.

JNP-0101

Overactive Bladder

OAB is a widespread, chronic condition caused by involuntary contraction of the detrusor muscles before the bladder is full. OAB affects approximately 20 million women in the United States, with an estimated nine million receiving pharmacotherapy to treat the condition. In 2015, the U.S. OAB market was estimated to be $2.3 billion.

The most common prescription drug is generic oral oxybutynin. Oxybutynin addresses OAB by decreasing muscle spasms of the bladder and the frequent urge to urinate caused by these spasms. Unfortunately, more than 70% of women discontinue oxybutynin within the first year due to adverse events (45-55%) or perceived inadequate efficacy (~25%). According to Technavio Insights, 7 to 9 million women are eligible for OAB treatment and approximately 6.8 million patients failed oral oxybutynin. Current branded therapies range from $3,000-4,000 per year. We believe that a new therapy that demonstrates improved side effect profile could support pricing above the current generic products.

Our Solution – JNP-0101

JNP-0101, our novel oxybutynin IVR, has the potential to address the most pressing unserved clinical needs in the treatment of OAB. By delivering oxybutynin intravaginally, JNP-0101 leverages the region’s shared vascular and lymphatic networks to achieve localized absorption of oxybutynin by relevant tissues, while bypassing hepatic first pass metabolism. We anticipate an improvement in the side effect profile of oxybutynin using this delivery route, in addition to improved compliance afforded by a once monthly ring insertion. We believe JNP-0101 has the potential to increase convenience in many patients and improve disease management and overall outcomes.

Supporting Data

Initial proof-of-concept for JNP-0101 was provided by multiple peer reviewed publications on the safety and efficacy of a once-monthly oxybutynin vaginal ring. The ring evaluated in these studies was a reservoir-type ring constructed of molded silicone with a cylindrical cavity into which the oxybutynin or placebo material was loaded. By contrast, JNP-0101 is constructed of ethylene vinyl acetate with the oxybutynin homogenized throughout.

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In these studies, delivery of oxybutynin was found to offer women a once-monthly treatment option for OAB. However, the molded silicone oxybutynin IVR evaluated was not brought to market by the sponsor due to factors that included its decision to exit women’s health.

JNP-0201

JNP-0201 is a segmented IVR containing both natural progesterone and estradiol for HRT in menopausal women. This delivery approach is expected to provide an improved side effect profile as natural hormones will be delivered locally to vaginal tissue where they are needed. In addition, delivery using our IVR technology is expected to improve patient compliance and convenience versus other routes of administration, including oral and transdermal approaches.

Hormone Replacement Therapy

In the United States, there is a large and growing market for HRT. In 2015, the U.S. HRT market was estimated at over $4 billion, comprising both pharmacy-compounded and FDA-approved therapies, of which prescription for oral hormone therapy accounted for $2 billion in U.S. sales on 21 million prescriptions.

While there are nearly 40 FDA-approved HRT products on the market, the HRT combination therapies fall short. Currently, HRT combination therapies only occupy approximately 30% of the U.S. HRT market. All FDA-approved HRT combination products contain synthetic progestin rather than natural progesterone; recent studies suggest natural progestogens are associated with fewer cardiovascular adverse events. In addition, all current combination HRT products are orally administered, which cause extensive first pass metabolism and require daily dosing.

In 2012, the North American Menopause Society (“NAMS”) issued a Consensus Statement which supports HRT in peri- and post-menopausal women. This statement endorsed use of HRT in women within 10 years of menopause, concluded that hormone treatment should be individualized based on each patient’s personal risk factors, and identified a growing body of evidence that HRT formulation, route of administration, and the timing of therapy produce different biologic effects. In 2017, the NAMS updated their 2012 statement and reaffirmed and strengthened their position statement that estradiol- based HRT continues to be the most effective therapy to reduce symptoms of menopause and to prevent bone loss and fracture.

These position statements are endorsed by many important health organizations, including the Academy of Women’s Health, the American Association of Clinical Endocrinologists, the American Society for Reproductive Medicine, and the Association of Reproductive Health Professionals. This underscores the need for new and innovative treatment options such as an IVR administration, and reaffirms our commitment to furthering our IVR platform.

We expect that as a result of the 2017 NAMS Statement, the percentage of the approximately 45 million American women who are menopausal or approaching menopause who receive HRT will increase.

Our Solution – JNP-0201

We believe that JNP-0201, our combination estrogen and progesterone IVR product candidate, has the potential to offer patients multiple benefits as compared with currently available therapies, including: integrated administration of natural progesterone and natural estrogen; improved patient compliance; improved side effect profile; and continuous local vaginal delivery of natural hormones, while eliminating the need for daily administration.

JNP-0301

JNP-0301 is a natural progesterone IVR for the prevention of PTB in women with a short cervical length at mid-pregnancy. Short cervical length at mid-pregnancy is a critical predictor of PTB in women, and medical guidelines support use of vaginal progesterone for treatment of this condition. There is no FDA-approved

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therapy to prevent PTB in women at-risk due to short cervix. We believe JNP-0301 has the potential to enable the consistent local delivery of progesterone improving patient compliance.

Preterm Birth due to Short Cervical Length

PTB, defined as delivery before 37 weeks gestation, is a significant public health issue. Globally, 15 million babies are born prematurely each year, and approximately one million die due to PTB complications.  In the United States, approximately 10% of live-births are delivered prematurely. In a typical pregnancy, the average cervical length at 24 weeks gestation is 35mm; short cervical length is generally considered 10 mm – 30 mm.  A review of 39,000 cases of PTB found that short cervical length at mid-pregnancy was the most important single predictor of PTB2. Over 30% of cases of PTB have short cervical length at mid-pregnancy. Approximately 400,000 women in the United States are estimated to be at risk for PTB due to short cervical length.  The incidence of this condition is expected to rise as more physicians adopt the current medical guidelines to screen for short cervical length in all pregnant women.

Clinical data strongly support the use of vaginal progesterone for prevention of PTB. Furthermore, there is clear consensus that vaginal progesterone should be used for prevention of PTB in women with short cervical length at mid-pregnancy, including Medical Practice Guidelines from the Society for Maternal-Fetal Medicine, an American Congress of Obstetricians and Gynecologists (“ACOG”) Committee Opinion, and an Issue Brief from Medicaid Health Plans of America. Despite the medical need and cost savings associated with prevention of PTB, there are currently no products that are FDA approved to prolong gestation in this patient population.

Our Solution – JNP-0301

JNP-0301, our progesterone IVR, may offer meaningful benefits to pregnant women with short cervical length. By providing continuous, consistent, local delivery of natural progesterone, this product candidate may increase patient compliance as compared to current off-label progestogens, which require daily administration, thereby potentially improving overall outcomes.

MANUFACTURING AND COMMERCIALIZATION

Our business strategy includes pursuing collaborative arrangements with third parties to complete the development and commercialization of our product candidates, including our IVR program. Even if we were to internally develop our product candidates, we plan to use a third-party contract manufacturer for the clinical supply and commercial manufacture of these product candidates.

Our ability to conduct later-stage clinical trials, manufacture and commercialize our product candidates may depend on the ability of third-party manufacturers to manufacture our product candidates on a large scale at a competitive cost and in accordance with current Good Manufacturing Practices (“cGMP”), and foreign regulatory requirements, if applicable.

Use of third-party manufacturers limits our control over and ability to monitor the manufacturing process. As a result, we may not be able to detect a variety of problems that may arise in the manufacturing process, and we may incur additional costs in the process of interfacing with and monitoring the progress of our contract manufacturers. If third-party manufacturers fail to meet our manufacturing needs in an acceptable manner, we would face delays and additional costs while we develop internal manufacturing capabilities or find alternate third-party manufacturers. It may not be possible to have multiple third-party manufacturers ready to supply us with needed material at all or without incurring significant costs.

SOURCES OF SUPPLY

The major raw materials we use in our products and product candidates are polycarbophil, progesterone and ethylene vinyl acetate (“EVA”).

 

2 

To, MS, et al (2006).  Ultrasound Obstet Gynecol, 27: 362-367. Koi: 10.1002/uog.2773

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Medical grade, cross-linked polycarbophil, the polymer used in our BDS-based product, Crinone, is currently available from only one supplier, Lubrizol, Inc. (“Lubrizol”). We believe that Lubrizol will supply as much of the material as we require because our product ranks among the highest value-added uses of the polymer. In the event that Lubrizol cannot or will not supply enough polycarbophil to satisfy our needs, however, we will be required to seek alternative sources of supply.

Currently we only have one supplier of progesterone for Crinone approved by regulatory authorities in all the countries in which we sell Crinone outside the United States. To date, we have not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone. We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.

Our IVR technology utilizes medical grade EVA polymer for which there are a limited number of vendors.  We are not aware of any companies, other than our existing supplier, which manufacture EVA meeting the specifications required for use in our pharmaceutical IVR application.  We have purchased cGMP pharmaceutical grade EVA from a single supplier for development applications but have not entered into a commercial supply agreement.  Even if an acceptable commercial supply agreement can be negotiated with our existing supplier, it may not be possible to identify a back-up, or second source of EVA, should they be unable to supply material, for any reason.

As discussed in greater detail in Item 1A of this Annual Report, the loss of any of our current third-party suppliers of raw materials for our product and product candidates could impair our ability to manufacture and sell our products.

COMPETITION

We and our commercial partners compete against established pharmaceutical companies who market products and services addressing the same markets and patient needs. Further, numerous companies are developing, or may develop, enhanced delivery systems, products and services that compete with our present and proposed products and services. It is possible that we may not have the resources to withstand these and other competitive forces. Some of these competitors possess greater financial, research and technical resources than us or our partners. Moreover, these companies may possess greater marketing capabilities than we or our partners possess, including the resources to implement extensive advertising campaigns.

The pharmaceutical industry is subject to change as new delivery technologies are developed, new products enter the market, regulatory requirements change, generic versions of available drugs become available and treatment paradigms evolve to reflect these and other medical research discoveries. We face significant competition in all areas of our business. The rapid pace of change in the pharmaceutical industry continually creates new opportunities for competitors and start-ups and can quickly render existing products, technologies and services less valuable. Customer requirements and physician and patient preferences continually change as new treatment options emerge, are more or less heavily promoted, and become less expensive. As a result, we and our partners may not gain, and may lose, market share.

According to published reports, menopause, post-menopause, osteoporosis, breast cancer, and polycystic ovary syndrome (“PCOS”) are the most common issues affecting women’s health in the U.S. The US market for women’s health is expected to grow from nearly $19.5 billion in 2015 to over $25.3 billion by 2020. The women’s health therapeutics market is one of the most attractive markets in the global pharmaceutical industry. Hormone therapy, gynecological disorders and musculoskeletal disorders in women are the prime area of focus in the women’s health therapeutics market.

CRINONE

Crinone, a natural progesterone product, competes in markets with other progestins, both synthetic and natural, that may be delivered by pharmacy-compounded injections or vaginal suppositories, including Prometrium®

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(oral micronized progesterone) marketed by Abbott Laboratories, and Endometrin® (progesterone vaginal insert) marketed by Ferring Pharmaceuticals, Inc.

Juniper Pharma Services

There is a range of large and smaller scale competitors who compete with JPS, providing similar pharmaceutical development and consulting services. Some of these competitors have greater financial and human resources than we do and have established reputations, as well as worldwide distribution channels and sales and marketing capabilities, that are larger and more established than ours.

Additional competitors may also enter the market, and we are likely to compete with new companies in the future.

Competition among organizations providing pharmaceutical development and analytical services is characterized by technical expertise and reputation, breadth of technical services, budget considerations, and the ability to timely meet the customer’s requirements. Accordingly, our success depends in part on establishing, maintaining and expanding our client base, offering new innovative services and maintaining regulatory and quality compliance.

Potential customers also may decide not to purchase our services, or to delay such purchases, due to technical, clinical, regulatory or financial considerations beyond our control. In addition, we expect that competitive pressures may result in price competition, which could affect our profitability.

JNP-0101

JNP-0101 is our IVR designed to deliver oxybutynin to treat OAB in women.

Oxybutynin is currently approved for the treatment of OAB in oral and transdermal gel formulations. Oral oxybutynin chloride tablets are the most widely prescribed formulation of this antimuscarinic agent, the first of which was approved in 2006. Gelnique ® (oxybutynin chloride 10% topical gel), marketed by Allergan, was approved by the FDA in 2009.

Additional antimuscarinics approved for the treatment of OAB include VESIcare® (solifenacin) marketed by Astellas Pharma Inc. (“Astellas”) and Detrol LA ® (tolterodine), Toviaz ® (fesoterodine), and Enablex ® (darifenacin), all marketed by Pfizer. Additionally, the beta agonist Mybetriq ® (mirabegron) was approved by the FDA in 2012 and is marketed by Astellas. Other treatments include Allergan’s Botox® (botulinum toxin type A) which was approved for OAB in 2013.

There are currently ongoing clinical trials for several prospective OAB therapeutics, including Premarin® vaginal cream and the Axonics Sacral Neuromodulation System, which received marketing approval in Canada and the CE Mark.  Additionally, there is a combination of already approved oral therapies being developed by Astellas.

JNP-0201

JNP-0201 is our combination estrogen and progesterone IVR candidate designed to be used for HRT in menopausal women.

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Since 2013, there has been increased oversight by the FDA on all non-FDA approved combination therapies, supplied by compounding pharmacies and commonly referred to as “bioidentical” drugs. These non-approved drugs are difficult to measure and monitor by the FDA, leading to concerns over safe use. JNP-0201, if approved, will offer an alternative combination therapy. The largest competitors in the FDA-approved market are Pfizer with Premarin (conjugated estrogens) and Prempro (conjugated estrogens/medroxyprogesterone acetate tablets) Mylan, with Barr (generic estradiol) and Noven (minivelle), with sales of Prempro leading combination therapeutics used for HRT in menopausal women. It was approved by the FDA in 1995 for use in women with an intact uterus for the treatment of moderate to severe vasomotor symptoms and/or vulvar and vaginal atrophy due to menopause, and for the prevention of postmenopausal osteoporosis.

None of the current FDA-approved therapies for the treatment of moderate to severe VMS due to menopause are bioidentical to the estradiol and progesterone the ovaries produce. U.S. sales of non-FDA approved compounded hormone therapy products are very fragmented as these drugs are typically prepared and sold by individual compounding pharmacies. Despite this, the US sales of non-FDA approved compounded combination estradiol and progesterone products is estimated to be over $1.5 billion per year based on various reports.

If approved, JNP-0201 would compete directly with other combination products of estradiol and progesterone that are bioidentical to the natural estradiol and progesterone produced in the ovaries. An oral combination estradiol and progesterone drug candidate for the treatment of moderate to severe vasomotor symptoms (“VMS”) due to menopause, TX-001HR by TherapeuticsMD, has completed Phase 3 clinical trials and proven statistical significance in the reduction of vasomotor symptoms of menopause.  TherapeuticsMD is also working on additional products for post-menopausal indications in various forms of delivery.  WC-3011 by Allergan, a vaginal cream estradiol acetate formulation, has completed multiple Phase 3 clinical trials for the treatment of VVA and dyspareunia and has achieved efficacy endpoints.

JNP-0301

JNP-0301 is our natural progesterone IVR designed to prevent PTB in women with short cervical length (“SCL”) at mid-pregnancy.

To date, there is currently no FDA-approved product to prevent PTB in women at-risk due to SCL. There are currently ongoing clinical trials evaluating use of pessary to PTB birth in women with SCL; cerclage to prevent PTB in women with SCL and a history of a prior preterm birth or mid-trimester miscarriage.  One Phase 3 study by the University of Kansas Medical Center that is currently recruiting participants is attempting to determine if giving a larger amount of Docosahexaenoic acid (DHA) than currently included in some prenatal supplements can reduce early preterm birth. Another ongoing and recruiting Phase 4 study by Federico II University is investigating cervical cerclage for preventing spontaneous preterm birth in singleton pregnancies without prior spontaneous preterm birth and with short transvaginal ultrasound cervical length. Another study completed several years ago by Maternal-Infantil Vall d´Hebron Hospital investigated the use of the Aravin pessary, a silicon ring, for the reduction of spontaneous preterm birth in women with short cervical length at 18-22 weeks scan.

COLLABORATION AGREEMENTS

Our primary revenue product is Crinone. We have licensed Crinone to Merck KGaA, outside the United States, and sold the rights to Crinone to Allergan, in the United States.

Merck KGaA

In April 2013, our license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five-year term, extending the expiration date to May 19, 2020. We are the exclusive supplier of Crinone to Merck KGaA. Merck KGaA holds marketing authorizations for Crinone in over 90 countries outside the United States. In January 2018, we announced the extension of this supply agreement for an additional 4.5-years through at least December 31, 2024.

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Under the terms of our current license and supply agreement with Merck KGaA, we will sell Crinone to Merck KGaA on a country-by-country basis at the greater of (i) direct manufacturing cost plus 20% or (ii) a percentage of Merck KGaA’s net selling price on a tiered structure. Additionally, we are jointly cooperating with Merck KGaA to evaluate and implement manufacturing cost reduction measures, with both parties sharing any benefits realized from these initiatives. This agreement requires Merck KGaA to provide a rolling 18-month forecast of its Crinone requirements for each country in which the product is marketed. The first four months of each forecast are considered firm orders. Under the agreement, each party is responsible for new clinical trials and government registrations in its territory and the parties are obligated to consult from time to time regarding the studies. Each party has agreed to promptly provide the other party the data from its Crinone studies free-of-charge. During the term of the agreement, we have agreed not to develop, license, manufacture or sell to another party outside the United States any product for the vaginal delivery of progesterone or progestational agents for hormone replacement therapy or other indications where progesterone or progestational agents are commonly used.

The extension of the supply agreement allows for a volume tiered, fixed price per unit with minimum annual volume guarantees, beginning on July 1, 2020. If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all of the Company’s assets related to the Crinone supply chain and to transfer the manufacturing to a third party or take over the management of the supply of the product.

Allergan

Within the United States, Crinone was marketed by Allergan (which changed its name from Actavis, Inc. in 2015 and from Watson Pharmaceuticals, Inc. in 2012, each as a result of an acquisition) pursuant to a Purchase and Collaboration Agreement dated March 2010. In November 2016, we entered into an agreement with Allergan to monetize future royalty payments due to us.  Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to pay future royalty payments to us.  This amount was recognized as revenue in the year ended December 31, 2016.

Massachusetts General Hospital

On March 27, 2015 we entered into an Exclusive Patent License Agreement with Massachusetts General Hospital, (“MGH”) pursuant to which we licensed the exclusive worldwide rights to MGH’s patent rights in a novel IVR technology for the delivery of one or more pharmaceuticals at different dosages and release rates in a single segmented ring.

Unless earlier terminated by the parties, the license agreement will remain in effect until the later of (i) the date on which all issued patents and filed patent applications within the licensed patent rights have expired or been abandoned and (ii) one year after the last sale for which a royalty is due under the license agreement or 10 years after such expiration or abandonment date referred to in (i), whichever is earlier. We have the right to terminate the license agreement by giving 90 days advance written notice to MGH. MGH has the right to terminate the license agreement based on our failure to make payments due under the license agreement, subject to a 15-day cure period, or our failure to maintain the insurance required by the license agreement. MGH may also terminate the license agreement based on our non-financial default under the license agreement, subject to a 60-day cure period.

Pursuant to the terms of the license agreement, we have agreed to reimburse MGH for all costs associated with the preparation, filing, prosecution and maintenance of the licensed patent rights and have agreed to pay MGH a $50,000 annual license fee on each of the first five year anniversaries of the effective date of the license agreement, and a $100,000 annual license fee beginning on the sixth anniversary of the effective date of the license agreement and on each subsequent anniversary thereafter. The annual license fee is creditable against any royalties or sublicense income payable in each calendar year.

Under the terms of the license agreement, we have agreed to use commercially reasonable efforts to develop and commercialize at least one product and/or process related to the IVR technology, which efforts will include the making of certain minimum annual expenditures in each of the first five years following the effective date of the license agreement. We have also agreed to pay MGH certain milestone payments totaling up to $1.2 million tied to our achievement of certain development and commercialization milestones, and certain annual royalty payments based on net sales of any such patented products or processes developed by us.

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INTELLECTUAL PROPERTY

We strive to protect the proprietary technologies that we believe are important to our business, including pursuing and maintaining patent protection intended to cover the composition of matter of our product candidates, their manufacture and methods of use, and other inventions that are important to our business. In addition to patent protection, we also rely on trade secrets to protect certain aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection, including certain aspects of our formulation and device development expertise and know-how.

Our commercial success depends in part upon our ability to obtain and maintain patent and other proprietary protection for commercially important technologies, inventions and know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets and operate without infringing valid and enforceable intellectual property rights of others.

The patent positions for pharmaceutical companies like us are generally uncertain and can involve complex legal, scientific, and factual issues. In addition, the coverage claimed in a patent application can be significantly reduced before a patent is issued, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot guarantee that any of our product candidates will be protectable or remain protected by enforceable patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties.

With regard to our Crinone product, all of our patents covering the product have expired in all countries other than Argentina.

With regard to our JNP-0101, JNP-0201, and JNP-0301 product candidates, we have exclusively in-licensed from MGH (as discussed above) four issued U.S. patents with composition of matter, method of manufacture and method of use claims directed to the JNP-0101, JNP-0201, and JPN-0301 product candidates and their manufacture and use. These U.S. patents are scheduled to expire from 2024 to 2027. In addition, we have in-licensed counterpart patents that have been granted in Australia, Canada, Europe, and Japan, which are expected to expire in 2024. Allergan holds a United States method of use patent that would apply to JNP-0301 and expires in 2028.

The term of any individual patent depends upon laws of the countries in which such patent is obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application.

In addition to patent protection, we also rely on trade secret protection for our proprietary information that is not amenable to, or that we do not consider appropriate for, patent protection, including, for example, certain aspects of our formulation and device development expertise and know-how. However, trade secrets can be difficult to protect. Although we take reasonable steps to protect our proprietary information, including restricting access to our premises and to our confidential information, as well as entering into agreements with our employees, consultants, advisors and potential collaborators, third parties may independently develop the same or similar subject matter and know-how or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our trade secrets and proprietary information.

GOVERNMENT REGULATIONS

Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.

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In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and subsequently maintaining compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or following approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

 

completion of extensive nonclinical laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice (“GLP”) regulations;

 

submission to the FDA of an IND, which must become effective before human clinical trials may begin;

 

performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical study related regulations, referred to as good clinical practices (“GCPs”) to establish the safety and efficacy of the proposed drug for its proposed indication;

 

submission to the FDA of an NDA;

 

a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;

 

satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDA’s cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

 

potential FDA audit of the clinical trial sites that generated the data in support of the NDA; and

 

FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.

Nonclinical Studies and IND Submission

The testing and approval process of product candidates requires substantial time, effort, and financial resources. Nonclinical studies include laboratory evaluation of drug substance chemistry, pharmacology, toxicity, and drug product formulation, as well as animal studies to assess potential safety and efficacy. Such studies must generally be conducted in accordance with the FDA’s GLP regulations. Prior to commencing the first clinical trial with a product candidate, an IND sponsor must submit the results of the nonclinical tests and nonclinical literature, together with manufacturing information, analytical data, any available clinical data or literature, and proposed clinical study protocols, among other things, to the FDA as part of an IND. In the case of 505(b)(2) applications, though, some of the IND components may not be required. Some nonclinical testing may continue even after the IND is submitted.

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An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, notifies the applicant of safety concerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA also may impose a clinical hold at any time before or during trials due to safety concerns or noncompliance. As a result, submission of an IND may not result in FDA authorization to commence a clinical trial.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to the FDA with the submission of an NDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, subject selection and exclusion criteria, the trial procedures, the parameters to be used in monitoring safety, the efficacy criteria to be evaluated, and a statistical analysis plan. A protocol for each clinical trial, and any subsequent protocol amendments, must be submitted to the FDA as part of the IND. In addition, an institutional review board (“IRB”), at each study site participating in the clinical trial or a central IRB must review and approve the plan for any clinical trial, informed consent forms, and communications to study subjects before a study commences at that site. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits and whether the planned human subject protections are adequate. The IRB must continue to oversee the clinical trial while it is being conducted. Once an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the FDA for review, and to the IRB for approval. Progress reports detailing the results of the clinical trials must also be submitted at least annually to the FDA. Written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events, findings from other studies, and animal or in vitro testing that suggest a significant risk to humans exposed to the drug, and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

Information about certain clinical trials, including a description of the study and study results, must be submitted within specific timeframes to the National Institutes of Health (“NIH”), for public dissemination on their clinicaltrials.gov website.

Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group regularly reviews accumulated data and advises the study sponsor regarding the continuing safety of trial subjects, enrollment of potential trial subjects, and the continuing validity and scientific merit of the clinical trial. The data safety monitoring board receives special access to unblinded data during the clinical trial and may advise the sponsor to halt the clinical trial if it determined there is an unacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy.

The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export of investigational drug products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S. export requirements under the FDCA.

In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases, which may overlap or be combined.

 

Phase 1 – Studies are initially conducted in healthy human volunteers or subjects with the target disease or condition and test the investigational drug for safety, dosage tolerance, structure-activity relationships, mechanism of action, absorption, metabolism, distribution, and excretion. If possible, Phase 1 clinical trials may also be used to gain early evidence on effectiveness.

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Phase 2 – Controlled studies are conducted in limited subject populations with a specified disease or condition to evaluate preliminary efficacy, identify optimal dosages, dosage tolerance and schedule, possible adverse effects and safety risks.

 

Phase 3 – These adequate and well-controlled clinical trials are undertaken in expanded subject populations, generally at geographically dispersed clinical trial sites, to generate enough data to provide evidence of clinical efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. Typically, two Phase 3 clinical trials are required by the FDA for product approval.

The FDA may also require, or companies may conduct, additional clinical trials for the same indication after a product is approved. These so-called Phase 4 clinical trials may be made a condition to be satisfied after approval. The results of Phase 4 clinical trials can confirm the effectiveness of a product candidate and can provide important safety information.

In the case of a 505(b)(2) NDA, which is a marketing application in which sponsors may rely on investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted, some of the above-described clinical trials and nonclinical studies may not be required or may be abbreviated. Bridging studies may be needed, however, to demonstrate the applicability of the studies that were previously conducted by other sponsors to the drug that is the subject of the marketing application.

Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Regulatory authorities or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk, or the clinical trial is not being conducted in accordance with the FDA’s requirements. Similarly, an IRB can suspend or terminate approval of a trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to subjects.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer, among other things, must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

NDA Submission and Review by the FDA

Assuming successful completion of the required clinical and nonclinical testing, the results of nonclinical studies and clinical trials, including negative or ambiguous results, and information about the manufacturing process and facilities, are all submitted to the FDA, along with the proposed labeling, as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. The user fee must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in certain circumstances including where the applicant employs fewer than 500 employees (including employees of affiliates) where the applicant does not have a drug product that has been approved and introduced or delivered for introduction into interstate commerce and where the applicant (including its affiliates) is submitting its first marketing application. Product candidates that are designated as orphan drugs, which are further described below, are also not subject to application user fees unless the application includes an indication other than the orphan indication.

In addition, under the Pediatric Research Equity Act (“PREA”), as amended, an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen, or route of administration must

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contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. The FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) to ensure that the benefits of the drug outweigh the risks of the drug. The REMS plan could include medication guides, physician communication plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval, a REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure that the benefits of the drug outweigh the risks of the drug.

Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially complete to permit a substantive review, before it accepts the application for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA.

Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act (“PDUFA”), the FDA has set the goal of completing its review of 90% of all applications within 10 months from the 60-day filing date for its initial review of a standard NDA for a New Molecular Entity (“NME”). For non-NME standard applications, the FDA has set the goal of completing its review of 90% of all applications within 10 months from the submission date. Such deadlines are referred to as the PDUFA date. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA dates. The review process and the PDUFA date may also be extended if the FDA requests or the NDA sponsor otherwise provides substantial additional information or clarification regarding the submission.

The FDA must refer applications for drugs that contain active ingredients, including any ester or salt of the active ingredients, that have not previously been approved by the FDA to an advisory committee or provide in an action letter a summary of its reasons for not referring the application to an advisory committee. The FDA may also refer drugs to advisory committees when it is determined that an advisory committee’s expertise would be beneficial to the regulatory decision-making process, including the evaluation of novel products and the use of new technology. An advisory committee is typically a panel that includes clinicians and other experts, which review, evaluate, and make a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing methods and controls are adequate to assure and preserve the product’s identity, strength, quality, safety, potency, and purity. Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured, referred to as a Pre-Approval Inspection. The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and subcontractors, are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA the FDA will inspect one or more clinical trial sites to assure compliance with GCPs.

The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than an applicant interprets the same data.

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a Complete Response Letter (“CRL”). If a CRL is issued, the

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applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter; withdraw the application; or request an opportunity for a hearing. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval and describes all of the specific deficiencies that the FDA identified in the NDA. A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA, and may require additional clinical or nonclinical testing in order for the FDA to reconsider the application. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. The FDA has the goal of reviewing 90% of application resubmissions in either two or six months of the resubmission date, depending on the kind of resubmission. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. The FDA may also not approve label statements that are necessary for successful commercialization and marketing.

The FDA may withdraw the product approval if compliance with the pre- and post-marketing regulatory requirements is not maintained or if problems occur after the product reaches the marketplace. Further, should new safety information arise, additional testing, product labeling, or FDA notification may be required.

505(b)(2) Approval Process

Section 505(b)(2) of the FDCA provides an alternate regulatory pathway to FDA approval for new or improved formulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments, and permits the filing of an NDA where at least one or more of the investigations relied upon by the applicant for approval were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The applicant may rely upon the FDA’s prior findings of safety and effectiveness for a previously approved product or on published scientific literature, in support of its application. The FDA may also require 505(b)(2) applicants to perform additional trials to support the changes from the previously approved drug and to further demonstrate the new drug’s safety and effectiveness. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

Orange Book Listing

Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A Section 505(b)(2) NDA is an application in which the applicant, in part, relies on investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application (“ANDA”). An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics, and intended use, among other things, to a previously approved product. Limited changes must be pre-approved by the FDA via a suitability petition. ANDAs are termed “abbreviated” because they are generally not required to include nonclinical and clinical data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of

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active ingredients into a subject’s bloodstream in the same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.

In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product and method of use. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. These products may be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA.

Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must make patent certifications to the FDA that: (1) no patent information on the drug or method of use that is the subject of the application has been submitted to the FDA; (2) the patent has expired; (3) the date on which the patent has expired and approval will not be sought until after the patent expiration; or (4) the patent is invalid or will not be infringed upon by the manufacture, use, or sale of the drug product for which the application is submitted. The last certification is known as a paragraph IV certification. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through a paragraph IV certification or if the applicant is not seeking approval of a patented method of use. If the applicant does not challenge the listed patents or does not indicate that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until all of the listed patents claiming the referenced product have expired.

If the competitor has provided a paragraph IV certification to the FDA, the competitor must also send notice of the paragraph IV certification to the holder of the NDA for the reference listed drug and the patent owner within 20 days after the application has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a patent infringement lawsuit in response to the notice of the paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a paragraph IV certification notice prevents the FDA from approving the ANDA or 505(b)(2) application until the earlier of 30 months from the date of the lawsuit, expiration of the patent, settlement of the lawsuit, a decision in the infringement case that is favorable to the applicant or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay.

In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owners regularly take action to trigger the 30-month stay, recognizing that the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patent litigation.

Exclusivity

Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug. Five years of exclusivity are available to New Chemical Entities (“NCEs”). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or other noncovalent derivatives, such as a complex, chelate, or clathrate, of the molecule, responsible for the therapeutic activity of the drug substance. During the exclusivity period, the FDA may not accept for review and approve an ANDA or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a paragraph IV certification is filed.

If a product is not eligible for NCE exclusivity, it may be eligible for three years of exclusivity. Three-year exclusivity is available to the holder of an NDA, including a 505(b)(2) NDA, for a particular condition of approval, or change to a marketed product, such as a new formulation or indication for a previously approved product, if one or more new clinical studies, other than bioavailability or bioequivalence studies, was essential to the

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approval of the application and was conducted or sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for the condition of the new drug’s approval. As a general matter, the three-year exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will also not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy. Moreover, even if a product receives a period of exclusivity, a physician may prescribe the reference listed drug or a generic version of the reference listed drug off-label for the same use as the newly approved drug.

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent exclusivity period described above. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection cover the drug are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve an ANDA or 505(b)(2) application owing to regulatory exclusivity or listed patents. Moreover, pediatric exclusivity attaches to all formulations, dosage forms, and indications for products with existing marketing exclusivity or patent life that contain the same active moiety as that which was studied.

Post-approval Requirements

Any drug manufactured or distributed pursuant to FDA approvals is subject to pervasive and continuing regulation by the FDA, including, among other things: requirements related to manufacturing, recordkeeping, and reporting, including adverse experience reporting, drug shortage reporting, and periodic reporting; product sampling and distribution; advertising; marketing; promotion; certain electronic records and signatures; and post-approval obligations imposed as a condition of approval, such as Phase 4 clinical trials, REMS, and surveillance to assess safety and effectiveness after commercialization.

After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are annual prescription drug product programs fees. In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and list their drug products, and are subject to periodic announced and unannounced inspections by the FDA and these state agencies for compliance with cGMP and other requirements, which impose certain procedural and documentation requirements upon the company and third-party manufacturers.

Changes to the manufacturing process are strictly regulated and often require prior FDA approval or notification before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and specifications, and impose reporting and documentation requirements upon the manufacturer and any third-party manufacturers that the NDA holder may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

The FDA also strictly regulates marketing, labeling, advertising, including direct to consumer advertising, and promotion of drug products that are placed on the market. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Physicians, in their independent professional medical judgment, may prescribe legally available products for unapproved indications that are not described in the product’s labeling and that differ from those tested and approved by the FDA. Pharmaceutical companies, however, are required to promote their drug products only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including, but not limited to, criminal and civil penalties under the FDCA and False Claims

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Act, exclusion from participation in federal healthcare programs, mandatory compliance programs under corporate integrity agreements, debarment, and refusal of government contracts.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Moreover, the Drug Quality and Security Act (“DQSA”), enacted in 2013, imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing, which are being implemented over a 10-year period. Among the requirements of this legislation, manufacturers are or will be required to provide certain information regarding the drug products to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers are also required to verify that purchasers of the manufacturers’ products are appropriately licensed. Further, under this legislation, manufacturers have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would result in serious adverse health consequences or death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in significant regulatory actions. Such actions may include refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, modification of promotional materials or labeling, provision of corrective information, imposition of post-market requirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, voluntary product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, debarment from receiving government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties including fines and imprisonment, and may result in adverse publicity, among other adverse consequences.

Regulation of Combination Products in the United States

Certain products may be comprised of components that would normally be regulated by different regulatory authorities, and frequently by different centers within the FDA. These products are known as combination products. Specifically, under regulations issued by the FDA, a combination product may be:

 

a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and produced as a single entity;

 

two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products;

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a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually-specified drug, or device, or biological product where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or

 

any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.

Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. That determination is based on the “primary mode of action” of the combination product. Thus, if the primary mode of action of a drug-device combination product is attributable to the drug product, the FDA center responsible for premarket review of the drug product would have primary jurisdiction for the combination product. The FDA has also established an Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.

New Legislation and Regulations

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our product candidates. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations changed or what the effect of such changes, if any, may be.

Pricing and Reimbursement

Sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and adequate reimbursement from third-party payors, including government healthcare program administrative authorities, managed care organizations, private health insurers, and other entities. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, our products, once approved, may not obtain market acceptance unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved or that any required patient cost-sharing amount will be acceptable to the patient. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor and among the insured lives of an individual payor depending upon the benefits applicable to the insured person. One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate

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reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for drug products and medical services, examining the medical necessity and reviewing the cost effectiveness of drug products and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. The Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health develop research plans and periodically report on the status of the research and related expenditures to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for governmental or private payors, it is not clear what effect, if any, the research will have on the sales of our product candidates, if approved, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates, if approved.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be priced significantly lower.

Anti-Kickback and False Claims Laws and Other Regulatory Matters

In the United States, among other things, the research, manufacturing, distribution, sale and promotion of drug products are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General and the Health Resources and Services Administration), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state attorneys general and other state and local government agencies. Our current and future business activities, including for example, sales, marketing and scientific/educational grant programs must comply with healthcare regulatory laws, including the Federal Anti-Kickback Statute, the Federal False Claims Act, as amended, the privacy regulations promulgated under the Health Insurance Portability and Accountability Act (“HIPAA”), as amended, physician payment transparency laws, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

The Federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchasing, leasing, ordering or

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arranging for or recommending the purchase, lease or order of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the intent standard under the Federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the Federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, and the potential for additional legal or regulatory change in this area, it is possible that our future business activities, including our sales and marketing practices and/or our future relationships with healthcare providers might be challenged under anti-kickback laws, which could harm us.

The Federal False Claims Act prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent. This statute has been interpreted to prohibit presenting claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the Federal False Claims Act in connection with their off-label promotion of drugs. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $10,781 and $21,563 for each separate false claim, the potential for exclusion from participation in federal healthcare programs. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the Federal False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.

Although the Federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. The government may further prosecute conduct constituting a false claim under the criminal False Claims Act, which prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim.

The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

Additionally, HIPAA created federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any

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materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Payment or reimbursement of prescription drugs by Medicaid or Medicare requires manufacturers of the drugs to submit pricing information to CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate and report price points, which are used to determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates for the drug. For drugs paid under Medicare Part B, manufacturers must also calculate and report their Average Sales Price, which is used to determine the Medicare Part B payment rate for the drug. Drugs that are approved under an NDA, including 505(b)(2) drugs, are subject to an additional inflation penalty which can substantially increase rebate payments. In addition, for NDA drugs, the Veterans Health Care Act (“VHCA”), requires manufacturers to calculate and report to the Veterans Administration (“VA”), a different price called the Non-Federal Average Manufacturing Price, which is used to determine the maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price (“FCP”). Like the Medicaid rebate amount, the FCP includes an inflation penalty. A Department of Defense regulation requires manufacturers to provide this discount on drugs dispensed by retail pharmacies when paid by the TRICARE Program. All of these price reporting requirements create risk of submitting false information to the government, and potential False Claims Act liability.

The VHCA also requires manufacturers of covered drugs participating in the Medicaid program to enter into Federal Supply Schedule contracts with the VA through which their covered drugs must be sold to certain federal agencies at FCP and to report pricing information. This necessitates compliance with applicable federal procure laws and regulations and subjects us to contractual remedies as well as administrative, civil, and criminal sanctions. In addition, the VHCA requires manufacturers participating in Medicaid to agree to provide different mandatory discounts to certain Public Health Service grantees and other safety net hospitals and clinics.

The Affordable Care Act included a provision commonly referred to as the Sunshine Act, which requires certain pharmaceutical manufacturers to track and report annually certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members. Covered manufacturers are required to submit reports to CMS by the 90th day of each subsequent calendar year. The information reported is publicly available on a searchable website. There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and federal authorities. These laws may affect our sales, marketing and other promotional activities by imposing administrative and compliance burdens on us.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

 

In addition to HIPAA and HITECH, other federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use and disclosure of personal information. Various foreign countries also have, or are developing, laws governing the collection, use and transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business.

 

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The failure to comply with applicable regulatory requirements subjects us to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, injunctions, voluntary recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, refusal to allow us to enter into supply contracts, including government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Should we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs, we will develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the law and program requirements to which we will or may become subject.

To the extent that our products are sold in a foreign country, we or our collaborators may be subject to similar foreign laws and regulations, which may include, for instance, clinical trial and pre- and post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

Affordable Care Act and Other Reform Initiatives

In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.

The Affordable Care Act was enacted in March 2010. The Affordable Care Act includes measures that have significantly changed, and are expected to continue to significantly change, the way healthcare is financed by both governmental and private insurers. Among the provisions of the Affordable Care Act of greatest importance to the pharmaceutical industry are the following:

 

The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services in exchange for state Medicaid coverage of most of the manufacturer’s drugs. The Affordable Care Act made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs to 23.1% of average manufacturer price (“AMP”) and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP.

 

The Affordable Care Act expanded the types of entities eligible to receive discounted 340B pricing. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The Affordable Care Act imposed a requirement on manufacturers of branded drugs to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”).

 

The Affordable Care Act imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs, apportioned among these entities according to their market share in certain government healthcare programs.

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The Affordable Care Act established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.

 

The Affordable Care Act created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.

 

The Affordable Care Act established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019.

Some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. For example, the 2017 Tax Reform Act includes a provision repealing the Affordable Care Act’s individual health insurance coverage mandate, effective January 1, 2019. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse the insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through these marketplaces. Congress will likely consider other legislation to replace elements of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further changes to the Affordable Care Act, including its repeal and replacement, are possible. Thus, the full impact of the Affordable Care Act, any law changing or replacing elements of it, and the political uncertainty surrounding any change, repeal or replacement of it on our business remains unclear.

Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2025 unless additional congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law.  This Act, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

OUR REPORTING SEGMENTS

We currently operate in two segments: product and service. The product segment oversees the supply chain and manufacturing of Crinone, our sole commercialized product to our commercial partner, Merck KGaA, internationally. The product segment also includes the royalty stream we received, until October 2016 from Allergan, for Crinone sales in the United States as well as the development of new product candidates. The service segment includes pharmaceutical development, clinical trial manufacturing, and advanced analytical and consulting services provided to our customers, as well as characterizing and developing pharmaceutical product candidates for our internal programs and managing the preclinical and clinical manufacturing of our technology.  In the years

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ended December 31, 2017, 2016 and 2015, revenue from our product segment was $32.7 million, $41.5 million and $26.6 million, respectively.  In the years ended December 31, 2017, 2016 and 2015, revenue from our service segment was $17.3 million, $13.1 million and $11.7 million, respectively.

We view the development and clinical trial manufacturing of drug product for our pharmaceutical company clients and the manufacturing of Crinone for our commercial partner to be similar activities. Accordingly, we have integrated all operational activities for the Crinone business into JPS. These activities, including management of Crinone manufacturing, quality assurance and logistics and, management of our intellectual property estate are now managed out of our Nottingham, U.K. facility.

Segment information is consistent with the financial information regularly reviewed by our chief operating decision maker, who we have determined to be the chief executive officer, for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. Our chief operating decision maker evaluates the performance of our product and service segments based on revenue and gross profit. Our chief operating decision maker does not review our assets, operating expenses or non-operating income and expenses by business segment at this time.

See Note 11 to our consolidated audited financial statements included in Item 8 of this Annual Report for certain financial information related to our two operating segments and for certain selected financial information by geographic area, which is incorporated by reference into Item 1 of this Annual Report.

EMPLOYEES

As of February 28, 2018, we had 155 employees, including three executive officers, 13 employees in supply chain management and quality, four employees in sales and marketing functions, 106 employees in technical and other production functions, three employees in research and development functions and 26 employees in other administrative functions. We also use consultants as necessary to support key functions.

Our success is highly dependent on our ability to attract and retain qualified employees. Competition for employees is intense in the pharmaceutical industry. We believe we have been successful in our efforts to recruit qualified employees, but we cannot guarantee that we will continue to be as successful in the future. None of the Company’s employees are represented by a labor union or are subject to collective bargaining agreements. We believe that our relationship with our employees is good.

ADDITIONAL INFORMATION

We were incorporated as a Delaware corporation in 1986. Our principal executive offices are located at 33 Arch Street, Suite 3110, Boston Massachusetts 02110, and our telephone number is (617) 639-1500. In April 2015 we changed our name from Columbia Laboratories, Inc. to Juniper Pharmaceuticals, Inc. and also changed our ticker symbol from CBRX to JNP. Our wholly-owned subsidiaries are Columbia Laboratories (Bermuda) Ltd. (“Columbia Bermuda”), Juniper Pharmaceuticals (France) SARL (“Juniper France”), Juniper Pharmaceuticals (U.K.) Limited (“Juniper U.K.”), and Juniper Pharma Services Ltd (U.K.) (“JPS”).

Our Internet address is www.juniperpharma.com. Through a link on the “Investor Relations” section of this website,  ir.juniperpharma.com, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, proxy statement on Form DEF 14A, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material or furnish them to the Securities and Exchange Commission (“SEC”). In addition, we will provide electronic or paper copies of our filings free of charge upon request. Information contained on our corporate website or any other website is not incorporated into this Annual Report and does not constitute a part of this Annual Report.

In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Reference Room, which is located at 100 F Street NE, Washington, D.C., 20549. Interested parties may call (800) SEC-0330 for further information on the Reference Room. The SEC also maintains a website containing reports, proxy materials and information statements, among other information, at http://www.sec.gov.

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We post our code of business conduct and ethics, which applies to all employees, including all executive officers, senior financial officers and directors, in the “Corporate Governance” sub-section of the “Investor Relations” section (ir.juniperpharma.com) of our corporate website at www.juniperpharma.com. Our code of business conduct and ethics complies with Item 406 of SEC Regulation S-K and the rules of NASDAQ. We intend to disclose any changes to the code that affect the provisions required by Item 406 of Regulation S-K, and any waivers of the code of ethics for our executive officers, senior financial officers or directors, on our corporate website.

Item 1A.

Risk Factors

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should carefully consider the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. The occurrence of any of the risks described below could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

Our product revenue is dependent on the continued sale of Crinone to Merck KGaA.

Our operating results are dependent on the product revenues from Merck KGaA derived from the sale of Crinone in countries outside the U.S. Revenues from sales to Merck KGaA during the years ended December 31, 2017, 2016 and 2015 constituted approximately 65%, 50% and 60% of our total revenues, respectively. We do not control the amount and timing of marketing resources that Merck KGaA may or may not devote to our product. The failure of Merck KGaA to effectively market Crinone and maintain licensure in marketed countries could have a material adverse effect on our business, financial condition and results of operations. Our current supply agreement with Merck KGaA has an expiration date through December 31, 2024. If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all of our assets related to the Crinone supply chain and to transfer the manufacturing to a third party or over the management of the supply of the product.

We may fail to obtain new customer taking projects, renew existing customers or have customer project cancellations at our wholly-owned subsidiary, JPS, which may adversely affect our service revenue and gross margin.

The majority of our customer projects at JPS are short-term in duration. As a result, we must maintain a robust backlog of customer programs to replace projects as they are completed. In the event we are unable to replace these customer projects in a timely manner or at all, our revenues may not be able to be sustained or may decline. In addition, customer projects may be cancelled or delayed by clients for any reason upon notice and this can materially impact our business. While we intend to seek new or extended agreements, if new contracts cannot be completed or existing contracts cannot be extended on terms acceptable to us or at all, our business, results of operation and financial condition could be materially adversely affected.

We have made significant capital investments in our JPS business to meet growth expectations. If we are unable to utilize the facilities’ expected capacity, our margins could be adversely affected.

We have made substantial investments in our Nottingham, U.K. facilities and equipment to support increased development and contract manufacturing activity. If new customer agreements are not executed or do not generate expected revenues, we may have excess fixed costs capacity that may require an impairment charge that will negatively affect our financial performance.

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Foreign governments often impose strict price controls, which may adversely affect our future profitability.

We intend to seek approval to market our product candidates in both the U.S. and foreign jurisdictions either directly or through a potential partner. If we or a potential partner obtain approval in one or more foreign jurisdictions, we or such potential partner will be subject to rules and regulations in those jurisdictions relating to our product candidates. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we or a potential partner may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

If our products are marketed or distributed in a manner that violates federal, state or foreign healthcare fraud and abuse laws, marketing disclosure laws or other federal, state or foreign laws and regulations, we may be subject to civil or criminal penalties.

In addition to FDA and related regulatory requirements in the U.S. and abroad, our general operations, and the research, development, manufacture, sale and marketing of our products, are subject to extensive additional federal, state and foreign healthcare regulation, including the FCA, the Federal Anti-Kickback Statute, the Foreign Corrupt Practices Act, and their state analogues, and similar laws in countries outside of the U.S., laws, such as the U.K. Bribery Act of 2010 and governing sampling and distribution of products, and government price reporting laws.

Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws and private individuals have been active in bringing lawsuits on behalf of the government under the FCA and similar laws in other countries. We have developed and implemented a corporate compliance program based on what we believe are current best practices in the pharmaceutical industry; however, these laws are broad in scope and there may not be regulations, guidance or court decisions that definitively interpret these laws in the context of particular industry practices. We cannot guarantee that we, our employees, our consultants or our contractors are or will be in compliance with all federal, state and foreign regulations. If we or our representatives fail to comply with any of these laws or regulations, a range of fines, penalties and/or other sanctions could be imposed on us, including, but not limited to, restrictions on how we market and sell our products, significant fines, exclusions from government healthcare programs, including Medicare and Medicaid, litigation, or other sanctions. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could also have an adverse effect on our business, financial condition and results of operations. Such investigations or suits may also result in related shareholder lawsuits, which can also have an adverse effect on our business.

Further, the FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. For drug products that are approved by the FDA under the FDA’s accelerated approval regulations, unless otherwise informed by the FDA, the sponsor must submit promotional materials at least 30 days prior to the intended time of initial dissemination of the promotional materials, which delays and may negatively impact our commercial team’s ability to implement changes to such product’s marketing materials, thereby negatively impacting revenues. Moreover, under Subpart H, the FDA may also withdraw approval of such product if, among other things, the promotional materials are false or misleading, or other evidence demonstrates that such product is not shown to be safe or effective under its conditions of use.

The U.S. government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The government has also required companies to enter into complex corporate integrity agreements and/or non-prosecution agreements that can impose significant restrictions and other burdens on the affected companies. If we are found to have promoted such off-label uses, we may become subject to similar consequences.

In recent years, several U.S. states have enacted legislation requiring pharmaceutical companies to establish marketing and promotional compliance programs or codes of conduct and/or to file periodic reports with

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the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. In addition, as part of the Affordable Care Act, manufacturers of drugs are required to publicly report gifts and other payments or transfers of value made to U.S. physicians and teaching hospitals. Several states have also adopted laws that prohibit certain marketing-related activities, including the provision of gifts, meals or other items to certain healthcare providers. Many of these requirements are new and uncertain, and the likely extent of penalties for failure to comply with these requirements is unclear; however, compliance with these laws is difficult, time consuming and costly, and if we are found to not be in full compliance with these laws, we may face enforcement actions, fines and other penalties, and we could receive adverse publicity which could have an adverse effect on our business, financial condition, and results of operations.

If we fail to comply with any federal, state, or foreign laws or regulations governing our industry, we could be subject to a range of regulatory actions that could adversely affect our ability to commercialize our products, harm or prevent sales of our products, or substantially increase the costs and expenses of commercializing and marketing our products, all of which could have a material adverse effect on our business, financial condition, and results of operations.

In addition, incentives exist under applicable U.S. law that encourage employees and physicians to report violations of rules governing promotional activities for pharmaceutical products. These incentives could lead to so-called “whistleblower” lawsuits as part of which such persons seek to collect a portion of moneys allegedly overbilled to government agencies as a result of, for example, promotion of pharmaceutical products beyond labeled claims. Such lawsuits, whether with or without merit, are typically time-consuming and costly to defend. Such suits may also result in related shareholder lawsuits, which are also costly to defend.

Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable regulations.

As a pharmaceutical development and services company, we are subject to a large body of legal and regulatory requirements. In addition, as a publicly traded company we are subject to significant regulations. We cannot assure you that we are or will be in compliance with all potentially applicable laws and regulations. Failure to comply with all potentially applicable laws and regulations could lead to the imposition of fines, cause the value of our common stock to decline, impede our ability to raise capital, or lead to the de-listing of our stock.

We may acquire additional businesses or form strategic alliances in the future, and we may not realize the benefits of such acquisitions or alliances.

We may acquire additional businesses or products, form strategic alliances, or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may have difficulty in developing, manufacturing, and marketing the products of a newly acquired company that enhances the performance of our combined businesses or product lines to realize value from expected synergies. We cannot assure that, following an acquisition, we will achieve the revenues or specific net income that justifies the acquisition.

The loss of our key executives could have a significant impact on us.

Our success depends in large part upon the abilities and continued service of our executive officers and other key employees. Our employment agreements with our executive officers are terminable by either party on short notice. The loss of key employees may result in a significant loss in the knowledge and experience that we, as an organization, possess, and could cause significant delays in, or outright failure of, the management of our supply chain, our pharmaceutical development, analytical, and consulting services business and/ or, our development of future products and product candidates. If we are unable to attract and retain qualified and talented senior management personnel, our business may suffer.

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We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

As of February 28, 2018, we had 155 employees. As part of our strategic reprioritization, we will focus our resources on the growth of our core businesses of Crinone and JPS. As our strategy develops, we expect to expand our employee base for managerial, operational, financial and other resources. Our future growth may impose added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate new employees. Also, our management may need to divert a disproportionate amount of its attention away from their day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our product candidates. If we are unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to increase revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize or seek potential partner to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage any future growth in our organization.

Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, acts of terrorism and other natural or man-made disasters or business interruptions. The occurrence of any business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our ability to produce clinical supplies of JNP-0101, JNP-0201, JNP-0301 and other potential product candidates could be disrupted if the operations of JPS or our other suppliers are affected by a man-made or natural disaster or other business interruption.

Our internal computer systems, or those used by our third-party collaborators, CROs, or other contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems and those of our third-party collaborators, CROs, and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. Although to our knowledge we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from current or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on our third-party collaborators and other third parties for research and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or suffer substantial reputational harm and the further development and commercialization of our product candidates could be delayed.

Our operations involve hazardous materials and are subject to environmental, health, and safety controls and regulations.

We are subject to environmental, health, and safety laws and regulations, including those governing the use of hazardous materials, and we spend considerable time complying with such laws and regulations. Our business activities involve the controlled use of hazardous materials and although we take precautions to prevent accidental contamination or injury from these materials, we cannot completely eliminate the risk of using these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may materially harm our business, financial condition and results of operations.

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Risks Related to the Clinical Development, Regulatory Review, Approval and Commercialization of Our Product Candidates

Preclinical drug development is a lengthy and expensive process with an uncertain outcome.

In order to obtain FDA approval to market a new drug product we or our potential partner must demonstrate proof of safety and efficacy in humans. To meet these requirements, we or our potential partner will have to conduct “adequate and well-controlled” clinical trials. Before we or our potential partner can commence clinical trials for a product candidate, extensive preclinical testing and studies that support an Investigational New Drug application, or IND, must be completed. While we expect that our planned preclinical work will help support a IND submissions to the FDA when and if such submissions occur, we cannot be certain of the timely completion or outcome of these prototype development efforts and planned preclinical studies. We also cannot predict if the FDA will accept our or our potential partner’s proposed clinical programs or if the outcome of our or our potential partner’s prototype development efforts and planned preclinical activities will ultimately support the further development of these product candidates. Thus, we cannot be sure that we or our potential partner will be able to submit INDs in the planned time-frame if at all, and we cannot be sure that submission of the INDs will result in the FDA in allowing clinical trials to begin.

Conducting preclinical testing studies is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per product candidate. Delays associated with product candidates for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain product candidates conducted by our potential partner over which we have no control. The commencement and rate of completion of preclinical studies and studies for a product candidate may be delayed by many factors, including, for example:

 

the inability to generate sufficient preclinical or other in vivo or in vitro data to support the initiation of clinical trials;

 

delays in reaching a consensus with regulatory agencies on study design; and

 

the FDA not allowing us to rely on previous findings of safety and efficacy for other similar but approved products and published scientific literature.

Moreover, even if clinical trials do begin, our or our potential partner’s development efforts may not be successful, and clinical trials that we or our potential partner conduct, or that third parties conduct on our or our potential partner’s behalf may not demonstrate statistically sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates or product candidates employing our technology. Even if we or our potential partner obtain positive results from preclinical studies or initial clinical trials, the same success may not be achieved in future trials. The failure of clinical trials to demonstrate the safety and effectiveness of a product candidate for its desired indications could harm the development of such product candidate as well as our other product candidates. Any change in, or termination of, our or our potential partner’s clinical trials could materially harm our business, financial condition, and results of operations.

Delays in clinical trials are common for many reasons, and any such delay could result in increased costs to us or our potential partner and jeopardize or delay our or our potential partner’s ability to obtain regulatory approval and commence product sales.

If our preclinical studies and activities for our product candidates are successful, we plan to seek a potential partner to conduct clinical trials of such product candidates.  Our potential partner may experience delays in clinical trials for our product candidates. Our potential partner’s planned clinical trials, including those for JNP-0101, JNP-0201 and JNP-0301, might not begin on time; may be interrupted, delayed, suspended, or terminated once commenced; might not produce results to support further development of the product candidates; might need to be redesigned; might not enroll a sufficient number of patients; or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:

 

delays in obtaining regulatory approval to commence a trial;

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imposition of a clinical hold following an inspection of our or our potential partner’s clinical trial operations or trial sites by the FDA or other regulatory authorities;

 

imposition of a clinical hold because of safety or efficacy concerns by the Data and Safety Monitoring Board or DSMB, the FDA, or the Institutional Review Board, IRB, or us or our potential partner;

 

imposition of a clinical hold by the FDA or other regulatory authorities because of significant problems with a product candidate in the same class as one of our product candidates;

 

reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites, particularly those in foreign jurisdictions;

 

delays in obtaining required IRB approval at each site;

 

delays in identifying, recruiting, and training suitable clinical investigators;

 

slower than expected rates of patient recruitment due to narrow screening requirements;

 

the inability of patients to meet FDA or other regulatory authorities’ imposed protocol requirements;

 

the inability to retain patients who have initiated participation in a clinical trial but may be prone to withdraw due to various clinical or personal reasons, or who are lost to further follow-up;

 

delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

the inability to adequately observe patients after treatment;

 

clinical sites dropping out of a trial to the detriment of enrollment;

 

time required to add new sites;

 

the inability to manufacture sufficient quantities of qualified materials under current good manufacturing practices (“cGMPs”) for use in clinical trials;

 

shortages of the active pharmaceutical ingredient (“API”);

 

non-compliance with regulatory requirements;

 

delays in obtaining sufficient supplies of clinical trial materials, including suitable API;

 

the need or desire to modify manufacturing processes;

 

changes in regulatory requirements for clinical trials;

 

the lack of effectiveness during the clinical trials;

 

unforeseen safety issues, or adverse drug reactions;

 

delays, suspension, or termination of the clinical trials due to the IRB responsible for overseeing the study at a particular study site;

 

insufficient financial resources;

 

government or regulatory delays or “clinical holds” requiring suspension or termination of the trials; and

 

delays resulting from negative or equivocal findings of DSMB for a trial.

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Any of these delays in completing our potential partner’s clinical trials could increase costs, slow down product development and approval process, and jeopardize our or our potential partner’s ability to commence product sales and generate revenue.

Failure to recruit, enroll, and retain patients for clinical trials may cause the development of our current product and/or candidates to be delayed or development costs to increase substantially.

We have experienced, and may experience in the future, delays in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our or our potential partner’s ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:

 

the patient eligibility criteria defined in the protocol;

 

the size and nature of the patient population required for analysis of the trial’s primary endpoints;

 

the proximity of patients to study sites;

 

the design of the trial;

 

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

our ability to obtain and maintain patient consents;

 

the risk that patients enrolled in clinical trials will drop out of the trials before completion;

 

competition for patients by clinical trial programs for other competitive treatments; and,

 

clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we or our potential partner are investigating.

Our or our potential partner’s clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of patients available to us, because some patients who might have opted to enroll in our or our potential partner’s trials opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we or our potential partner will conduct some of the clinical trials at the same clinical trial sites that some of our competitors’ use, which reduces the number of patients who are available for our or our potential partner’s clinical trials in such clinical trial site. Delays in patient enrollment in the future as a result of these and other factors may result in increased costs or may affect the timing or outcome of our or our potential partner’s clinical trials, which could prevent us or our potential partner from completing these trials and adversely affect our or our potential partner’s ability to advance the development of our product candidates.

Our or our potential partner’s clinical trials may be halted at any time for a variety of reasons.

Our or our potential partner’s clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be suspended or terminated by us, our potential partner, the FDA, or other regulatory authorities because of a failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the DSMB or the IRB for a clinical trial. An IRB may also suspend or terminate our or our potential partner’s clinical trials for failure to protect patient safety or patient rights. We or our potential partner may voluntarily suspend or terminate clinical trials if at any time we or our potential partner believe that they present an unacceptable risk to participants. In addition, regulatory agencies may order the temporary or permanent discontinuation of our or our potential partner’s clinical trials at any time if they believe the clinical trials are not being conducted in accordance with applicable regulatory requirements or present an unacceptable safety risk to participants. If we or our potential partner elect or are forced to suspend or terminate any clinical trial for the development of any proposed product, the commercial prospects of such proposed product will be harmed and our ability to generate product revenue, or royalty or milestone revenue from our

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potential partner, from any of these proposed products will be delayed or eliminated. Any of these occurrences may harm our business, financial condition, results of operations, and prospects significantly.

Additionally, our current and/or future product candidates may demonstrate serious adverse side effects in clinical trials. These adverse side effects could interrupt, delay, or halt clinical trials of product candidates and could result in FDA or other regulatory authorities denying approval of product candidates for any or all targeted indications. An IRB or independent data safety monitoring board, the FDA, other regulatory authorities, or we ourselves, our potential partner, or our customers may suspend or terminate clinical trials at any time. Product candidates may prove not to be safe for human use. In such circumstances, we may not be able to complete development or successful licensing or partnering of our own internal programs.

Our product development efforts may not be successful.

All of our product candidates are in research and preclinical stages of development. We or our partners may have never obtained regulatory approval for any of our product candidates.  If the results from any of our clinical trials are not positive, those results may adversely affect our ability to obtain regulatory approval to conduct additional clinical trials, our ability to seek development or commercialization partners for such product candidates, or possibly our ability to raise additional capital, which will affect our ability to continue research and development activities. In addition, our product candidates may take longer than anticipated to progress through clinical trials, or patient enrollment in the clinical trials may be delayed or prolonged significantly, thus delaying the clinical trials.

Even if we or our potential partner obtain regulatory approval for our product candidates, we or our potential partner will still face extensive, ongoing regulatory requirements and review, and our products may face future development and regulatory difficulties.

Even if we or our potential partner obtain regulatory approval for one or more of our product candidates in the United States, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or to the conditions for approval, or impose ongoing requirements for potentially costly post-approval studies, including phase 4 clinical trials or post-market surveillance. As a condition to granting marketing approval of a product, the FDA may require a company to conduct additional clinical trials. The results generated in these post-approval clinical trials could result in loss of marketing approval, changes in product labeling, or new or increased concerns about side effects or efficacy of a product. For example, the labeling for our hormone therapy product candidates, if approved, may include restrictions on use or warnings. The Food and Drug Administration Amendments Act of 2007 (“FDAAA”) gives the FDA enhanced post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved Risk Evaluation and Mitigation Strategies (“REMS”) programs. If approved, our product candidates will also be subject to ongoing FDA requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record keeping, and reporting of safety and other post-market information. The FDA’s exercise of its authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements, and potential restrictions on sales of approved products. Foreign regulatory agencies often have similar authority and may impose comparable measures. Post-marketing studies, whether conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed products, such as adverse event reports, may also adversely affect sales of our product candidates if approved, and potentially our other marketed products. Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of our approved products. Accordingly, new data about our products could negatively affect demand because of real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal or voluntary recall. Furthermore, new data and information, including information about product misuse, may lead government agencies, professional societies, and practice management groups or organizations involved with various diseases or conditions to publish guidelines or recommendations related to the use of our products or the use of related therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of our products.

The holder of an approved New Drug Application (“NDA”) also is subject to obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the NDA. Application

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holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical trials. Legal requirements have also been enacted to require disclosure of clinical trial results on publicly available databases.

In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with the FDA’s cGMPs regulations or comparable foreign requirements. If we, our potential partner or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility, or us or our partner. Such restrictions may include requesting a recall or requiring withdrawal of the product from the market or suspension of manufacturing, requiring new warnings or other labeling changes to limit use of the drug, requiring that we or our potential partner conduct additional clinical trials, imposing new monitoring requirements, or requiring that we or our potential partner establish a REMS program. Advertising and promotional materials must comply with FDA rules in addition to other potentially applicable federal and state laws. The distribution of product samples to physicians must comply with the requirements of the Prescription Drug Marketing Act. Sales, marketing, and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws. If we or our potential partner fail to comply with applicable regulatory requirements, a regulatory agency may take any of the following actions:

 

conduct an investigation into our or our potential partner’s practices and any alleged violation of law;

 

issue warning letters or untitled letters asserting that we or our potential partner are in violation of the law;

 

seek an injunction or impose civil or criminal penalties or monetary fines;

 

suspend or withdraw regulatory approval;

 

require that we or our potential partner suspend or terminate any ongoing clinical trials;

 

refuse to approve pending applications or supplements to applications filed by us or our potential partner;

 

suspend or impose restrictions on operations, including costly new manufacturing requirements;

 

seize or detain products, refuse to permit the import or export of products, or request that we or our potential partner initiate a product recall; or

 

exclude us or our potential partner from providing our products to those participating in government health care programs, such as Medicare and Medicaid, and refuse to allow us or our potential partner to enter into supply contracts, including government contracts.

The occurrence of any of the foregoing events or penalties may force us or our potential partner to expend significant amounts of time and money and may significantly inhibit our or our potential partner’s ability to bring to market or continue to market our products and generate revenue. Similar regulations apply in foreign jurisdictions.

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The manufacture and packaging of pharmaceutical products are subject to FDA requirements and those of similar foreign regulatory bodies. If we or our third-party manufacturers fail to satisfy these requirements, our product development and commercial efforts may be harmed.

The manufacture and packaging of pharmaceutical products, if approved, are regulated by the FDA and similar foreign regulatory bodies and must be conducted in accordance with the FDA’s cGMP and comparable requirements of foreign regulatory bodies. Failure by us or our third-party manufacturers to comply with applicable regulations or requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product, operating restrictions and criminal prosecutions, any of which could harm our business. The same requirements and risks are applicable to the suppliers of the key raw material used to manufacture the API for Crinone.

Currently we only have one supplier of progesterone for Crinone approved by regulatory authorities in all the countries in which we sell Crinone outside the United States. To date, we have not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone which we believe did not result in a change in demand for Crinone. We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.

Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDA’s cGMPs. Any new facility is subject to a pre-approval inspection by the FDA and would again require us to demonstrate product comparability to the FDA. There are comparable foreign requirements. This review may be costly and time consuming and could delay or prevent the launch of a product.

Furthermore, in order to obtain approval of our product candidates, by the FDA and foreign regulatory agencies, we will be required to consistently produce the API and the finished product in commercial quantities and of specified quality on a repeated basis and document our ability to do so. This requirement is referred to as process validation. Each of our potential API suppliers will likely use a different method to manufacture API, which has the potential to increase the risk to us that our manufacturers will fail to meet applicable regulatory requirements. We also need to complete process validation on the finished product in the packaging we propose for commercial sales. This includes testing of stability, measurement of impurities and testing of other product specifications by validated test methods. If the FDA does not consider the results of the process validation or required testing to be satisfactory, we may not obtain approval to launch the product or approval, launch or commercial supply after launch may be delayed.

The FDA and similar foreign regulatory bodies may also implement new requirements, or change their interpretation and enforcement of existing requirements, for the manufacturing, packaging or testing of products at any time. If we are unable to comply, we may be subject to regulatory, civil actions or penalties which could harm our business.

Our development, regulatory and commercialization strategy for our product candidates for which we choose to develop internally depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products.

The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or Section 505(b)(2). Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials to support any difference from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the listed drug has been approved, as well as for

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any new indication(s) sought by the Section 505(b)(2) applicant as supported by additional data. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the listed drug’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions.

If we choose to internally develop JNP-0101, JNP-0201 or JNP-0301, we intend to design our clinical programs to advance JNP-0101, JNP-0201 and JNP-0301 for registration filing in the United States using the FDA’s 505(b)(2) regulatory pathway and the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway, in Europe. As such, our NDAs in the United States will rely, and our marketing authorization applications, or MAA, in Europe will rely, in part, on previous findings of safety and efficacy for other similar but approved products and published scientific literature. Even though we expect to be able to take advantage of Section 505(b)(2) and the hybrid application pathway to support potential regulatory approval of our product candidates in the United States and Europe, the relevant regulatory authorities may require us to perform additional clinical trials to support approval over and above the clinical trials that we currently plan to commence. The relevant regulatory authorities also may determine that we have not provided sufficient data to justify reliance on prior investigations involving the approved active ingredients in our product candidates.

In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), in the past some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). For example, parties have filed citizen petitions objecting to the FDA approving a Section 505(b)(2) NDA on both scientific and legal and regulatory grounds. Scientific arguments have included the assertions that for the FDA to determine the similarity of the drug in the 505(b)(2) NDA to the listed drug, the agency would need to reference proprietary manufacturing information or trade secrets in the listed drug’s NDA; that it would be scientifically inappropriate for the FDA to rely on public or nonpublic information about the listed drug because it differs in various ways from the drug in the 505(b)(2) NDA; or that differences between the listed drug and the drug in the 505(b)(2) NDA may impair the latter’s safety and effectiveness. Legal and regulatory arguments have included the assertion that Section 505(b)(2) NDAs must contain a full report of investigations conducted on the drug proposed for approval, and that approving a drug through the 505(b)(2) regulatory pathway would lower the approval standards. In addition, citizen petitions have made patent-based challenges against 505(b)(2) NDAs. For example, petitioners have asserted that the FDA should refuse to file a 505(b)(2) NDA unless it references a specific NDA as the listed drug, because it is “most similar” to the proposed drug, and provides appropriate patent certification to all patents listed for that NDA; or that when a 505(b)(2) NDA is pending before the agency, but before it is approved, where the FDA approves an NDA for a drug that is pharmaceutically equivalent to the drug that is the subject of the 505(b)(2) NDA, then the FDA should require that the 505(b)(2) NDA be resubmitted referencing the approved NDA as the listed drug and certifying to the listed patents for that approved drug. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of any future product candidates we may develop.

The commercial success of Crinone and any current or future product candidates that are approved for marketing and sale, will depend upon gaining and retaining significant market acceptance of these products among physicians and payors, including perceptions related to pricing and access.

Physicians may not prescribe our products, including any current or future product candidates that are approved by the appropriate regulatory authorities for marketing and sale, which would prevent us from generating revenue or becoming profitable. Market acceptance of our products by physicians, patients, and payors, will depend on a number of factors, many of which are beyond our control, including the following:

 

the clinical indications for which our product candidates are approved, if at all;

 

acceptance by physicians and payors of each product as safe and effective treatment;

 

the cost of treatment in relation to alternative treatments, including numerous generic drug products;

 

the relative convenience and ease of administration of our products in the treatment of the symptoms for which they are intended;

 

the availability and efficacy of competitive and generic drugs;

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the effectiveness of our sales force and marketing efforts;

 

the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

 

the availability of coverage and adequate reimbursement by third parties, such as insurance companies and other health care payors, or by government health care programs, including Medicare and Medicaid;

 

limitations or warnings contained in a product’s FDA-approved labeling; and

 

prevalence and severity of adverse side effects.

Even if the medical community accepts that our products are safe and efficacious for their approved indications, physicians may not immediately be receptive to their use or may be slow to adopt our products as an accepted treatment for the symptoms for which they are intended. We cannot assure you that any labeling approved by the FDA will permit us or our potential partner to promote our products as being superior to competing products. If our products, if approved, do not achieve an adequate level of acceptance by physicians and payors, we may not generate sufficient or any revenue from these products and we may not become profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our products may require significant resources and may never be successful.

If our product candidates, are approved for sale, and the actual number of patients in the applicable market is smaller than we estimate, our revenue could be adversely affected, possibly materially.

There is no patient registry or other method for establishing with precision the actual number of patients that might benefit from our product candidates. There is no guarantee that our assumptions and estimates are correct. The number of patients our product candidates could benefit, if approved for use, could actually be significantly lower than our estimates.

We believe that the actual size of the total addressable markets for our product candidates, if approved, will be determined only after we have substantial history as a commercial company. If the total addressable market for our products is smaller than we expect, our revenue could be adversely affected, possibly materially.

The longer term growth of our business depends in part on our efforts to utilize our proprietary technologies to expand our portfolio of product candidates for development and commercialization either internally or with potential partner, which may require substantial financial resources and may ultimately be unsuccessful.

The longer term growth of our business depends in part upon our ability to utilize current and future proprietary technologies to develop and commercialize therapeutic products either internally or with potential partner. In addition, any intention to pursue the development and commercialization of JNP-0101, JNP-0201, and JNP-0301, with a potential partner will require the leveraging of our IVR technology. A significant portion of the research we conducted involves our IVR technology.

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Research programs to identify new disease targets or conditions and product candidates require substantial technical, financial, and human resources whether or not we ultimately identify any additional product candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including that:

 

the research methodology used may not be successful in identifying potential product candidates; or,

 

potential product candidates may on further study be shown to have harmful side effects or other characteristics that indicate they are unlikely to be effective drugs.

If we are able to identify additional potential product candidates and choose to pursue development internally, satisfaction of these regulatory requirements will entail substantial time, effort, and financial resources. We may never satisfy these requirements. The effort, and financial resources we expend on the identification or development of additional product candidates may impair our ability to continue development, obtain regulatory approval, and commercialize our current product candidates, or seek potential partner to do the foregoing, and we or our potential partner may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. If we or our potential partner do commence clinical trials of other product candidates, these product candidates may never demonstrate sufficient safety and efficacy to be approved by the FDA or other regulatory authorities. If any of these events occur, we may be forced to abandon our development efforts for such program or programs, which would harm our business.

Healthcare insurers and other payors may not pay for our products or may impose limits on reimbursement.

The ability of us or our potential partner to commercialize our prescription products will depend, in part, on the extent to which reimbursement for our products is available from third-party payors, such as health maintenance organizations, health insurers and other public and private payors. If we or our potential partner succeed in bringing new products to market or expand the approved label for existing products, we cannot be assured that third-party payors will pay for such products, or establish and maintain price levels sufficient for realization of an appropriate return on our investment in product development.

Government health agencies, private health maintenance organizations and other third-party payors may use one or more tools including price controls, profit or reimbursement caps, and use of formularies, or lists of drugs for which coverage is provided under a healthcare benefit plan, to control the costs of prescription drugs. Each payor that maintains a drug formulary makes its own determination as to whether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class. This determination often involves an assessment of the clinical appropriateness of the drug and, in some cases, the cost of the drug in comparison to alternative products. Our products marketed by us or our potential partner from which we derive sales revenues and royalties may not be added to payors’ formularies, our products may not have preferred status to alternative therapies, and formulary decisions may not be conducted in a timely manner. Once reimbursement at an agreed level is approved by a payor organization, reimbursement may be lost entirely or be reduced compared to competitive products. As reimbursement is often approved for a period of time, this risk is greater at the end of the time period, if any, for which the reimbursement was approved. Our potential partner may also decide to enter into discount or formulary fee arrangements with payors, which could result in lower or discounted prices for Crinone or future products.  The cost of drugs has received a lot of attention from government authorities, including the U.S. Congress, and it is impossible to predict whether legislative changes will be enacted or whether regulations or policies will be changed or what the effect of such changes, if any, may be.

If our products do not have the effects intended or cause adverse events, our business may suffer.

Although many of the ingredients in our current product candidates are approved generics, human hormones, and other substances for which there is a long history of human consumption, they also contain innovative ingredients or combinations of ingredients. Our product or product candidates could have certain undesirable adverse events, including if not taken as directed or if taken by a consumer who has certain medical conditions. In addition, our product and product candidates may not have the effect intended, including if they are not taken in accordance with certain instructions. Furthermore, there can be no assurance that our product or product candidates, even when used as directed, will have the effects intended or will not have adverse events in an

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unforeseen way or on an unforeseen cohort. If any of our products or products we or our potential partner develop or commercialize in the future are shown to be harmful or generate negative publicity from adverse events, our business, financial condition, results of operations, and prospects would be harmed significantly.

Our products could demonstrate hormone replacement risks.

In the past, certain studies of female hormone replacement therapy products, such as conjugated equine estrogen, have reported an increase in health risks. Progesterone is a natural female hormone present at normal levels in most women throughout their lifetimes. However, some women require progesterone supplementation due to a natural or chemical-related progesterone deficiency. It is possible that data suggesting risks or problems may come to light in the future that could demonstrate a health risk associated with progesterone or progestin supplementation or Crinone or our product candidates. It is also possible that future study results for hormone replacement therapy could be negative and could result in negative publicity about the risks and benefits of hormone replacement therapy. As a result, physicians and patients may not wish to prescribe or use progesterone or other hormones, including Crinone.

We may be exposed to product liability claims.

We could be exposed to future product liability claims by consumers. Although we presently maintain product liability insurance coverage at what we believe is a commercially reasonable level, such insurance may not be sufficient to cover all possible liabilities. An award against us in an amount greater than our insurance coverage could have a material adverse effect on our operations.

We face substantial competition from larger companies with considerable resources that already have comparable treatments available in the market, and they or others may also discover, develop or commercialize additional products before or more successfully than we do.

Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new technologies and treatments. Our potential competitors include primarily large pharmaceutical, biotechnology, and specialty pharmaceutical companies. In attempting to achieve the widespread commercialization of our product candidates, we will face competition from established drugs and major brand names and also generic versions of these products. In addition, new products developed by others could emerge as competitors to our future products.

Our services business competes directly with the in-house research departments of pharmaceutical companies and biotechnology companies, as well as contract research companies, and research and academic institutions. We also experience significant competition from foreign companies operating under lower cost structures. Many of our competitors have greater financial and other resources than we have. We expect to face increased competition as new companies enter the market and as more advanced technologies become available. In the future, any one of our competitors may develop technological advances that render the services that we provide obsolete. While we plan to develop technologies, which will give us competitive advantages, our competitors plan to do the same. We may not be able to develop the technologies we need to successfully compete in the future, and our competitors may be able to develop such technologies before we do or provide those services at a lower cost. Consequently, we may not be able to successfully compete in the future.

Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. These companies also have long-established relationships within the medical and patient community, including patients, physicians, nurses and commercial third-party payors and government payors. Our ability to compete successfully will depend largely on our ability to:

 

discover and develop product candidates that are superior to other products in the market;

 

obtain required regulatory approvals;

 

adequately communicate the benefits of our product candidates, if approved;

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attract and retain qualified personnel;

 

obtain and maintain patent and/or other proprietary protection for our product candidates and any future product candidates we may develop; and

 

obtain collaboration arrangements to commercialize our product candidates and any future product candidates we may develop.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we or our potential partner may commercialize and may render our product candidates or any future product candidates we may develop obsolete or non-competitive before we can recover the expenses of developing and commercializing our product candidates or any future product candidates we may develop. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours. We anticipate that we will face intense and increasing competition as new drugs enter the market and more advanced technologies become available. For example, a competitor could develop therapies that are more efficacious or convenient than our product candidates. If we are unable to compete effectively, our opportunity to generate revenue from the sale of our product candidates or any future product candidates we may develop, if approved, could be impaired.

Legislative or regulatory reform of the health care system and other regulatory or statutory changes in the United States and foreign jurisdictions may adversely impact our business, operations, or financial results.

Our industry is highly regulated and changes in law may adversely impact our business, operations, or financial results. In particular, in March 2010 the Patient Protection and Affordable Care Act and a related reconciliation bill (collectively the “Affordable Care Act”) were signed into law. This legislation changes the current system of healthcare insurance and benefits and is intended to broaden coverage and control costs. The law also contains provisions that affect companies in the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following:

 

Mandatory rebates for drugs sold into the Medicaid program have been increased, and the rebate requirement has been extended to drugs used in risk-based Medicaid managed care plans.

 

The definition of “average manufacturer price” was revised for reporting purposes, which could increase the amount of Medicaid drug rebates by state.

 

The 340B Drug Pricing Program under the Public Health Service Act has been extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered entities.

 

Pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “donut hole.”

 

Pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs. The aggregated industry-wide fee is expected to total $28 billion through 2019. Since we expect our branded pharmaceutical sales to constitute a small portion of the total federal healthcare program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition.

Some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. For example, the 2017 Tax Reform Act includes a provision repealing the Affordable Care Act’s individual health insurance coverage mandate, effective January 1, 2019. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse the insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge

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in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through these marketplaces. Congress will likely consider other legislation to replace elements of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the Affordable Care Act that are repealed. Thus, the full impact of the Affordable Care Act, any law replacing elements of it, and the political uncertainty surrounding any repeal or replacement of it on our business remains unclear.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which began in 2013, which will remain in effect until 2025 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.

In addition, in September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted giving the FDA enhanced post-marketing authority including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to ensure compliance with post-approval regulatory requirements and potential restrictions on the sale and/or distribution of approved products. Other legislative and regulatory initiatives have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. For example, the Drug Supply Chain Security Act of 2013 imposes new obligations on manufacturers of certain pharmaceutical products related to product tracking and tracing. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance documents or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

Further, in some foreign jurisdictions, including the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the receipt of regulatory approval and product launch. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. Our business could be harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further, federal and state legislative and regulatory developments are likely, and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from our current and future products and may affect our overall financial condition and ability to develop product candidates.

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Risks Related to Our Reliance on Third Parties

We rely on third parties to conduct our clinical trials and many of our preclinical studies. If those parties do not successfully carry out their contractual duties or meet expected deadlines, our product candidates may not advance in a timely manner or at all.

In the course of our discovery, preclinical testing, and clinical trials, we rely on third parties, including universities, investigators, and CROs, to perform critical services for us. For example, we rely on third parties to conduct our clinical trials and many of our preclinical studies. CROs and investigators are responsible for many aspects of the trials, including finding and enrolling patients for testing and administering the trials. We therefore must rely on third parties to conduct our clinical trials, but their failure to comply with all regulatory and contractual requirements, or to perform their services in a timely and acceptable manner, may compromise our clinical trials in particular or our business in general. Although we rely on these third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial patients are adequately informed of the potential risks of participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements. These third parties may not be available when we need them or, if they are available, may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner. Any failings by these third parties may compromise our clinical trials in particular or our business in general. Similarly, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated. These independent third parties may also have relationships with other commercial entities, some of which may compete with us. For example, if such third parties fail to perform their obligations in compliance with our clinical trial protocols, our clinical trials may not meet regulatory requirements or may need to be repeated. As a result of our dependence on third parties, we may face delays or failures outside of our direct control. These risks also apply to the development activities of our potential partner, and we do not control our potential partner’s research and development, clinical trials or regulatory activities.

In addition, from time to time we have prepaid research and development expenses to third parties that have been deferred and capitalized as pre-payments to secure the receipt of future preclinical and clinical research and development services. These pre-payments are recognized as an expense in the period that the services are performed. We assess our prepaid research and development expenses for impairment when events or changes in circumstances indicate that the carrying amount of the prepaid expense may not be recoverable or provide a future economic benefit, including the risk of third-party nonperformance. If there are indicators that the third parties are unable to perform the research and development services, we may be required to take an impairment charge.

Our research and development activities rely on technology licensed from third parties, and termination of any of those licenses would result in loss of significant rights to develop and market our products, which would impair our business, prospects, financial condition and results of operations.

We have been granted rights to a technology necessary for our research and development activities from third parties through license agreements. The license generally may be terminated by the licensor if we fail to perform our obligations under the agreement, including obligations to develop the product candidates under license. If terminated, we would lose the right to develop the product candidates, which could adversely affect our business, prospects, financial condition and results of operations. The license agreements also generally require us to meet specified milestones or show reasonable diligence in development of the technology. If disputes arise over the definition of these requirements or whether we have satisfied the requirements in a timely manner, or if any other obligations in the license agreements are disputed by the other party, the other party could terminate the agreement, and we could lose our rights to develop the licensed technology.

In addition, if new technology is developed from these licenses, we may be required to negotiate certain key financial and other terms, such as milestone and royalty payments, for the licensing of this future technology with the third-party licensors, and it might not be possible to obtain any such license on terms that are satisfactory to us, or at all.

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We are completely dependent on third parties to manufacture our commercial products, and we use single-source supplier for certain of our raw materials, and any difficulties, disruptions, or delays, or the need to find alternative sources, could adversely affect our profitability and future business prospects.

We do not currently own or operate, and currently do not plan to own or operate, facilities for the commercial manufacture of our products. We currently rely solely on third-party contract manufacturers to manufacture Crinone and will rely on third-party contract manufacturers to manufacture any product candidates that are approved for marketing and sale. We also currently have a single supplier of ethylene vinyl acetate (“EVA”) for development applications only. We do not currently have an alternative manufacturer for our drug substance and finished drug product, and we may not be able to enter into agreements with second source manufacturers whose facilities and procedures comply with cGMP, regulations and other regulatory requirements on a timely basis and with terms that are favorable to us, if at all.

Our ability to have our commercial products manufactured in sufficient quantities and at acceptable costs to meet our commercial demand and clinical development needs is dependent on the uninterrupted and efficient operation of our third-party contract manufacturing facilities. Any difficulties, disruptions or delays in the manufacturing process could result in product defects or shipment delays, suspension of manufacturing or sale of the product, recall or withdrawal of product previously shipped for commercial or clinical purposes, inventory write-offs or the inability to meet commercial demand in a timely and cost-effective manner. Furthermore, our current third-party manufacturers do not manufacture for us exclusively and may exhaust some or all of their resources meeting the demand of other customers. In addition, securing additional third-party contract manufacturers for our products will require significant time for transitioning the necessary manufacturing processes, gaining regulatory approval, and for having the appropriate oversight and may increase the risk of certain problems, including cost overruns, process reproducibility, stability issues, the inability to deliver required quantities of product that conform to specifications in a timely manner, or the inability to manufacture our products in accordance with cGMP.

Further, we and our third-party manufacturers currently purchase certain raw and other materials used to manufacture our products from third-party suppliers and, at present, do not have long-term supply contracts with most of these third parties. These third-party suppliers may cease to produce the raw or other materials used in our product or product candidates or otherwise fail to supply these materials to us or our third-party manufacturers or fail to supply sufficient quantities of these materials to us or our third-party manufacturers in a timely manner for a number of reasons, including but not limited to the following:

 

unexpected demand for or shortage of raw or other materials;

 

adverse financial developments at or affecting the supplier;

 

regulatory requirements or action;

 

an inability to provide timely scheduling and/or sufficient capacity;

 

manufacturing difficulties;

 

changes to the specifications of the raw materials such that they no longer meet our standards;

 

lack of sufficient quantities or profit on the production of raw materials to interest suppliers;

 

labor disputes or shortages; or

 

import or export problems.

Any other interruption in our third-party supply chain could adversely affect our ability to satisfy commercial demand and our clinical development needs for our products and product candidates. In addition, we or our third-party manufacturers sometimes obtain raw or other materials from one vendor only, even where multiple sources are available, to maintain quality control and enhance working relationships with suppliers, which could make us susceptible to price inflation by the sole supplier, thereby increasing our production costs. As a result of the high-quality standards imposed on our raw or other materials, we or our third-party manufacturers may not be able to obtain such materials of the quality required to manufacture our products and product candidates from an alternative source on commercially reasonable terms, or in a timely manner, if at all.

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If we are unable to have our products and product candidates manufactured on a timely or sufficient basis because of the factors discussed above, we may not be able to meet commercial demand or our clinical development needs for our products and product candidates, or may not be able to manufacture our products and product candidates in a cost-effective manner. As a result, we may lose sales, fail to generate increased revenues or suffer regulatory setbacks, any of which could have an adverse impact on our profitability and future business prospects.

For example, our IVR technology utilizes medical grade ethlyene vinyl acetate polymers for which there are a limited number of vendors from a single supplier. The EVA polymer used in our IVR products must meet certain manufacturing and quality specifications in order to be used in pharmaceutical applications.  We are not aware of any companies, other than our existing supplier, which manufacture EVA meeting the specifications required for use in our pharmaceutical IVR application.  We have purchased GMP pharmaceutical grade EVA from a single supplier for development applications but have not entered into a commercial supply agreement. There can be no guarantee that we will be able to enter into a commercial supply agreement under terms that are commercially acceptable.   Even if an acceptable commercial supply agreement can be negotiated with our existing supplier, it may not be possible to identify a back-up, or second source of EVA, should they be unable to supply material, for any reason.

If we are unable to reach acceptable financial terms for research and commercial supplies with one of these vendors, our ability to commercialize products using the technology will be significantly delayed or prohibited.

We are dependent on single-source third-party suppliers of raw materials for our product, the loss of whom could impair our ability to manufacture and sell our products.

Medical grade, cross-linked polycarbophil, the polymer used in our BDS-based product is currently available from only one supplier, Lubrizol, Inc.(“Lubrizol”). We believe that Lubrizol will supply as much of the material as we require because our product ranks among the highest value-added uses of the polymer. In the event that Lubrizol cannot or will not supply enough of the product to satisfy our needs, we will be required to seek alternative sources of polycarbophil. An alternative source of polycarbophil may not be available on satisfactory terms or at all, which would impair our ability to manufacture and sell our product. While we purchase polycarbophil from Lubrizol from time to time, we do not have an agreement with them concerning future purchases.

Only one supplier of progesterone is approved by regulatory authorities outside the United States If this supplier is unable or unwilling to satisfy our needs, we will be required to seek alternative sources of supply. While alternative sources of progesterone exist, it would take time to receive approval in all countries in which we sell Crinone, and we may never receive approval from local regulatory authorities. We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.

We are dependent upon single-source third-party manufacturers for our sale of Crinone, the loss of which could result in a loss of revenues.

We rely on third parties to manufacture Crinone, including, Fleet Laboratories Limited (“Fleet”), which manufactures Crinone in bulk, Maropack AG (“Maropack”), which fills Crinone into applicators, and Central Pharma Ltd (“Central Pharma”), which packages Crinone in final containers. These third parties may not be able to satisfy our needs in the future, and we may not be able to find or obtain approval from regulatory authorities of alternate developers and manufacturers. Delays in the manufacture of Crinone could have a material adverse effect on our business. This reliance on third parties could have an adverse effect on our profit margins. Any interruption in the manufacture of Crinone would impair our ability to deliver our product to customers on a timely and competitive basis, and could result in the loss of revenues.

Currently we have only one supplier of progesterone for Crinone approved by regulatory authorities in all the countries in which we sell Crinone outside the United States. To date, we have not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone.

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We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception and may continue to incur losses in the future and thus may never achieve or maintain profitability.

We may incur additional operating losses over the next several years. Future operating losses may have an adverse effect on our cash resources, stockholders’ equity and working capital. If we obtain regulatory approval of any future product candidates, we may incur significant sales, marketing, and outsourced manufacturing expenses, as well as continued research and development expenses. We have completed our in vivo preclinical animal studies for our IVR program, and based on the final results of these studies, we plan to seek the support of one or more partners for our IVR product candidates. In 2018, we plan to incur additional research and development expenses as part of our more focused research and development strategy. In addition, we may continue to incur costs associated operating as a public company. As a result, we may incur operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

We may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals, diversify our portfolio of product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We may not be able to complete the development and commercialization of our product candidates if we fail to obtain additional financing.

We need substantial amounts of cash to complete the preclinical and clinical development of future product candidates. Although we have existing cash and cash equivalents, and future cash is expected from the ongoing results of our core operations, it may not be sufficient to fund our requirements in an expeditious manner. In addition, changing circumstances may cause us to consume funds significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may attempt to raise additional capital from the issuance of equity or debt securities, collaborations with third parties, licensing of rights to these products, or other means, or a combination of any of the foregoing. Securing additional financing will require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from our day-to-day activities, which may adversely affect our ability to conduct our day-to-day operations. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to take one or more of the following actions:

 

significantly delay, scale back, or discontinue our product development and commercialization efforts;

 

seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be the case; and

 

license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to

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relinquish valuable rights to our technologies, future revenue streams, research programs, or proposed products, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing discovery, development, and commercialization efforts, and our ability to generate revenue and achieve or sustain profitability will be substantially harmed.

Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results.

We have significant intangible assets, including goodwill and intangibles with useful lives ranging from three to seven years, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The most significant intangible assets we have is goodwill as well as developed technology and customer relationships. We amortize our intangible assets that have finite lives 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. Amortization is recorded over the estimated useful lives ranging from three to seven years. We assess the potential impairment of goodwill on an annual basis.  Goodwill and intangible assets are assessed whenever triggering events or certain changes in circumstances have occurred. Factors that could trigger an impairment of such assets include the following:

 

significant underperformance relative to historical or projected future operating results;

 

significant changes in the manner of or use of the acquired assets or the strategy for our overall business;

 

significant negative industry or economic trends;

 

significant decline in our stock price for a sustained period;

 

changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation in our analysis by reporting unit; and

 

a decline in our market capitalization below net book value.

Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations and financial position in the reporting period identified.

We are exposed to market risk from foreign currency exchange rates.

With four international subsidiaries and third-party manufacturers in the European Union, economic and political developments in the European Union can have a significant impact on our business. All of our products are currently manufactured in the European Union. We are exposed to currency fluctuations related to payment for the manufacture of our products in Euros, Pounds Sterling, Swiss Francs, and other currencies and selling them in U.S. dollars and other currencies.

Comprehensive tax reform legislation could adversely affect our business or financial condition.

The U.S. government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of business entities, referenced herein as the Tax Reform Act. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions, allowing for the expensing of capital expenditures, and putting into effect the migration from a “worldwide” system of taxation to a territorial system. The overall impact of this tax reform is uncertain, and it is possible that our business and financial condition could be adversely affected. We continue to examine the impact this tax reform legislation may have on our business. We urge our shareholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our ordinary shares.

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Risks Related to Our Intellectual Property

Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to gain approval of, and commercialize, our product candidates in foreign markets for which we may rely on collaboration with third parties. If we are able to gain approval for, and commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

 

the amount of reimbursement for our product candidates in foreign markets, and the nature of any limitations and caps on such reimbursement;

 

our inability to directly control commercial activities to the extent we are relying on third parties;

 

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

 

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

 

import or export licensing requirements;

 

longer accounts receivable collection times;

 

longer lead times for shipping;

 

language barriers for technical training;

 

reduced protection of intellectual property rights in some foreign countries;

 

the existence of additional potentially relevant third-party intellectual property rights;

 

foreign currency exchange rate fluctuations; and

 

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

The patent protection for our Crinone product has expired, and our competitors may develop and commercialize generic or otherwise competitive products, the sales of which may materially affect the revenue we receive based on the sale of our Crinone product around the world.

Although our Crinone product is the primary source of our commercial revenue, the patents covering Crinone have expired in all the major jurisdictions where Crinone is currently being sold. As a result, we may face significant competition in those markets. Our competitors may develop and commercialize products that compete with Crinone, and the sales of such products may materially affect the revenue we receive from Merck KGaA, based on sales of Crinone outside the United States.

If we are unable to obtain and maintain adequate patent protection for our product candidates, our competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize our product candidates successfully may be adversely affected; also, the term of our or our licensor’s issued patents may be inadequate to protect our competitive position for our product candidates for an adequate amount of time.

The success of our JNP-0101, JNP-0201, and JNP-0301 product candidates depends, in part, upon our and our licensors ability to obtain and maintain patent protection in the United States and other countries for our product candidates. If we do not receive adequate intellectual property protection, our competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we or our licensors have filed and, when appropriate, will file patent applications in the United States and abroad to seek protection for innovations relating to our novel product candidates that are important to our business. The patent application and approval process, however, is expensive

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and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

The patent position of pharmaceutical companies generally is highly uncertain. In addition, the determination of patent rights with respect to pharmaceutical products commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.

Pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Assuming that the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office (“USPTO”), or become involved in post-grant review procedures, oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging our or our licensor’s patent rights. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.

Our pending and future patent applications may not result in patents being issued which protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection and prevent competitors from competing with us or otherwise provide us with any competitive advantage. For example, our competitors may be able to circumvent our patents by developing alternative formulations that have biological activities the same as or similar to our product candidates but fall outside the scope of the claims of our issued patents. Also, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our competitors may be able to commercialize products that compete with our product candidates, which may have a material adverse effect on our business position, business prospects, and financial condition.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke those parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our

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patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition.

Even if we prevail in our infringement action, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our and our potential partner’s ability to develop, manufacture, market and sell our product candidates and to sell Crinone without infringing the intellectual property and other proprietary rights of third parties. If any third-party patents or patent applications are found to cover our product candidates or their methods of use, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all.  For example, we are aware of a United States method of use patent owned by Allergan that would apply to JNP-0301, which may require us to obtain a license in order to commercialize JNP-0301.

There is a substantial amount of intellectual property litigation in the pharmaceutical industry, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our product candidates, including interference proceedings before the USPTO. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical industry has produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

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If we are found to infringe a third-party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could have a material adverse effect on our business. Claims that we have misappropriated the confidential information or trade secrets of third-parties could have a similar negative impact on our business.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

While we have obtained composition of matter patents with respect to some of our product candidates, we also rely on trade secret protection for certain aspects of our technology platform, including certain aspects of our formulation and device development expertise and know-how. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, consultants, independent contractors, advisors, contract manufacturers, suppliers and other third parties. We also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. Furthermore, even if the information were to become available to the public by improper means, once released, we will not be able to stop other innocent parties from using the released information. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us or from disclosing the information widely. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.

We may not be able to enforce our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents or where any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us.

Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. Furthermore, certain foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties under certain circumstances. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to

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enforce our patents to stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Some of our employees, including members of our senior management, were previously employed at other pharmaceutical companies, and some of these employees, including members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from that third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. Even if we enter into such agreements, we cannot prevent the other party from, for example, attempting to challenge the ownership or inventorship of the proprietary rights that was intended to be covered by the agreement. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.

Risks Related to Ownership of Our Common Stock

The price of our common stock has been and may continue to be volatile.

The market prices and volume of securities of small specialty pharmaceutical companies, including ours, from time to time experience significant price and volume fluctuations. Historically, the market price of our common stock has fluctuated over a wide range. Between 2015 and 2017, our common stock traded in a range from $3.65 to $15.44 per share. During the twelve months ended December 31, 2017, our common stock traded in a range from $3.65 to $6.10 per share. It is likely that the price of our common stock will continue to fluctuate. In particular, the market price of our common stock may fluctuate significantly due to a variety of factors, including: the results of our operations, our ability to develop additional products and services, and general market conditions. In addition, the occurrence of any of the risks described in these “Risk Factors” could have a material and adverse impact on the market price of our common stock.

Sales of large amounts of our common stock may adversely affect our market price. The issuance of preferred stock or convertible debt may adversely affect the rights of our common stockholders.

As of December 31, 2017, we had 10,844,113 shares of common stock outstanding, all of which were freely tradable. As of that date, approximately 432,625 shares of our common stock were held by affiliates. We also have outstanding options and restricted stock. If all of these securities are exercised are exercised or converted, an additional 2.0 million shares of our common stock will be outstanding, all of which will be available for resale under the Securities Act, subject in some cases to applicable volume limitations under Rule 144 of the Securities Act. The exercise and conversion of these securities would likely dilute the book value per share of our common stock. In

56


addition, the existence of these securities may adversely affect the terms on which we can obtain additional equity financing.

In March 2002, our Board of Directors authorized shares of series D junior participating preferred stock in connection with its adoption of a stockholder rights plan which plan was amended and restated on November 29, 2010 and subsequently on January 28, 2015 (the “Amended Rights Plan”), under which we issued, to holders of our common stock, rights to purchase series D convertible preferred stock. Upon certain triggering events, such rights become exercisable to purchase shares of our common stock (or, in the discretion of our Board of Directors, series D convertible preferred stock) at a price substantially discounted from the then current market price of our common stock. The Amended Rights Plan expired on July 3, 2016.

Under our certificate of incorporation, our Board of Directors has the authority to issue up to 1.0 million shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. In addition, we may issue convertible debt without shareholder approval. The rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any shares of preferred stock or convertible debt that may be issued in the future. While we have no present intention to authorize or issue any additional series of preferred stock or convertible debt, such preferred stock or convertible debt, if authorized and issued, may have other rights, including economic rights senior to our common stock, and, as a result, their issuance could have a material adverse effect on the market value of our common stock.

Anti-takeover provisions could impede or discourage a third party acquisition of the Company. This could prevent stockholders from receiving a premium over market price for their stock.

We are a Delaware corporation. Anti-takeover provisions of Delaware law impose various obstacles to the ability of a third party to acquire control of our company, even if a change in control would be beneficial to our existing stockholders. In addition, our Board of Directors has adopted a stockholder rights plan (as discussed above, this plan was amended and restated on November 29, 2010 and subsequently on January 28, 2015) and has designated a series of preferred stock that could be used defensively if a takeover is threatened. Our incorporation under Delaware law, our stockholder rights plan, our ability to issue additional series of preferred stock, among other things, could impede a merger, takeover or other business combination involving our company or discourage a potential acquirer from making a tender offer for our common stock. This could reduce the market value of our common stock if investors view these factors as preventing stockholders from receiving a premium for their shares.

If equity research analysts stop publishing research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity research analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We may be limited in our use of our net operating loss carryforwards.

As of December 31, 2017, we had federal and state net operating loss carryforwards of approximately $164.0 million and $20.0 million, respectively, that may be used to reduce our future U.S. federal income tax liabilities, if we become profitable on a federal income tax basis. If unused, these tax loss carryforwards will begin to expire in 2020 and 2018, respectively. Our ability to use these loss carryforwards to reduce our future U.S. federal income tax liabilities could also be lost if we were to experience more than a 50% change in ownership within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, the “Code”). If we were to lose the benefits of these loss carryforwards, our future earnings and cash resources would be materially and adversely affected.

On January 22, 2015, our Board of Directors adopted an amendment and restatement of the Amended and Restated Rights Agreement, dated as of November 29, 2010, (the “Rights Plan”), between the Company and American Stock Transfer & Trust Company, LLC, as successor rights agent as (amended and restated, the “Amended Rights Plan”). We adopted the Rights Plan to preserve the value of our net operating loss carry forwards

57


by reducing the likelihood that we would experience an ownership change by discouraging any person (together with such person’s affiliates and associates), without the approval of the Board of Directors, (i) from acquiring 4.99% or more of the outstanding Voting Stock (as defined in the Rights Plan) and (ii) that currently beneficially owns 4.99% or more of the outstanding Voting Stock from acquiring more shares of Voting Stock, other than by exercise or conversion of currently existing warrants, convertible securities or other equity-linked securities. In general, the Amended Rights Plan leaves the Rights Plan unchanged in all material respects, other than increasing from 4.99% or more to 9.99% or more the percentage of outstanding shares of Voting Stock that a Person must Beneficially Own (as defined in the Amended Rights Plan) in order to qualify as an “Acquiring Person” for purposes of triggering the Rights (as defined in the Amended Rights Plan) under the Amended Rights Plan. The Amended Rights Plan expired on July 3, 2016.

There is no guarantee that the Rights Plan will prevent an ownership change within the meaning of Section 382(g) of the Internal Revenue Code and, therefore, no guarantee that the value of our net operating loss carryforwards will be preserved.

Our management identified material weaknesses in our internal control over financial reporting for which we implemented certain remediation measures. This remediation is now complete. However, if these material weaknesses were not remediated properly, they could lead to future restatements and have a material adverse effect on our business, financial condition, cash flows and results of options and could cause the market value of our common shares and/or debt securities to decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and the Sarbanes-Oxley Act of 2002 and SEC rules require that our management report annually on the effectiveness of the Company’s internal control over financial reporting and our disclosure controls and procedures. Among other things, our management must conduct an assessment of the Company’s internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to audit, the effectiveness of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As disclosed in Part II, Item 9A, “Controls and Procedures” of our annual report for the fiscal year ended December 31, 2016 and this report, our management, with the participation of our current President and Chief Executive Officer and our current Chief Financial Officer, implemented certain remediation measures to address the identified material weaknesses in our internal control over financial reporting, which related to technical accounting review of significant contractual agreements and our monitoring of expenses incurred under our clinical research agreements, have been remediated. As a result of these remediation measures, these material weaknesses were remediated as of December 31, 2017.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We implemented a remediation plan and addressed previously identified material weaknesses. However, if another material weaknesses is identified  in the future it could result in material misstatements in our consolidated financial statements. These misstatements could result in a further restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to implement and document new and more precise monitoring controls or to implement organizational changes including skillset enhancements through resource changes or education to improve detection and communication of financial misstatements across all levels of the organization could result in additional material weaknesses, result in material misstatements in our financial statements and cause us to fail to meet our reporting obligations, which in turn could cause the trading price of our common stock to decline.

58


We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings, if any, for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future. Any return to holders of our common stock would therefore be limited to the appreciation of their stock.

 

We could be adversely impacted by actions of activist shareholders, and such activism could impact the value of our securities.

While we continually engage the shareholders and consider their views on business and strategy, responding to activist shareholders can be costly and time-consuming, disrupt operations and divert the attention of management and employees.  The uncertainties associated with such activities could interfere with our ability to effectively execute our strategic plan, impact long-term growth and limit our ability to hire and retain personnel.  In addition, a proxy contest for the election of directors could require the Company to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and the board of directors.  Uncertainties related to, or the results of, such activism could affect the market price and volatility of our securities.

Item 1B.

Unresolved Staff Comments

None.

Item  2.

Properties

We lease a 7,050 square foot facility in Boston, Massachusetts, which houses our corporate headquarters, executive offices and certain administrative functions. The lease on this facility expires in February 2019. We own two facilities in Nottingham, United Kingdom. The first is a 8,000 square foot facility containing administrative offices and laboratories for analytical and development services. The second building is a 30,000 square foot facility containing laboratories and clean rooms primarily used for pharmaceutical development, analytical and manufacturing activities.

Item  3.

Legal Proceedings

Claims and lawsuits are filed against the Company from time to time. Although the results of pending claims are always uncertain, the Company believes that it has adequate reserves or adequate insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance coverage in the event of any unfavorable outcome resulting from these actions.

Item  4.

Mine Safety Disclosures

Not Applicable.

59


PART II

Item  5.

Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Our Common Stock.

Our common stock is traded on the Nasdaq Global Market under the symbol “JNP.” The following table sets forth for the periods indicated the high and low sales prices of our common stock on the Nasdaq Global Market.

 

 

 

High

 

 

Low

 

Fiscal Year Ended December 31, 2017

 

 

 

 

 

 

 

 

First Quarter

 

$

5.80

 

 

$

4.55

 

Second Quarter

 

 

6.10

 

 

 

3.65

 

Third Quarter

 

 

5.40

 

 

 

4.30

 

Fourth Quarter

 

 

5.40

 

 

 

4.40

 

Fiscal Year Ended December 31, 2016

 

 

 

 

 

 

 

 

First Quarter

 

$

10.21

 

 

$

5.30

 

Second Quarter

 

 

7.94

 

 

 

6.00

 

Third Quarter

 

 

8.00

 

 

 

4.30

 

Fourth Quarter

 

 

6.40

 

 

 

5.00

 

 

Holders of Record

There were approximately 4,700 beneficial owners of our common stock as of our latest record date of May 8, 2017.

Dividend Policy

We have never paid a cash dividend on our common stock and do not anticipate the payment of cash dividends in the foreseeable future. We intend to retain any earnings for use in the development and expansion of our business.

Applicable provisions of the Delaware General Corporation Law may affect our ability to declare and pay dividends on our common stock. In particular, pursuant to the Delaware General Corporation Law, a company may pay dividends out of its surplus, as defined, or out of its net profits, for the fiscal year in which the dividend is declared and/or the preceding year. Surplus is defined in the Delaware General Corporation Law to be the excess of our net assets over capital. Capital is defined to be the aggregate par value of shares issued unless otherwise established by the Board of Directors.

 

Recent Sales of Unregistered Securities.

None.

Equity Compensation Plan Information

See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for information regarding securities authorized for issuance under our equity compensation plans.

Shelf Registration

On September 14, 2015, we filed an S-3 registration statement with the SEC using a “shelf” registration process, file number 333-206928, which became effective September 23, 2015. Under this shelf registration process, we may from time to time sell any combination of the securities described in the prospectus in one or more offerings for an aggregate offering price of up to $100,000,000. The amount to be registered under the shelf registration consists of up to $100,000,000 of an indeterminate amount of common stock and/or preferred stock, warrants, rights and/or units to purchase certain securities. We have not issued any securities under this registration statement.

60


Stock Performance Graph

The information contained in the performance graph or table below shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.

The table below shows the cumulative total stockholder return of an investment of $100 on December 31, 2012 in our common stock, the Russell 2000 Index, and our Peer Group (as defined below). Our stock price performance shown in the table below is not indicative of future stock price performance.

Comparison of Five-Year Cumulative Total Return

Juniper Pharmaceuticals, Inc., Russell 2000 Index and Peer Group*

(Performance Results Through 12/31/2017)

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

2012

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

Juniper Pharmaceuticals, Inc.

 

 

$

100.00

 

 

$

130.02

 

 

$

110.15

 

 

$

202.60

 

 

$

110.15

 

 

$

95.40

 

Russell 2000 Index

 

 

$

100.00

 

 

$

137.00

 

 

$

141.84

 

 

$

133.74

 

 

$

159.78

 

 

$

180.79

 

Peer Group

 

 

$

100.00

 

 

$

159.02

 

 

$

133.59

 

 

$

105.99

 

 

$

67.97

 

 

$

136.91

 

 

*

Peer Group Companies are Alimera Sciences, Inc., Antares Pharma, Inc., Assembly Biosciences, Athersys, Inc, BioDelivery Sciences International, Inc., Caladrius Biosciences, Inc., Codexis, Inc., CTI BioPharma Corp., Elite Pharmaceuticals, Inc., Endocyte, Inc., Pain Therapeutics, Paratek Pharmaceuticals, Inc., Rigel Pharmaceuticals, Inc., XOMA Corp., and Zogenix.

Note: Factual material is obtained from sources believed to be reliable, but the publisher is not responsible for any errors or omissions contained herein.

61


Item 6.

Selected Financial Data

We derived the selected statement of operations data for the years ended December 31, 2017, 2016 and 2015 and the selected balance sheet data as of December 31, 2017 and 2016 from our audited consolidated financial statements included in this Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.” We derived the selected statement of operations data for the year ended December 31, 2014 and the selected balance sheet data as of December 31, 2015 and 2014 from our audited consolidated financial statements and footnotes thereto included in our 2016 Annual Report on Form 10-K/A under the caption Item 8, "Financial Statements and Supplementary Data." We derived the selected statement of operations data for the year ended December 31, 2013 and the selected balance sheet data as of December 31, 2013 from our unaudited consolidated financial statements in our 2016 Annual Report on Form 10-K/A under the caption Item 6, "Selected Financial Data."

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in 000’s, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

49,979

 

 

$

54,573

 

 

$

38,287

 

 

$

33,393

 

 

$

27,583

 

Gross profit

 

 

21,018

 

 

 

30,280

 

 

 

16,873

 

 

 

15,704

 

 

 

14,333

 

Operating expenses

 

 

24,881

 

 

 

25,001

 

 

 

18,746

 

 

 

10,960

 

 

 

10,101

 

Interest expense, net

 

 

130

 

 

 

97

 

 

 

106

 

 

 

118

 

 

 

25

 

Net (loss) income

 

$

(2,060

)

 

$

5,951

 

 

$

(1,496

)

 

$

4,656

 

 

$

4,741

 

Income (loss) per common share-basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.15

)

 

$

0.55

 

 

$

(0.14

)

 

$

0.42

 

 

$

0.42

 

Diluted

 

$

(0.15

)

 

$

0.55

 

 

$

(0.14

)

 

$

0.39

 

 

$

0.35

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,824

 

 

 

10,795

 

 

 

10,774

 

 

 

10,992

 

 

 

11,259

 

Diluted

 

 

10,824

 

 

 

10,891

 

 

 

10,774

 

 

 

11,007

 

 

 

11,273

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

19,633

 

 

$

19,735

 

 

$

16,095

 

 

$

16,895

 

 

$

21,121

 

Total assets

 

 

61,220

 

 

 

57,571

 

 

 

50,577

 

 

 

52,208

 

 

 

60,092

 

Long-term debt

 

 

3,799

 

 

 

2,407

 

 

 

3,135

 

 

 

3,532

 

 

 

3,995

 

Contingently redeemable series C preferred stock

 

 

 

 

 

550

 

 

 

550

 

 

 

550

 

 

 

550

 

Stockholders’ equity

 

 

41,512

 

 

 

39,770

 

 

 

36,512

 

 

 

37,325

 

 

 

42,069

 

 

62


Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial data included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Company Overview

We are a diversified healthcare company with core businesses consisting of our Crinone (progesterone gel) franchise and our fee-for-service pharmaceutical development and manufacturing business called Juniper Pharma Services (“JPS”). In addition, we are seeking to use our differentiated intravaginal ring (“IVR”) technology to advance a pipeline of product candidates intended to address the unmet needs in women’s health, through either internal development or external partnering. Our commercial product and product development programs utilize our proprietary drug delivery technologies, which we believe are suited to applications in women’s health. These technologies consist of our bioadhesive delivery system (“BDS”), a polymer designed to adhere to epithelial surfaces or mucosa and achieve sustained and controlled delivery of active drug product, and our novel IVR technology.

In January 2018, we announced that we would be exploring strategic alternatives in order to enhance shareholder value. We engaged Rothschild Global Advisory Group as our independent financial advisor to assist us and our Board of Directors in evaluating potential strategic alternatives.

In September 2017, we announced a reduction of approximately 8% of our workforce, primarily in the areas of new product research and development, in order to focus our resources on our core businesses. In addition, as part of our more focused research and development strategy, we completed our in vivo preclinical animal studies and expect to finalize the results for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018. At the completion of the in vivo preclinical studies and based on our preliminary assessment of the relative clinical data and development funding requirements of our three IVR product candidates, we plan to seek the support of one or more partners for our IVR product candidates to potentially include our entire IVR platform.

We currently operate in two segments: product and service. Our product segment oversees the supply chain and manufacturing of Crinone, our sole commercialized product, to our international commercial partner, Merck KGaA. Our service segment includes advanced analytical and consulting services, product development and clinical trial manufacturing as well as characterizing and developing pharmaceutical product candidates for our internal programs and managing certain preclinical activities.

Our objective is to be a leader in the discovery, development, and commercialization of therapeutics designed to treat unmet medical needs in women’s health. Key elements of our strategy include:

 

Supplying Crinone to our commercial partner, Merck KGaA, for sale in over 90 countries around the world;

63


 

Growing revenue from our formulation, analytical and product development capabilities at our pharmaceutical service business, Juniper Pharma Services (“JPS”), and potentially deploying those same capabilities for the advancement of our in-house product candidates; and

 

Finalizing the results of our in vivo preclinical animal studies for our IVR programs in the first half of 2018 with the goal of seeking a partner for our IVR program candidates or IVR platform.

We are applying the revenue generated from our Crinone franchise and JPS to partially fund the development of new therapeutics using our proprietary drug delivery technologies. We believe this strategy, in concert with our product and product development programs, positions us well for effective and capital-efficient growth.

Collaboration Agreements

Our primary revenue product is Crinone. We have licensed Crinone to Merck KGaA, outside the United States, and sold the rights to Crinone to Allergan, in the United States.

Merck KGaA

In April 2013, our license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five-year term, extending the expiration date to May 19, 2020. In January 2018, we announced the extension of this supply agreement for an additional 4.5-years through at least December 31, 2024.

Under the terms of our current license and supply agreement with Merck KGaA, we will sell Crinone to Merck KGaA on a country-by-country basis at the greater of (i) direct manufacturing cost plus 20% or (ii) a percentage of Merck KGaA’s net selling price. Additionally, we are jointly cooperating with Merck KGaA to evaluate and implement manufacturing cost reduction measures, with both parties sharing any reductions realized from these initiatives. The amended license and supply agreement requires Merck KGaA to provide a rolling 18-month forecast of its Crinone requirements for each country in which the product is marketed. The first four months of each forecast are considered firm orders. Under the agreement, each party is responsible for new clinical trials and government registrations in its territory and the parties are obligated to consult from time to time regarding the studies. Each party has agreed to promptly provide the other party the data from its Crinone studies free-of-charge. During the term of the agreement, we have agreed not to develop, license, manufacture or sell to another party outside the United States any product for the vaginal delivery of progesterone or progestational agents for hormone replacement therapy or other indications where progesterone or progestational agents are commonly used.

The extension of the supply agreement allows for a volume tiered, fixed price per unit with minimum annual volume guarantees, beginning on July 1, 2020. If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all our assets related to the Crinone supply chain and to transfer the manufacture to a third party or take over the management of the supply of the product.

We are the exclusive supplier of Crinone to Merck KGaA. Merck KGaA holds marketing authorizations for Crinone in over 90 countries outside the United States. The patent for Crinone has expired in all countries other than Argentina.

Allergan

Within the United States, Crinone was marketed by Allergan (which changed its name from Actavis, Inc. in 2015 and from Watson Pharmaceuticals, Inc. in 2012, each as a result of an acquisition) pursuant to a Purchase and Collaboration Agreement dated March 2010. Pursuant to the terms of this agreement, Allergan purchased certain of our assets and we agreed to participate in joint development activities with Allergan with respect to the development of certain progesterone gel products. In December 2013, we and Allergan held our last joint development committee meeting and there have been no joint development activities since then. In July 2010, and in connection with this agreement, we entered into a License Agreement with Allergan, which provided

64


Allergan with exclusive rights to develop, manufacture and offer to sell and commercialize these progesterone gel products in the United States. We also entered into a Supply Agreement with Allergan, dated July 2010, which made us the exclusive supplier to Allergan for Crinone.

Pursuant to the Purchase and Collaboration Agreement, we were eligible to receive royalties until July 2, 2020 equal to a minimum of 10% of annual net sales of Crinone by Allergan for annual net sales up to $150 million, 15% for sales above $150 million but less than $250 million, and 20% for annual net sales of $250 million and over. Royalties under the Purchase and Collaboration Agreement were payable until the latest of (i) the last valid claim, (ii) expiration of regulatory exclusivity or (iii) the 10th anniversary of product launch.  In November 2016, we entered into an agreement with Allergan to monetize future royalty payments due to us.  Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to pay future royalty payments to us.  This amount was recognized as revenue in the year ended December 31, 2016.

Exclusive patent license agreement with The Massachusetts General Hospital Corporation

On March 27, 2015 we entered into an Exclusive Patent License Agreement with Massachusetts General Hospital (“MGH”) pursuant to which we licensed the exclusive worldwide rights to MGH’s patent rights in a novel IVR technology for the delivery of one or more pharmaceuticals at different dosages and release rates in a single segmented ring.

Unless earlier terminated by the parties, the license agreement will remain in effect until the later of (i) the date on which all issued patents and filed patent applications within the licensed patent rights have expired or been abandoned and (ii) one year after the last sale for which a royalty is due under the license agreement or 10 years after such expiration or abandonment date referred to in (i), whichever is earlier. We have the right to terminate the license agreement by giving 90 day advance written notice to MGH. MGH has the right to terminate the license agreement based on our failure to make payments due under the license agreement, subject to a 15-day cure period, or our failure to maintain the insurance required by the license agreement. MGH may also terminate the license agreement based on our non-financial default under the license agreement, subject to a 60-day cure period.

Pursuant to the terms of the license agreement, we have agreed to reimburse MGH for all costs associated with the preparation, filing, prosecution and maintenance of the licensed patent rights and have agreed to pay MGH a $50,000 annual license fee on each of the first five-year anniversaries of the effective date of the license, and a $100,000 annual license fee beginning on the sixth anniversary of the effective date of the license and on each subsequent anniversary thereafter. The annual license fee is creditable against any royalties or sublicense income payable in each calendar year.

Under the terms of the license agreement, we have agreed to use commercially reasonable efforts to develop and commercialize at least one product and/or process related to the IVR technology, which efforts will include the making of certain minimum annual expenditures in each of the first five years following the effective date of the license. We have also agreed to pay MGH certain milestone payments totaling up to $1.2 million tied to our achievement of certain development and commercialization milestones, and certain annual royalty payments based on net sales of any such patented products or processes developed by us.

Revenues

We generate revenues primarily from the sale of our products and services and, prior to November 2016, from a royalty stream that ceased as of October 2016.

We recognize revenue from the sale of our products to Merck KGaA when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the price is fixed or determinable; and collectability is reasonably assured.  During the years ended December 31, 2017, 2016 and 2015, we derived approximately 65%, 50% and 60% of our revenue, respectively, from the sale of our products. Revenues from royalties are generally recognized as sales are made by Allergan.  During the years ended December 31, 2016 and 2015, we derived approximately 26% and 10% of our revenue, respectively, from our royalty stream. No revenue was recognized from our royalty stream during the year ended December 31, 2017. In the year ended December 31,

65


2016, royalty revenue includes $11.0 million related to the one-time non-refundable payment from Allergan representing all future royalties due to us. We sell our products directly to our partner Merck KGaA and use a sales force to sell our services worldwide.

Revenues from services are recognized as the work is performed. During the years ended December 31, 2017, 2016 and 2015, we derived approximately 35%, 24% and 30%, respectively, from the sale of our services. Our services business is supported by sales and business development activities conducted by company executives and a dedicated business development team. At December 31, 2017, we had three dedicated sales employees based in the United Kingdom covering territories worldwide and one U.S. based sales employee. A technical support team, which covers the scientific aspects of customer programs, supports this sales team.

During the years ended December 31, 2017, 2016 and 2015, we derived 79%, 63% and 80% of our total revenues, respectively, from sales outside North America.

We expect that future recurring revenues will be derived from product sales to Merck KGaA, and from offering pharmaceutical development, clinical trial manufacturing, and analytical and consulting services. Quarterly sales results can vary widely and affect comparisons with prior periods because (i) products shipped to Merck KGaA occur only in full batches, and a portion of revenue recognized each period relates to Merck KGaA’s in-market sales and (ii) service revenues are driven by contracting and maintaining an active backlog of customer projects, which may vary widely from quarter to quarter.

Cost of Product Revenues

Our cost of product revenues consists primarily of material, labor, consulting, manufacturing overhead expenses, cost of components and subassemblies supplied by third-party suppliers. Cost of revenues also includes depreciation expense for certain equipment used for the manufacturing of our products.

Cost of Service Revenues

Our cost of service revenues consists primarily of labor, consulting, overhead expenses associated with the production and service projects undertaken by our scientists and laboratory employees. Cost of service revenues also includes depreciation expense for the utilization of manufacturing and laboratory equipment and facilities and amortization expense for developed technology, an intangible asset identified as a part of the JPS acquisition.

Sales and Marketing Expenses

Our sales and marketing expenses consist of costs including personnel and other administrative costs associated with employees directly focused on sales and marketing activities for our services business.

Research and Development Expenses

Research and development expenses include costs for product and clinical development, which were a combination of internal and third-party costs, and regulatory fees.

In 2014, we resumed research and development activities for COL-1077, a sustained-release vaginal lidocaine gel intended as an acute use anesthetic for minimally invasive gynecological procedures. In 2015, we entered into a Phase 2b clinical trial for COL-1077 which continued into 2016. In August 2016, we announced that the Phase 2b clinical trial evaluating COL-1077 did not achieve its primary and secondary endpoints and that further development of COL-1077 would be discontinued. In 2017, we worked to advance three preclinical product development programs: JNP-0101 for overactive bladder, JNP-0201 for hormone replacement therapy in women, and JNP-0301 for prevention of preterm birth and initiated in vivo preclinical animal studies. In September 2017, we announced a strategic reprioritization to allow us to focus our resources on the core businesses of Crinone progesterone gel and JPS and to revise our research and development strategy to look to partner our IVR programs. As a result of our strategic reprioritization, we anticipate lower research and development expenses in 2018 and beyond.

66


General and Administrative Expenses

General and administrative costs include payroll, employee benefits, equity compensation, and other personnel-related costs associated with administrative and support staff, as well as legal and accounting costs, insurance costs, bad debt expense and other administrative fees.

Interest Expense, net

Interest expense consists of interest payments related to debt associated with JPS, which is secured by a mortgage on the facilities that we own in Nottingham, U.K.. In addition, in 2017, we financed under a capital lease certain equipment, which is secured by the underlying assets.

Other Income, net

Other income, net consists primarily of income associated with the Regional Growth Fund, credits received due to reimbursement of research and development spending incurred by JPS, foreign currency remeasurement gains or losses and other miscellaneous income and expense items.

Provision for Income Taxes

The Company operates in multiple countries and has evaluated the need for a valuation allowance on a separate jurisdiction basis. Valuation allowances are provided if, based on the weight of available evidence, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In the current period, the Company determined that it is more likely than not that the benefits from the utilization of its tax loss carryforwards in the United States, the United Kingdom and France will not be realized based on the weight of available evidence. Consequently, a full valuation allowance remains recorded against net deferred tax assets in the aforementioned jurisdictions.

We will continue to monitor the need for valuation allowances in each jurisdiction, and may adjust our positions in the future.

On December 22, 2017, legislation referred to as the “Tax Cuts and Jobs Act” (the “TCJA”) was signed into law. The TCJA includes significant changes to the Internal Revenue Code (the “Code”) impacting the taxation of business entities. The more significant changes in the TCJA that impact our Company as of December 31, 2017 are the one-time Transition Tax Liability on previously untaxed foreign earnings at a rate of 15.5% or 8.0% on cash & cash equivalents or non-cash assets, respectively; the reduction in the corporate federal income tax rate from 35% to 21% for tax years beginning after December 31, 2017 and the repeal of the Corporate Alternative Minimum Tax.  

There are several other technical provisions that could impact the Company beginning in 2018 including, among others, interest expense deduction limitations on both unrelated and related party debt, new deemed foreign income inclusions under the Global Intangible Low-Taxed Income (“GILTI”) regime, the Foreign Derived Intangible Income (“FDII”) deduction for goods & services produced in the US and sold to foreign customers, limitation on the utilization of Net Operating Losses (NOLs) arising after December 31, 2017 to 80% of taxable income with an indefinite carryforward, new minimum tax on “base erosion payments” paid or accrued by a taxpayer under the Anti-Base Erosion Regime (“BEAT”), and 100% full expensing of certain investments in new and used property made after September 27, 2017.

67


Results of Operations

Years Ended December 31, 2017, 2016 and 2015

The following tables contain selected statement of operations information, which serves as the basis of the discussion surrounding our results of operations for the years ended December 31, 2017, 2016 and 2015 (in thousands, except for percentages):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

 

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Product revenues

 

$

32,688

 

 

$

27,211

 

 

$

22,891

 

 

$

5,477

 

 

20

%

 

$

4,320

 

 

19

%

Service revenues

 

 

17,291

 

 

 

13,065

 

 

 

11,651

 

 

 

4,226

 

 

32

%

 

 

1,414

 

 

12

%

Royalties

 

 

-

 

 

 

14,297

 

 

 

3,745

 

 

 

(14,297

)

 

(100

)%

 

 

10,552

 

 

282

%

Total revenues

 

 

49,979

 

 

 

54,573

 

 

 

38,287

 

 

 

(4,594

)

 

(8

)%

 

 

16,286

 

 

43

%

Cost of product revenues

 

 

19,013

 

 

 

15,595

 

 

 

13,053

 

 

 

3,418

 

 

22

%

 

 

2,542

 

 

19

%

Cost of service revenues

 

 

9,948

 

 

 

8,698

 

 

 

8,361

 

 

 

1,250

 

 

14

%

 

 

337

 

 

4

%

Total cost of revenues

 

 

28,961

 

 

 

24,293

 

 

 

21,414

 

 

 

4,668

 

 

19

%

 

 

2,879

 

 

13

%

Gross profit

 

 

21,018

 

 

 

30,280

 

 

 

16,873

 

 

 

(9,262

)

 

(31

)%

 

 

13,407

 

 

79

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

1,859

 

 

 

1,259

 

 

 

1,249

 

 

 

600

 

 

48

%

 

 

10

 

 

1

%

Research and development

 

 

6,860

 

 

 

9,676

 

 

 

7,039

 

 

 

(2,816

)

 

(29

)%

 

 

2,637

 

 

37

%

General and administrative

 

 

15,385

 

 

 

14,066

 

 

 

10,458

 

 

 

1,319

 

 

9

%

 

 

3,608

 

 

34

%

Restructuring charge

 

 

777

 

 

 

 

 

 

 

 

 

777

 

 

100

%

 

 

 

 

 

Total operating expenses

 

 

24,881

 

 

 

25,001

 

 

 

18,746

 

 

 

(120

)

 

(0

)%

 

 

6,255

 

 

33

%

(Loss) income from operations

 

 

(3,863

)

 

 

5,279

 

 

 

(1,873

)

 

 

(9,142

)

 

(173

)%

 

 

7,152

 

 

(382

)%

Interest expense, net

 

 

(130

)

 

 

(97

)

 

 

(106

)

 

 

(33

)

 

34

%

 

 

9

 

 

(8

)%

Other income, net

 

 

1,747

 

 

 

860

 

 

 

488

 

 

 

887

 

 

103

%

 

 

372

 

 

76

%

(Loss) income \before income taxes

 

 

(2,246

)

 

 

6,042

 

 

 

(1,491

)

 

 

(8,288

)

 

(137

)%

 

 

7,533

 

 

(505

)%

Income tax (benefit) expense

 

 

(186

)

 

 

91

 

 

 

5

 

 

 

(277

)

 

(304

)%

 

 

86

 

 

1720

%

Net (loss) income

 

$

(2,060

)

 

$

5,951

 

 

$

(1,496

)

 

$

(8,011

)

 

(135

)%

 

$

7,447

 

 

(498

)%

 

Revenues

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Product revenues

 

$

32,688

 

 

$

27,211

 

 

$

22,891

 

 

$

5,477

 

 

20

%

 

$

4,320

 

 

19

%

Service revenues

 

 

17,291

 

 

 

13,065

 

 

 

11,651

 

 

 

4,226

 

 

32

%

 

 

1,414

 

 

12

%

Royalties

 

 

 

 

 

14,297

 

 

 

3,745

 

 

 

(14,297

)

 

(100

)%

 

 

10,552

 

 

282

%

Total revenues

 

$

49,979

 

 

$

54,573

 

 

$

38,287

 

 

$

(4,594

)

 

(8

)%

 

$

16,286

 

 

43

%

 

Revenues for the year ended December 31, 2017 decreased by $4.6 million, or 8%, as compared to the year ended December 31, 2016. Revenues for the year ended December 31, 2016 increased by $16.3 million, or 43%, as compared to the year ended December 31, 2015. In November 2016, we entered into an agreement with Allergan under which we received a one-time payment of $11.0 million representing all future royalties due to us.  No future royalties will be paid to us by Allergan as a result of this agreement.  Royalties for 2016 and 2015 are based solely on Allergan’s sales of Crinone. The overall changes were primarily attributable to the following factors by core business segments:

Product

Revenues from the sale of Crinone increased by 20% and 19% during both the 2017 and 2016 periods presented, respectively, primarily due to both in-market and new market growth by Merck KGaA. Revenue for the year ended December 31, 2017 included $24.5 million related to product shipped to Merck KGaA

68


and $8.2 million related to product sold through by Merck KGaA to its customers compared to $19.8 million and $7.4 million, respectively during the year ended December 31, 2016. For the year ended December 31, 2015, revenue included $17.6 million related to product shipped to Merck KGaA and $5.3 million related to product sold through by Merck KGaA to its customers

 

Service

Service revenues increased by approximately $4.2 million, or 32%, from the 2016 period and by approximately $1.4 million, or 12%, from the 2015 period primarily due to increases in customer volume across our service offerings and a sales focus on larger customer contracts.

Cost of revenues

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Cost of product revenues

 

$

19,013

 

 

$

15,595

 

 

$

13,053

 

 

$

3,418

 

 

22

%

 

$

2,542

 

 

19

%

Cost of service revenues

 

 

9,948

 

 

 

8,698

 

 

 

8,361

 

 

 

1,250

 

 

14

%

 

 

337

 

 

4

%

Total cost of revenues

 

$

28,961

 

 

$

24,293

 

 

$

21,414

 

 

$

4,668

 

 

19

%

 

$

2,879

 

 

13

%

Total cost of revenue (as a percentage of total revenues)

 

 

58

%

 

 

45

%

 

 

56

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

42

%

 

 

55

%

 

 

44

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product gross margin

 

 

42

%

 

 

62

%

 

 

51

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services gross margin

 

 

42

%

 

 

33

%

 

 

28

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues was $29.0 million, $24.3 million and $21.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.

 

The increase in total cost of product revenues of $3.4 million in 2017 was largely driven by the higher volume of Crinone sold to Merck KGaA, higher progesterone material costs and inventory reserves recorded during the period as compared to the 2016 period. There was an 11% increase in Crinone units shipped in the 2017 period as compared to the 2016 period. The increase in total cost of revenues of $2.5 million in 2016 compared to 2015 was largely driven by the higher volume of Crinone sold to Merck KGaA offset by a reduction in our per unit costs year over year. There was a 21% increase in Crinone units shipped in the 2016 period as compared to the 2015 period.

Cost of service revenues are largely fixed and consist mainly of facility costs, external consultant fees, depreciation and materials used in connection with generating our service revenues.  Personnel costs are scaled to support customer volume.

Product gross margin for the years ending December 31, 2016 and 2015 includes royalty revenue based upon sales of Crinone by Allergan. Product gross margin decreased by 20% in 2017 as compared to 2016 largely due to the reduction of royalty revenue year over year, higher progesterone material costs offset by the higher sell-through by Merck KGaA to its customers in more profitable markets where we benefit from a higher selling price from Merck KGaA. Product gross margin, including royalty income, increased 11% in 2016 as compared to 2015 due to the monetization of the Allergan royalty as well as the increase in product sold through by Merck KGaA to its customers in more profitable markets where we benefit from a higher selling price from Merck KGaA.

Service gross margin increased by 9% and 5% during each of the 2017 and 2016 periods presented, respectively, due to a shift in the mix of revenue type within the service segment and increased capacity utilization.

69


Sales and marketing

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Sales and marketing

 

$

1,859

 

 

$

1,259

 

 

$

1,249

 

 

$

600

 

 

48

%

 

$

10

 

 

1

%

Sales and marketing (as a percentage of total revenues)

 

 

4

%

 

 

2

%

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing expenses incurred during the years ended December 31, 2017, 2016 and 2015 were attributable to our services business and consist of personnel costs for our sales force as well as marketing costs for certain tradeshows and conference fees. The increase in sales and marketing expenses in 2017 compared to 2016 primarily relates to a $0.4 million increase in salaries and other personnel-related costs associated with our investment in the U.S. market.

Research and development

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Research and development

 

$

6,860

 

 

$

9,676

 

 

$

7,039

 

 

$

(2,816

)

 

(29

)%

 

$

2,637

 

 

37

%

Research and development (as a percentage of

   total revenues)

 

 

14

%

 

 

18

%

 

 

18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses primarily include clinical trial costs, personnel-related expenses and professional service consultants.  The decrease in research and development costs incurred during the year ended December 31, 2017 as compared to 2016 was largely associated with the reduction of costs related to the Phase 2b clinical trial of COL-1077, which was completed in August 2016. This decrease was offset by $1.0 million of additional spending on the IVR technology and by $1.2 million related to other manufacturing and consulting services in preparation for potential regulatory filings. As part of our more focused research and development strategy, we plan to seek the support of a partner to continue to the development of one or more of our product candidates, pending the outcome of the in vivo preclinical animal studies.

 

The $2.6 million increase in research and development costs during the year ended December 31, 2016 as compared to 2015 was largely associated with the phase 2b clinical trial of COL-1077, which was completed in August 2016.  This trial did not achieve its primary and secondary endpoints, and further development of COL-1077 has been discontinued.  In March 2015, Drs. Robert Langer and William Crowley joined as strategic advisors to our Company and were given stock-based awards in connection with their advisory agreements.  We recorded $1.1 million of stock-based compensation expense in the year ended December 31, 2015 related to these awards, compared to a $0.1 million reduction in stock-based compensation expense resulting from the remeasurement of these awards for each of the years ended December 31, 2016 and 2017.

General and administrative

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

General and administrative

 

$

15,385

 

 

$

14,066

 

 

$

10,458

 

 

$

1,319

 

 

9

%

 

$

3,608

 

 

34

%

General and administrative (as a percentage of

   total revenues)

 

 

31

%

 

 

26

%

 

 

27

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses increased by $1.3 million to $15.4 million for the year ended December 31, 2017, compared with $14.1 million for the year ended December 31, 2016. This increase was

70


attributable principally to infrastructure related costs including legal, accounting and other professional fees related to matters associated with the restatement of our financial results for the fiscal years ended December 31, 2013 through December 2015 and the remediation of material weaknesses in our internal control over financial reporting resulting from the restatement, costs associated with our evaluation of potential strategic opportunities and other business development matters.

 

General and administrative expenses increased by $3.6 million to $14.1 million for the year ended December 31, 2016, compared with $10.5 million for the year ended December 31, 2015. This increase was attributable principally to costs associated with the creation of an internal business development function in 2016, in addition to higher professional services costs including accounting, legal and consulting, personnel costs, facility costs, and other costs associated with the Company’s growth.

Restructuring charge

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Restructuring charge

 

$

777

 

 

$

 

 

$

 

 

$

777

 

 

100

%

 

$

 

 

 

Restructuring charge (as a percentage of

   total revenues)

 

 

2

%

 

 

0

%

 

 

0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a result of our corporate reprioritization which aimed to revise our resources on the core businesses of Crinone progesterone gel and JPS and our research and development strategy to seek the support of one or more partners for our IVR programs, we implemented an approximately 8% headcount reduction, primarily in the areas of new product research and development. During the year ended December 31, 2017, we incurred a restructuring charge totaling approximately $0.8 million. This restructuring charge included approximately $0.4 million for one-time severance and other employee-related costs, approximately $0.3 million future obligations due under our clinical manufacturing and development contracts, approximately $17,000 in additional stock-based compensation expense associated with the modification of the exercise period on options held by an executive and approximately $14,000 related to a fixed asset impairment resulting from the discontinuation of use on assets associated with programs terminated. As a result of the corporate reprioritization, we anticipate estimated annual savings in personnel-related costs of approximately $1.8 million beginning in 2018.

Non-operating income and expense

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Interest expense, net

 

$

(130

)

 

$

(97

)

 

$

(106

)

 

$

(33

)

 

34

%

 

$

9

 

 

(8

)%

Other income, net

 

$

1,747

 

 

$

860

 

 

$

488

 

 

$

887

 

 

103

%

 

$

372

 

 

76

%

 

The increase in interest expense, net, for the year ended December 31, 2017 from 2016 primarily relates to the additional equipment loans entered into in January and March 2017 for equipment at our Nottingham, U.K. facility. The decrease in interest expense, net, for the year ended December 31, 2016 from 2015 primarily relates to the weakening of the British pound in 2016 versus 2015 for the interest paid on the debt related to our Nottingham facility.

Other income, net, for the year ended December 31, 2017 increased from 2016 primarily due to the credits received due to reimbursement of research and development spending offset by the loss of revenue associated with the completion of the Regional Growth Fund program and by net foreign currency transaction losses related to the weakening of the Euro and the British Pound against the U.S. dollar. Other income, net for the year ended December 31, 2016 increased from 2015 primarily due to the income associated with the Regional Growth

71


Fund program offset by net foreign currency transaction losses related to the weakening of the Euro and the British Pound against the U.S. dollar.

Provision for income taxes

 

 

 

Year Ended December 31,

 

 

2017 / 2016 Comparison

 

 

2016 / 2015 Comparison

 

(in thousands, except for percentages)

 

2017

 

 

2016

 

 

2015

 

 

$

 

%

 

 

$

 

%

 

Income tax (benefit) expense

 

$

(186

)

 

$

91

 

 

$

5

 

 

$

(277

)

 

(304

)%

 

$

86

 

 

1720

%

Income tax (benefit) expense (as a percentage of income

   before taxes)

 

 

8.3

%

 

 

1.5

%

 

 

(0.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The 2017 tax benefit represents an adjustment to our foreign income inclusion for U.S. tax purposes, which reduced our alternative minimum tax provision recorded in 2016 and the release of valuation allowance with respect to Alternative Minimum Tax (“AMT”) credit carryover in connection with the Tax Cuts and Jobs Act of 2017.  The 2016 tax expense represents alternative minimum taxes and state minimum taxes owed.  The 2015 tax expense represents state minimum taxes owed.  Currently, we have a full valuation allowance offsetting our net domestic and foreign deferred tax asset.

Liquidity and Capital Resources

We require cash to fund operating expenses and working capital needs, finance research and development and product development efforts, make capital expenditures and fund acquisitions.

At December 31, 2017, our cash and cash equivalents were approximately $21.4 million. Our cash and cash equivalents are highly liquid investments with original maturities of 90 days or less at date of purchase, and consist of cash in operating accounts.  In November 2016, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments due to us.

Our future capital requirements depend on a number of factors, including the rate of market acceptance of our current and future products and services and the resources we devote to developing and supporting the same. Our capital expenditures decreased for the twelve months ended December 31, 2017, as compared to the twelve months ended December 31, 2016, due primarily to lower investments in capital equipment made at our Nottingham, U.K. site and our contract manufacturer sites in the current year. We expect our capital expenditures to increase in the year ending December 31, 2018, as compared to the year ended December 31, 2017, primarily due to additional investments in capital equipment at our Nottingham, U.K. and manufacturing investments to support increased manufacturing capacity of Crinone.  

Research and development expenses include costs for product and clinical development, which were a combination of internal and third-party costs, and regulatory fees. In 2018, we expect our research and development expenses will decrease from 2017 levels as a result of the corporate reprioritization activities and our efforts to focus our resources on the core businesses of Crinone progesterone gel and JPS.  

We believe that our current cash and cash equivalents, as well as cash generated from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures at least through March 2019.  The Company may be dependent on its ability raise additional capital to finance operations beyond March 2019 and fund research and development programs.  If the Company is not able to raise additional capital on terms acceptable to it, or at all, as and when needed, it may be required to curtail its research and development programs.  

Cash Flows

Net cash provided by operating activities for the year ended December 31, 2017 was $2.1 million, which resulted primarily from our net loss of $2.1 million, offset by approximately $2.2 million in non-cash depreciation and amortization, $1.5 million in non-cash stock-based compensation expense and $0.5 million of net changes in working capital items. The net change in working capital items was primarily due to an increase in accrued

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expenses, accounts payable and deferred revenue and a decrease in accounts receivable offset by an increase in inventories and prepaid expenses and other current asset. Net cash used in investing activities was $2.8 million for the year ended December 31, 2017, which resulted primarily from the purchase of property plant and equipment. Net cash provided by financing activities was approximately $1.0 million for the year ended December 31, 2017, primarily relating to proceeds from the equipment loans and financing agreement offset by principal payments on debt.

Net cash provided by operating activities for the year ended December 31, 2016 was $11.2 million, which resulted primarily from our net income of $6.0 million, inclusive of a non-recurring one-time benefit of $11.0 million from the monetization of the U.S. Crinone royalty. Net income of $6.0 million was offset by non-cash items including approximately $1.9 million in depreciation and amortization, $1.2 million of stock-based compensation expense and $2.1 million of net changes in working capital items. The net change in working capital items was primarily due to increases to accounts payable, accrued expenses and deferred revenue offset by an increase to inventory. Net cash used in investing activities was $3.6 million for the year ended December 31, 2016, which resulted primarily from the purchase of property plant and equipment. Net cash used in financing activities was approximately $0.3 million for the year ended December 31, 2016, primarily relating to principal payments on debt.

Net cash used in operating activities for the year ended December 31, 2015 was $0.9 million and resulted primarily from a $1.5 million net loss for the period, offset by $3.7 million in depreciation and amortization and stock-based compensation expense. Net changes in working capital items reduced cash from operating activities by approximately $3.1 million, primarily due to an increase in accounts receivable, inventories and other non-current assets of $3.0 million associated with increased product shipments and a decrease in accounts payable and deferred revenue of $2.0 million offset by an increase in accrued expenses and prepaid expenses and other current assets of $1.9 million. Net cash used in investing activities was $1.7 million for the year ended December 31, 2015, which resulted primarily from the purchase of property plant and equipment. Net cash used in financing activities was approximately $0.2 million for the year ended December 31, 2015, primarily relating to the principal payments on debt offset by proceeds from the exercise of common stock options.

Contractual Obligations

 

In September 2013, we assumed debt of $3.9 million in connection with our acquisition of JPS. JPS had entered into a Business Loan Agreement (“Loan Agreement”) covering three loan facilities (collectively referred to as the “original agreements”) with Lloyds TSB Bank (“Lloyds”) as administrative agent. In May 2017, JPS repaid one of the existing loan facilities upon which JPS subsequently entered into a new loan facility with the same administrative agent for the same outstanding balance. The refinancing was accounted for as a modification with no resulting gain or loss. The remaining original agreements and the new agreement are collectively referred to as the “loan facilities”.

 

As of December 31, 2017, the Company owed a principal balance of $2.4 million on the loan facilities. All facilities are due for repayment over 7-15 years from the date of drawdown. Two of the facilities bear interest at the Bank of England’s base rate plus 1.95% and 2.55%, respectively. The weighted average interest rate at December 31, 2017 for these two facilities was 2.45% and 3.05%, respectively. The third facility is a fixed rate agreement bearing interest at 2.99% per annum. The weighted average interest rate for the three loan facilities for the fiscal year ended December 31, 2017 was 2.76%. The loan facilities are secured by the mortgaged property and an unlimited lien on the other assets of JPS. The loan facilities contain financial covenants that limit the amount of indebtedness JPS may incur, requires JPS to maintain certain levels of net worth, and restricts JPS’s ability to materially alter the character of its business. As of December 31, 2017, JPS remained in compliance with all of the covenants under the loan facilities.

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In addition, we financed certain equipment under loan agreements with payments through March 2022.   In January and March 2017, we entered into loans of $0.9 million and $0.6 million, respectively, for equipment in our Nottingham, U.K. facility.  The interest rate for the two loans was 2.09% at December 31, 2017.  The transactions were considered failed sales-leaseback arrangements as the Company will obtain title to the equipment at the end of the term of the financing for little or no consideration. These failed sale-leaseback arrangements have been recorded as a component of long-term debt on the Company’s condensed consolidated balance sheets. The initial terms of the loans are 60 months.

In October 2015, we entered into an operating lease agreement for our U.S. corporate office in Boston, Massachusetts, which included a three-month free rent period. The initial term of the lease agreement is approximately 39 months and ends in January 2019.

In December 2016, we entered into an API Supply Agreement for a manufacturer of progesterone under which we have agreed to annual minimum volume commitments until December 2019.

Our significant outstanding contractual obligations relate to operating leases for our facilities and loan agreements. Our facility leases are non-cancellable and contain renewal options. Our future contractual obligations as of December 31, 2017 include the following (in thousands):

 

 

 

Payments Due by Period

 

 

 

Total

 

 

1 year or less

 

 

1-3 years

 

 

3-5 years

 

 

More than

5 years

 

Operating lease obligations

 

$

517

 

 

$

443

 

 

$

74

 

 

$

 

 

$

 

Loan principal repayments

 

 

2,422

 

 

 

236

 

 

 

489

 

 

 

518

 

 

 

1,179

 

Capital lease obligations

 

 

1,377

 

 

 

311

 

 

 

662

 

 

 

404

 

 

 

 

Minimum purchase obligation

 

 

5,720

 

 

 

3,861

 

 

 

1,859

 

 

 

 

 

 

 

Total

 

$

10,036

 

 

$

4,851

 

 

$

3,084

 

 

$

922

 

 

$

1,179

 

 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations set forth above are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and the reported amounts of revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies as of December 31, 2017.

We believe the following critical accounting policies require significant judgment and estimates by us in the preparation of our financial statements.

Revenue Recognition

Revenues include product revenues, which primarily consist of sales of Crinone to Merck KGaA, royalty revenues, which primarily consist of royalty revenues from Allergan on sales of Crinone until the November 2016 monetization agreement, and service revenues, which primarily consist of analytical and consulting services, pharmaceutical development and clinical trial manufacturing services and other revenues.

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Product Revenue

Revenues from the sale of products are recognized when all of the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured. Selling prices to Merck KGaA for Crinone (progesterone gel) are determined on an annual and country-by-country basis and are the greater of (i) a percentage of Merck KGaA’s net estimated selling price, or (ii) our direct manufacturing cost plus 20% and are invoiced to Merck KGaA upon shipment. We record revenue at the minimum selling price, which is our direct manufacturing cost plus 20% at the time of shipment to Merck KGaA as that amount is considered fixed or determinable. We record deferred revenue related to amounts invoiced above the minimum selling price. Upon receiving sell through information from Merck KGaA on a quarterly and country-by-country basis, we record an adjustment to increase revenue to reflect the difference between Merck KGaA’s net selling price and the minimum price recorded at the time of shipment. Any difference between the amounts invoiced at Merck KGaA’s estimated net selling price and Merck KGaA’s actual net selling price are billed or credited to Merck KGaA in the quarter the product is sold through by Merck KGaA. Accordingly, product revenue in each period includes both an amount for product shipped to Merck KGaA in the current period recognized at the minimum purchase price as well as an amount for product shipped by Merck KGaA to its customers in the current period equal to the difference between Merck KGaA’s actual net selling price and the minimum purchase price. Merck KGaA is also entitled to a volume discount based on annual purchases. We record reserves against revenue on a quarterly basis to reflect the volume discount expected to be earned by Merck KGaA during the year.

In April 2013, our license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five year term, extending the expiration date to May 19, 2020. In January 2018, the Company announced the extension of the supply agreement for an additional 4.5-years through at least December 31, 2024.

Royalty revenues, based on sales by licensees, are recorded as revenues when those sales are made by the licensees.  In November 2016, we received a one-time payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments to us.

Service Revenue

The professional service contracts that we enter into and operate under specifies whether the engagement will be billed on a time-and-materials or a fixed-price basis. These engagements generally last three to six months, although some of Juniper’s engagements can be longer in duration.

We recognize substantially all of our professional services revenues under written contracts when the fee is fixed or determinable, as the services are provided, and only in those situations where collection from the client is reasonably assured. In certain cases, we bill clients prior to work being performed which requires us to defer revenue in accordance with U.S. GAAP.

Revenues from time-and-materials service contracts are recognized as the services are performed based upon hours worked and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked.

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Service revenues from a majority of our fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred, which are labor-related, to the total estimated project costs. Project costs are classified in costs of services and are based on the direct salary of the employees on the engagement plus all direct expenses incurred to complete the engagement, including any amounts billed to us by our vendors. The proportional performance method is used for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made, based on historical experience and the terms set forth in the contract, and are indicative of the level of benefit provided to our clients. In the event of a termination, fixed-price contracts generally provide for payment for services rendered up to the termination date. Service revenues also include reimbursements, which include reimbursement for travel and other out-of-pocket expenses, outside consultants, and other reimbursable expenses.

We maintain accounts receivable allowances for estimated losses resulting from disputed amounts or the inability of our customers to make required payments. We identify specific collection issues and establish an accounts receivable allowance based on our historical collection experience, review of client accounts, current trends, and credit policy. If the financial condition of our customers were to deteriorate or disputes were to arise regarding the services provided, resulting in an impairment of their ability or intent to make payment, additional allowances may be required. A failure to estimate accurately the accounts receivable allowances and ensure that payments are received on a timely basis could have a material adverse effect on our business, financial condition, and results of operations.

We collect value added tax from our customers for revenues generated out of the United Kingdom for which the customer is not tax exempt and remits such taxes to the appropriate governmental authorities. We present our value added tax on a net basis; therefore, these taxes are excluded from revenues.

Deferred Revenue

Our deferred revenue balance consists of the following at December 31, 2017, 2016 and 2015 (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Product revenues

 

$

5,888

 

 

$

4,647

 

 

$

2,854

 

Service revenues

 

 

253

 

 

 

385

 

 

 

543

 

Regional Growth Fund

 

 

 

 

 

592

 

 

 

1,480

 

Total

 

$

6,141

 

 

$

5,624

 

 

$

4,877

 

 

Amounts invoiced but not yet earned on product revenues are recorded as deferred revenue until we receive sell through information from Merck KGaA indicating the product has been sold or otherwise disposed of. Amounts invoiced but not yet earned on service revenue are deferred until such time as performance is rendered or the obligation to perform the service is completed for service revenues.

As part of the acquisition of Juniper Pharma Services, we assumed a $2.5 million obligation under a grant arrangement with the Regional Growth Fund on behalf of the Secretary of State for Business, Innovation, and Skills in the United Kingdom. Juniper Pharma Services used this grant to fund the building of its second facility, which includes analytical labs, office space, and a manufacturing facility. As a part of the arrangement, Juniper Pharma Services was required to create and maintain certain full-time equivalent personnel levels through October 2017. The obligation ended on October 1, 2017 and we met all compliance requirements thru that date.

Inventories

We state all inventories at the lower of cost or market, determined on a first-in, first-out method. We monitor standard costs on a monthly basis and update them annually and as necessary to reflect changes in raw material costs and labor and overhead rates. Our inventory balance as of December 31, 2017, 2016 and 2015 was $6.3 million, $5.6 million and $3.6 million, respectively.

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We provide inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. We balance the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact our gross margins. Our inventory allowance as of December 31, 2017, 2016 and 2015 was $0.5 million, $45,000 and $0.3 million, respectively. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact our gross margins.

Segments

We currently operate in two segments: product and service. Our product segment oversees the supply chain and manufacturing of Crinone, our sole commercialized product. Our service segment includes product development, clinical trial manufacturing, and advanced analytical and consulting services we provide to our customers, as well as characterizing and developing pharmaceutical product candidates for our internal programs and managing the certain preclinical activities including manufacturing of our pipeline products.

The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), currently evaluates the company’s performance based on our revenue and gross profit and, as such, has concluded that we are two operating and reporting segments. Segment information is consistent with the financial information regularly reviewed by our CODM, for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. Our CODM does not review our assets, operating expenses or non-operating income and expenses by business segment at this time.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. We do not amortize our goodwill, but instead tests for impairment annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying value of the asset. Our annual test for impairment occurs on the first day in the fourth quarter.

In accordance with Accounting Standards Codification (“ASC”) Goodwill and Other Intangibles (“ASC 350”), we use the two-step approach for each reporting unit. The first step compares the carrying amount of the reporting unit to its estimated fair value (Step 1) utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated using a risk-adjusted discount rate. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value is compared to the implied fair value (Step 2). To the extent that the carrying value of goodwill exceeds the implied fair value of goodwill, impairment exists and must be recognized.

We have concluded that our business represents two reporting units for goodwill impairment testing, which are product and service. Our goodwill is assigned to our service reporting unit. In September 2017, we announced a corporate reprioritization to allow us to focus our resources on the core businesses of Crinone progesterone gel and Juniper Pharma Services. As a result of this initiative, we revised our research and development strategy and seek to potentially partner our IVR programs. We considered this decision to be a triggering event, as of September 18, 2017, requiring a test for impairment under ASC 350. We have performed tests for impairment as of the date of the triggering event as well as October 1, 2017, the date of our annual test, and have determined that our goodwill is not impaired as of either date.

Intangible Assets

We capitalize and include in intangible assets the costs of developed technology, customer relationships and trade names. Intangible assets are recorded at fair value and are stated net of accumulated amortization and impairments. We amortize our intangible assets that have finite lives 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. Amortization is recorded over the estimated useful lives ranging from three to seven years. We evaluate the realizability of our definite lived intangible assets whenever events or changes in

77


circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, we estimate the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk adjusted discount rate. To estimate the fair value of the assets, we use market participant assumptions pursuant to ASC 820, Fair Value Measurements. If the estimate of an intangible asset’s remaining useful life is changed, we will amortize the remaining carrying value of the intangible asset prospectively over the remaining useful life.

Research and Development Expenses

Research and development consist of consultants, material costs, salaries and other personnel related expenses including stock-based compensation of employees and non-employees primarily engaged in research and development activities and materials used and other overhead expenses incurred. All research and development costs are expensed as incurred. Research and development costs that are paid in advance of performance are capitalized as prepaid expenses until incurred.

Clinical trial expenses include expenses associated with clinical research organizations. The invoicing from clinical research organizations for services rendered can lag several months. We accrue the cost of services rendered in connection with clinical research organizations activities based on our estimate of costs incurred. We maintain regular communication with our clinical research organizations to assess the reasonableness of our estimates.

Share-Based Compensation

Under our stock-based compensation programs, we periodically grant stock options and restricted stock to employees, directors and nonemployee consultants. We recognize employee share-based compensation expense in accordance with ASC 718, Share Based Payment (“ASC 718”), for all stock-based awards made to employees and directors including employee stock options based on estimated fair values. ASC 718 requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations.

Awards that vest as the recipient provides service are expensed on a straight-line basis over the requisite service period. Other awards, such as performance-based awards that vest upon the achievement of specified goals, are expensed using the accelerated attribution method if achievement of the specified goals is considered probable. 

We recognize non-employee share-based compensation expense in accordance with ASC Subtopic 505-50, Equity – Equity Based Payments to Nonemployees. Non-employee share-based compensation expense is re-measured over the graded vesting term resulting in periodic adjustments to stock-based compensation expense.

Recent Accounting Pronouncements

 

Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We adopted the standard as of January 1, 2017. The adoption did not have a material impact on our financial position.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The standard

78


may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. We adopted the standard as of January 1, 2017. The adoption did not have a material impact on our financial position.

 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We adopted the standard as of January 1, 2017. The adoption did not have a material impact on our financial position.

 

To be adopted

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard will not have an impact on our consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, (“ASU 2016-15”), which amends the guidance of ASC No. 230 on the classification of certain items in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice by making amendments that add or clarify the guidance on eight specific cash flow issues. ASU 2016-15 is effective for all fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2016-15 should be applied retrospectively to all periods presented, but may be applied prospectively from the earliest practicable if retrospective application would be impracticable. The adoption of this standard will not have an impact on our consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the method and impact that the adoption will have on our consolidated financial statements and related disclosures.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The standard becomes effective beginning in the first quarter of 2018 and early adoption is permitted. The adoption of this standard will not have an impact on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year, but permits companies to adopt one year earlier if they choose (i.e. the original effective date). As such, ASU 2014- 09 will be effective for annual and interim reporting periods beginning after December 15, 2017. In March and April 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers

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(Topic 606): Principal versus Agent Consideration (Reporting Revenue Gross versus Net) and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, respectively, which clarify the guidance on reporting revenue as a principal versus agent, identifying performance obligations and accounting for intellectual property licenses. In addition, in May 2016 and December 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, both of which amend certain narrow aspects of Topic 606. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. We undertook a process of reviewing our historical contracts and evaluating the impact of ASU 2014-09 on its accounting policies, processes and system requirements. During the fourth quarter of 2017, we finalized our assessments over the impact that the new standard will have on our consolidated results of operations, financial position and disclosure. We have identified a change to the pattern of revenue recognition for its arrangement with Merck, where revenue is recorded earlier than under current guidance. Under current guidance, the Company recognizes only the contractual minimum invoice price which is fixed or determinable upon delivery, with any amount earned in excess of the minimum when the amount is fixed or determinable, which is not until Merck sells the product onto its customers. Under the new proposed guidance, the amount in excess of the contractual minimum which will be accounted for as variable consideration, with an estimate of the variable consideration recorded upon delivery. The guidance was effective for us beginning January 1, 2018 and, we adopted the standard using the modified retrospective approach. We will record a cumulative adjustment to decrease retained earnings as of January 1, 2018 of approximately $5.7 million to reflect the impact of the new guidance. We have also evaluated the service revenue arrangements to assess changes in performance obligation, inclusion of variable consideration in the transaction price, allocation of the transaction price based on relative standalone selling prices, timing of recognition, accounting for contract acquisition costs, among other areas, as well as the related financial statement disclosures. We did not identify any significant differences in the accounting for our service revenue contracts under the new guidance. We will finalize these assessments in the first quarter of 2018, and identify and implement the necessary changes to its business processes, systems and controls to support revenue recognition and disclosures under the new standard. However, the assessment is ongoing and further analysis may identify future impacts.

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Item  7A.

Quantitative and Qualitative Disclosures About Market Risks

Market Rate Risk

We do not believe that we have material exposure to market rate risk. As of December 31, 2017, we had cash and cash equivalents of $21.4 million consisting of investments purchased with an original maturity of three months or less. Due to the short-term maturities of our cash and cash equivalents, an immediate 100 basis point change in interest rate levels as of December 31, 2017 would not have a material effect on the fair market value of our cash and cash equivalents. We may, however, require additional financing to fund future obligations and no assurance can be given that the terms of future sources of financing will not expose us to material market risk.

Foreign Currency Exchange

Overall, we are a net recipient of currencies other that the U.S. dollar and, as such, benefit from a weaker dollar and are adversely affected by a strong dollar relative to major currencies worldwide. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect our consolidated revenues or operating costs and expenses as expressed in U.S. dollars. Our significant foreign currency exposures include the British pound and Euro.

Revenues from our international operations that were recorded in U.S. dollars represented approximately 79% of our total international revenues during the year ended December 31, 2017. The remaining 21% of our international revenues were in British pounds. Our exposure is reduced given assets and liabilities, revenues and expenses are designated in U.S. dollars or U.S. dollar equivalents. We have not historically engaged in hedging activities relating to our non-U.S. dollar-based operations. We may be exposed to exchange rate fluctuations that occur from certain intercompany transactions with our subsidiaries, which we recognize as unrealized gains and losses in our statements of operations.

Item  8.

Financial Statements and Supplementary Data

The financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15, set forth in this Annual Report.

Item  9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017 at a reasonable assurance level.

81


Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the guidelines established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.

Remediation of Previous Material Weaknesses in Internal Control Over Financial Reporting

We reported in our 2016 filing on Form 10-K under Item 9A “Management’s Annual Report on Internal Control over Financial Reporting” the existence of material weaknesses related to the review and accounting related to revenue recognition associated with our supply agreement and accounting related to certain research and development expenses for contractual agreements and clinical studies. With the oversight of senior management and our Audit Committee, we took steps to address the underlying causes of the material weaknesses, primarily through the following:

 

Process improvements: We have redesigned the specific processes and controls associated with review of contractual agreements, including a quarterly identification and review of significant agreements with the senior management team to ensure that the relevant accounting implications are identified and considered.

 

Additionally, we have redesigned our controls over research and development expenses, including the related balance sheet accounts.

Management oversaw the remediation efforts associated with the previously identified material weaknesses and concluded as of December 31, 2017 that the material weaknesses had been remediated.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to

82


error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.

 

 

Item 9B.

Other Information

 

None

 

 

83


PART III

Item 10.Directors, Executive Officers and Corporate Governance

The information required by this item with respect to our directors and executive officers will be contained in an amendment to our Annual Report on Form 10-K under the caption “The Board in General” and “Executive Officers” and is incorporated by reference into Item 10 of this report.

The information required by this item with respect to Section 16(a) beneficial ownership reporting compliance will be contained in an amendment to our Annual Report on Form 10-K under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated by reference into Item 10 of this report.

The information required by this item with respect to Audit Committee matters will be contained in an amendment to our Annual Report on Form 10-K under the caption “Audit Committee” and is incorporated by reference into Item 10 of this report.

Code of Ethics

The Board of Directors of the Company has adopted a Code of Business Conduct and Ethics applicable to all Board members, executive officers and all employees. The Code of Business Conduct and Ethics is available on the Company’s website (“www.juniperpharma.com”), under the investor relations tab. We will provide an electronic or paper copy of this document free of charge upon request. If amendments to the Code of Business Conduct and Ethics are executed, or if waivers are granted with respect to the Company’s Chief Executive Officer, Chief Financial Officer, Controller or persons performing similar functions, the Company will post and disclose the nature of such amendments or waivers on the Company’s website or in a report on Form 8-K.  Information contained on, or connected to, our website is not incorporated by reference into this Form 10-K and should not be considered part of this report or any other filing that we make with the SEC.

 

Item 11.

Executive Compensation

The information required by this item will be contained in an amendment to our Annual Report on Form 10-K under the caption “Compensation Discussion and Analysis” and “Executive and Director Compensation” and is incorporated by reference into Item 11 of this report.

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item in an amendment to our Annual Report on Form 10-K under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Equity Compensation Plan Information” and is incorporated by reference into Item 12 of this report.

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be contained in an amendment to our Annual Report on Form 10-K  under the caption “Certain Relationships and Related Party Transactions” and “– Director Independence” and is incorporated by reference into Item 13 of this report.

 

Item 14.

Principal Accountant Fees and Services

The information required by this item will be contained in an amendment to our Annual Report on Form 10-K  under the caption “Principal Accountant Fees and Services” and is incorporated by reference into Item 14 of this report.

 

84


PART IV

Item 15.

Exhibits and Financial Statement Schedule (a)(1)(2) Financial Statements and Financial Statement Schedules

 

Exhibit

Index Description of Exhibit

 

 

       2.1

Purchase and Collaboration Agreement, dated March 3, 2010, by and between Juniper Pharmaceuticals, Inc. and Coventry Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on March 4, 2010)

 

 

      2.2

Amendment No. 2 to Purchase and Collaboration Agreement, dated November 10, 2016, by and between Juniper Pharmaceuticals, Inc., Allergan Sales, LLC and Actavis, Inc. (incorporated by reference to Exhibit 2.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2016, filed on March 7, 2017)

 

 

       2.3

Share Purchase Agreement, dated September 2013, between the Sellers, Juniper Pharmaceuticals, Inc. and Juniper Pharma Services Limited (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on September 18, 2013)

 

 

       2.4

Stock Purchase Agreement, dated March 6, 2014, by and between Juniper Pharmaceuticals, Inc. and Coventry Acquisition, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on March 7, 2014)

 

 

       3.1

Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2005, filed on March 13, 2006)

 

 

       3.2

Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on July 6, 2010)

 

 

       3.3

Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on August 8, 2013)

 

 

       3.4

Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on April 3, 2015)

 

 

       3.5

Amended and Restated By-laws of Company (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on January 12, 2015)

 

 

       3.6

Amendment No. 1 to the Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on April 3, 2015)

 

 

       4.1

Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of the Company, dated as of January 7, 1999 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 1998, filed on March 25, 1999)

 

 

       4.2*

Form of Option Agreement (incorporated by reference to Exhibit 4.10 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2008, filed on March 16, 2009)

 

 

       4.3

Amended and Restated Rights Agreement by and between Juniper Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, LLC dated January 28, 2015 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on January 30, 2015)

 

 

     10.1*

1996 Long-term Performance Plan, as amended, of the Company (incorporated by reference to Annex A to the Registrant’s Proxy Statement (File No. 001-10352), filed on May 10, 2000)

 

 

     10.2*

Form of Restricted Stock Agreement under the 1996 Long-Term Performance Plan (incorporated by reference to Exhibit 10.62 of the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on May 17, 2006)

 

 

85


Exhibit

Index Description of Exhibit

10.3

License Agreement, dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. (incorporated by reference to Exhibit 10.23 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-10352) for the quarter ended March 31, 2000, filed on May 15, 2000)

 

 

10.4*

Form of Indemnification Agreement for Officers and Directors (incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2003, filed on March 15, 2004)

 

 

10.5

Packaging Agreement, dated October 28, 1993, between Juniper Pharmaceuticals (Ireland) Ltd. and Maropack AG (incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2007, filed on March 28, 2008)

 

 

10.6*

Juniper Pharmaceuticals, Inc. Amended and Restated 2008 Long-Term Incentive Plan (incorporated by reference to Appendix B to the Registrant’s Proxy Statement (File No. 001-10352), filed on March 22, 2013)

 

 

10.7*

Form of Award Agreement under the Amended and Restated 2008 Long-term Incentive Plan of Juniper Pharmaceuticals, Inc. (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 (File No. 333-18647), filed on May 16, 2013)

 

 

10.8*

Juniper Pharmaceuticals, Inc. Amended and Restated 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on July 28, 2016)

 

 

10.9*

Form of Nonqualified Stock Option Award Agreement under the Juniper Pharmaceuticals, Inc. Amended and Restated 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 to the Registrant’s Report on Form S-8 (File No. 333-213433), filed on September 1, 2016)

 

 

10.10*

Form of Incentive Stock Option Award Agreement under the Juniper Pharmaceuticals, Inc. Amended and Restated 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.3 to the Registrant’s Report on Form S-8 (File No. 333-213433), filed on September 1, 2016)

 

 

10.11*

Form of Restricted Stock Award Agreement under the Juniper Pharmaceuticals, Inc. Amended and Restated 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.4 to the Registrant’s Report on Form 10-Q (File No. 333-213433), filed on September 1, 2016)

 

 

10.12*

Form of Performance Stock Unit Award Agreement under the Juniper Pharmaceuticals, Inc. Amended and Restated 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on May 4, 2017)

 

 

10.13*

Form of Restricted Stock Unit Award Agreement under the Juniper Pharmaceuticals, Inc. Amended and Restated 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on May 4, 2017)

 

 

10.14*

Form of Inducement Option Award (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on July 20, 2016)

 

 

10.15*

Form of Inducement Option Award (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on December 23, 2016)

 

 

10.16*

Form of Executive Change of Control Severance Agreement (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2008, filed on March 16, 2009)

 

 

10.17

Manufacturing and Supply Agreement, dated December 8, 2009, between Fleet Laboratories and Juniper Pharmaceuticals (Bermuda), Ltd. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on December 9, 2009)

 

 

10.18

Note Purchase and Amendment Agreement, dated March 3, 2010, by and between Juniper Pharmaceuticals, Inc. and holders listed on Schedule I thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on March 4, 2010)

 

 

10.19†*

Second Amended and Restated License and Supply Agreement, dated May 14, 2010, between Juniper Pharmaceuticals, Inc. and Ares Trading S.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on May 18, 2010)

86


Exhibit

Index Description of Exhibit

 

 

10.20†*

Amendment No. 1 to the Second Amended and Restated License and Supply Agreement, dated April 4, 2013, between Juniper Pharmaceuticals, Inc. and Ares Trading S.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on April 9, 2013)

 

 

10.21†

Amendment No. 2 to the Amended and Restated License and Supply Agreement, dated December 12, 2016, between Columbia Laboratories (Bermuda) Limited and Ares Trading S.A. (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2016, filed on March 7, 2017)

 

10.22

Parent Guarantee of Juniper Pharmaceuticals, Inc., dated September 12, 2013 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on September 18, 2013)

 

 

10.23*

Amended and Restated Employment Agreement, dated November 1, 2017, by and between Juniper Pharmaceuticals, Inc. and Alicia Secor (incorporated by reference to Exhibit 10.3 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on November 2, 2017)

 

 

10.24*

Amended and Restated Employment Agreement, dated November 1, 2017, by and between Juniper Pharmaceuticals, Inc. and Jeffrey Young (incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on November 2, 2017)

 

 

10.25*

Amended and Restated Employment Agreement, dated November 1, 2017, by and between Juniper Pharma Services, Limited and Dr. Nikin Patel (incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on November 2, 2017)

 

 

10.26*

Transition and Consulting Agreement, dated July 19, 2016, between Frank C. Condella, Jr. and Juniper Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on July 20, 2016)

 

 

10.27*

Addendum to Transition and Consulting Agreement, dated February 28, 2017, by and between Juniper Pharmaceuticals, Inc. and Frank C. Condella, Jr. (incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on May 4, 2017

 

 

10.28

Bank Loan Agreement, dated January 6, 2012, between Juniper Pharma Services Limited and Lloyds TSB Bank plc (incorporated by reference to Exhibit 10.3 the Registrant’s Quarterly Report on Form 10-Q (File No. 001-10352) for the quarter ended September 30, 2013, filed on November 7, 2013)

 

 

10.29

Amendment letter, dated September 16, 2013, between Juniper Pharma Services Limited and Lloyds TSB Bank plc (incorporated by reference to Exhibit 10.4 the Registrant’s Quarterly Report on Form 10-Q (File No. 001-10352) for the quarter ended September 30, 2013, filed on November 7, 2013)

 

 

10.30

Amendment to Manufacturing and Supply Agreement, effective as of December 31, 2013, between Juniper Pharmaceuticals (Bermuda) Ltd., and Fleet Laboratories Limited (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-10352), filed on February 6, 2014)

 

 

10.31*

Employment Agreement, dated September 23, 2014, by and between Juniper Pharmaceuticals, Inc. and George O. Elston (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Filed No. 001-10352), filed on September 26, 2014)

 

 

10.32

Exclusive Patent License Agreement, dated as of March 27, 2015, by and between Juniper Pharmaceuticals, Inc. (f/k/a Columbia Laboratories, Inc.) and The General Hospital Corporation, d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (Filed No. 001-10352), filed on May 6, 2015)

 

 

10.33

Office Lease by and between T-C 33 Arch Street LLC and Juniper Pharmaceuticals, Inc. dated October 15, 2015 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (Filed No. 001-10352), filed on November 12, 2015)

 

 

10.34*

Amended and Restated Employment Agreement, effective April 12, 2017, by and between Juniper Pharmaceuticals, Inc. and Bridget A. Martell, MD MA (incorporated by reference to Exhibit 10.3 to the Registrant’s Report on Form 10-Q (File No. 001-10352), filed on May 4, 2017)

 

 

10.35

Amendment No. 2 to the License Agreement, dated November 10, 2016, between Juniper Pharmaceuticals, Inc., Columbia Laboratories (Bermuda) Ltd. and Allergan Sales, LLC (incorporated by reference on Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K (File No. 001-10352) for the year ended December 31, 2016, filed on March 7, 2016)

87


 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

 

 

101

The following materials from the Juniper Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015, (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, and (vi) Notes to Consolidated Financial Statements.

 

 

 

 

 

Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

*

Management contract or compensatory plans or arrangements

 

 

88


Item 16.

Form 10-K Summary

Not Applicable.

 

89


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

JUNIPER PHARMACEUTICALS, INC.

 

 

 

 

Date: March 9, 2018

 

By:

/s/ Jeffrey E. Young

 

 

 

Jeffrey E. Young

 

 

 

Senior Vice President, Finance, Chief Financial Officer and Treasurer

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alicia Secor and Jeffrey Young jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Alicia Secor

 

President, Chief Executive Officer and Director

 

March 9, 2018

Alicia Secor

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Nikin Patel

 

Chief Operating Officer and Director

 

March 9, 2018

Nikin Patel

 

 

 

 

 

 

 

 

 

/s/ Jeffrey E. Young

Jeffrey E. Young

 

Senior Vice President, Finance,      

Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

 

March 9, 2018

 

 

 

 

 

/s/ James A. Geraghty

 

Director

 

March 9, 2018

James A. Geraghty

 

 

 

 

 

 

 

 

 

/s/ Cristina Csimma

 

Director

 

March 9, 2018

Cristina Csimma

 

 

 

 

 

/s/ Mary Ann Gray

Mary Ann Gray

 

 

 

Director

 

 

March 9, 2018

 

 

 

 

 

/s/ Ann Merrifield

 

Director

 

March 9, 2018

Ann Merrifield

 

 

 

 

 

 

 

 

 

/s/ Jennifer Good

 

Director

 

March 9, 2018

Jennifer Good

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90


JUNIPER PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS

 

 

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Juniper Pharmaceuticals, Inc.

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheets of Juniper Pharmaceuticals, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, of comprehensive (loss) income, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).  We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

 

Basis for Opinions

 

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.  

 

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 9, 2018

 

We have served as the Company’s auditor since 2016.

 

F-2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Juniper Pharmaceuticals, Inc.

Boston, Massachusetts

We have audited the accompanying consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows of Juniper Pharmaceuticals, Inc. (formerly Columbia Laboratories, Inc.) for the year ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Juniper Pharmaceuticals, Inc. for year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Boston, Massachusetts

March 10, 2016 (except for Restatement of Consolidated Financial Statements described in Note 2 and the associated effects in Note 14 in the previously filed restated financial statements on Form 10-K/A, which are not presented herein and is as of November 14, 2016)

 

 

F-3


Juniper Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,446

 

 

$

20,994

 

Accounts receivable, net of allowances of $115 and $37 at December 31, 2017 and

   2016, respectively

 

 

4,734

 

 

 

6,573

 

Inventories

 

 

6,326

 

 

 

5,621

 

Prepaid expenses and other current assets

 

 

3,467

 

 

 

1,539

 

Total current assets

 

 

35,973

 

 

 

34,727

 

Property and equipment, net

 

 

15,229

 

 

 

13,366

 

Intangible assets, net

 

 

744

 

 

 

969

 

Goodwill

 

 

9,123

 

 

 

8,342

 

Other assets

 

 

151

 

 

 

167

 

Total assets

 

$

61,220

 

 

$

57,571

 

Liabilities, contingently redeemable preferred stock, and Stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,038

 

 

$

3,893

 

Accrued expenses and other

 

 

5,615

 

 

 

5,271

 

Deferred revenue

 

 

6,141

 

 

 

5,624

 

Current portion of long-term debt

 

 

546

 

 

 

204

 

Total current liabilities

 

 

16,340

 

 

 

14,992

 

Long-term debt, net of current portion

 

 

3,253

 

 

 

2,203

 

Other non-current liabilities

 

 

115

 

 

 

56

 

Total liabilities

 

 

19,708

 

 

 

17,251

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Contingently redeemable series C preferred stock, 0 and 0.55 shares issued and

   outstanding at December 31, 2017 and 2016, respectively (liquidation

   preference of $0 and $550 as of December 31, 2017 and 2016, respectively)

 

 

 

 

 

550

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 1,000 shares authorized Series B convertible

   preferred stock, 0 and 0.13 shares issued and outstanding at December 31, 2017 and

   2016, respectively (liquidation preference of $0 and $13 as of

   December 31, 2017 and 2016, respectively)

 

 

 

 

 

 

Common stock $0.01 par value; 150,000 shares authorized; 12,257 issued and 10,844

   outstanding at December 31, 2017 and 2016, respectively

 

 

123

 

 

 

123

 

Additional paid-in capital

 

 

292,108

 

 

 

290,636

 

Treasury stock (at cost), 1,413 shares at December 31, 2017 and 2016, respectively

 

 

(8,601

)

 

 

(8,601

)

Accumulated deficit

 

 

(238,961

)

 

 

(237,360

)

Accumulated other comprehensive loss

 

 

(3,157

)

 

 

(5,028

)

Total stockholders’ equity

 

 

41,512

 

 

 

39,770

 

Total liabilities, contingently redeemable preferred stock, and Stockholders’ equity

 

$

61,220

 

 

$

57,571

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-4


Juniper Pharmaceuticals, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

32,688

 

 

$

27,211

 

 

$

22,891

 

Service revenues

 

 

17,291

 

 

 

13,065

 

 

 

11,651

 

Royalties

 

 

 

 

 

14,297

 

 

 

3,745

 

Total revenues

 

 

49,979

 

 

 

54,573

 

 

 

38,287

 

Cost of product revenues

 

 

19,013

 

 

 

15,595

 

 

 

13,053

 

Cost of service revenues

 

 

9,948

 

 

 

8,698

 

 

 

8,361

 

Total cost of revenues

 

 

28,961

 

 

 

24,293

 

 

 

21,414

 

Gross profit

 

 

21,018

 

 

 

30,280

 

 

 

16,873

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

1,859

 

 

 

1,259

 

 

 

1,249

 

Research and development

 

 

6,860

 

 

 

9,676

 

 

 

7,039

 

General and administrative

 

 

15,385

 

 

 

14,066

 

 

 

10,458

 

Restructuring charge

 

 

777

 

 

 

 

 

 

 

Total operating expenses

 

 

24,881

 

 

 

25,001

 

 

 

18,746

 

(Loss) income from operations

 

 

(3,863

)

 

 

5,279

 

 

 

(1,873

)

Interest expense, net

 

 

(130

)

 

 

(97

)

 

 

(106

)

Other income, net

 

 

1,747

 

 

 

860

 

 

 

488

 

(Loss) income before income taxes

 

 

(2,246

)

 

 

6,042

 

 

 

(1,491

)

Income tax (benefit) expense

 

 

(186

)

 

 

91

 

 

 

5

 

Net (loss) income

 

$

(2,060

)

 

$

5,951

 

 

$

(1,496

)

Adjustments attributable to preferred stockholders

 

 

445

 

 

 

(28

)

 

 

(28

)

Net (loss) income available to common stockholders

 

$

(1,615

)

 

$

5,923

 

 

$

(1,524

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share

 

$

(0.15

)

 

$

0.55

 

 

$

(0.14

)

Diluted net (loss) income per common share

 

$

(0.15

)

 

$

0.55

 

 

$

(0.14

)

Basic weighted average common shares outstanding

 

 

10,824

 

 

 

10,795

 

 

 

10,774

 

Diluted weighted average common shares outstanding

 

 

10,824

 

 

 

10,891

 

 

 

10,774

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-5


Juniper Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Net (loss) income

 

$

(2,060

)

 

$

5,951

 

 

$

(1,496

)

Other comprehensive loss components:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

1,871

 

 

 

(3,866

)

 

 

(1,099

)

Total other comprehensive loss

 

 

1,871

 

 

 

(3,866

)

 

 

(1,099

)

Comprehensive (loss) income

 

$

(189

)

 

$

2,085

 

 

$

(2,595

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

F-6


Juniper Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except per share amounts)

 

 

 

Common Stock

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number

of

Shares

 

 

Amount

 

 

Capital in

Excess of

Par Value

 

 

Number

of

Shares

 

 

Treasury

Stock

 

 

Accumulated

Deficit

 

 

Other

Comprehensive

Income

 

 

Total

 

Balance, December 31, 2014

 

 

12,186

 

 

$

122

 

 

$

287,660

 

 

 

(1,411

)

 

$

(8,579

)

 

$

(241,815

)

 

$

(63

)

 

$

37,325

 

Options exercised and restricted shares granted

 

 

29

 

 

 

 

 

 

82

 

 

 

(2

)

 

 

(22

)

 

 

 

 

 

 

 

 

60

 

Share based compensation expense

 

 

 

 

 

 

 

 

1,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,750

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,099

)

 

 

(1,099

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,496

)

 

 

 

 

 

(1,496

)

Balance, December 31, 2015

 

 

12,215

 

 

 

122

 

 

 

289,464

 

 

 

(1,413

)

 

 

(8,601

)

 

 

(243,311

)

 

 

(1,162

)

 

 

36,512

 

Restricted shares granted

 

 

42

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based compensation expense

 

 

 

 

 

 

 

 

1,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,201

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,866

)

 

 

(3,866

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,951

 

 

 

 

 

 

5,951

 

Balance, December 31, 2016

 

 

12,257

 

 

 

123

 

 

 

290,636

 

 

 

(1,413

)

 

 

(8,601

)

 

 

(237,360

)

 

 

(5,028

)

 

 

39,770

 

Share based compensation expense

 

 

 

 

 

 

 

 

1,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,469

 

Modification due to Restructuring

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Redemption of Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on Conversion of Series C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

459

 

 

 

 

 

 

459

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,871

 

 

 

1,871

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,060

)

 

 

 

 

 

(2,060

)

Balance, December 31, 2017

 

 

12,257

 

 

$

123

 

 

$

292,108

 

 

 

(1,413

)

 

$

(8,601

)

 

$

(238,961

)

 

$

(3,157

)

 

$

41,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

F-7


Juniper Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,060

)

 

$

5,951

 

 

$

(1,496

)

Reconciliation of net income to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,253

 

 

 

1,899

 

 

 

1,911

 

Share-based compensation expense

 

 

1,469

 

 

 

1,201

 

 

 

1,750

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,178

 

 

 

192

 

 

 

(2,499

)

Inventories

 

 

(704

)

 

 

(1,998

)

 

 

(424

)

Prepaid expenses and other current assets

 

 

(1,849

)

 

 

64

 

 

 

259

 

Other non-current assets

 

 

17

 

 

 

18

 

 

 

(89

)

Accounts payable

 

 

183

 

 

 

1,585

 

 

 

(925

)

Accrued expenses

 

 

225

 

 

 

1,214

 

 

 

1,591

 

Deferred revenue

 

 

455

 

 

 

1,033

 

 

 

(1,038

)

Other long-term liabilities

 

 

(40

)

 

 

27

 

 

 

69

 

Net cash provided by (used in) operating activities

 

 

2,127

 

 

 

11,186

 

 

 

(891

)

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,840

)

 

 

(3,564

)

 

 

(1,708

)

Net cash used in investing activities

 

 

(2,840

)

 

 

(3,564

)

 

 

(1,708

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

 

 

 

82

 

Proceeds from loan facility

 

 

954

 

 

 

 

 

 

 

Proceeds from equipment loans

 

 

1,501

 

 

 

 

 

 

 

Principal payments on debt

 

 

(1,402

)

 

 

(226

)

 

 

(238

)

Payments for the purchase of treasury stock

 

 

 

 

 

 

 

 

(22

)

Dividends paid

 

 

(14

)

 

 

(28

)

 

 

(28

)

Net cash provided by (used in) financing activities

 

 

1,039

 

 

 

(254

)

 

 

(206

)

Effect of exchange rate changes on cash and cash equivalents

 

 

126

 

 

 

(275

)

 

 

(56

)

Net increase (decrease) in cash and cash equivalents

 

 

452

 

 

 

7,093

 

 

 

(2,861

)

Cash and cash equivalents, beginning of period

 

 

20,994

 

 

 

13,901

 

 

 

16,762

 

Cash and cash equivalents, end of period

 

$

21,446

 

 

$

20,994

 

 

$

13,901

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

115

 

 

$

85

 

 

$

101

 

Cash paid for income taxes

 

$

76

 

 

$

 

 

$

2

 

Supplemental noncash investing

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of equipment through accounts payable and accrued expenses

 

$

320

 

 

$

460

 

 

$

95

 

Gain on conversion of Series C Preferred Stock

 

$

459

 

 

$

 

 

$

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-8


Juniper Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

1.

Organization

Juniper Pharmaceuticals, Inc. (the “Company” or “Juniper”), formerly known as Columbia Laboratories, Inc., was incorporated as a Delaware corporation in December 1986. The Company is a diversified healthcare company consisting of its Crinone® (progesterone gel) (“Crinone”) franchise and its fee-for-service pharmaceutical development and manufacturing business. Its marketed product and product development programs utilize its proprietary drug delivery technologies consisting of its bioadhesive delivery system (“BDS”), a polymer designed to adhere to epithelial surfaces or mucosa and its intra-vaginal ring (“IVR”) technology.  In September 2013, the Company acquired Nottingham, U.K. based Juniper Pharma Services Ltd. (“Juniper Pharma Services”) formerly known as Molecular Profiles Ltd, a pharmaceutical services company. Juniper Pharma Services provides a range of drug development and consulting services to the pharmaceutical industry and has provided Juniper with an additional revenue source and in-house expertise for internal pharmaceutical programs.

At December 31, 2017, cash and cash equivalents were $21.4 million.  The Company’s future funding requirements depend on a number of factors, including the rate of market acceptance of its current and future products and services and the resources the Company devotes to developing and supporting the same. The Company believes that current cash and cash equivalents, as well as cash generated from operations, will be sufficient to meet anticipated cash needs for working capital and capital expenditures through the next twelve months from the date of the filing of this Form 10-K. The Company may be dependent on its ability raise additional capital to finance operations beyond March 2019 and fund research and development programs.  If the Company is not able to raise additional capital on terms acceptable to it, or at all, as and when needed, it may be required to curtail its research and development programs.  

 

2.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries; Columbia Laboratories Bermuda Ltd., Juniper Pharmaceuticals France SARL, Juniper Pharmaceuticals UK Ltd., and Juniper Pharma Services Ltd. All significant intercompany balances and transactions have been eliminated in consolidation.

Segment information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Juniper’s Chief Executive Officer has been identified as its CODM and evaluates the company’s performance and allocates resources based upon revenue and gross profit. The Company has concluded, based upon financial information regularly provided and reviewed, that there are two operating and reporting segments; product and services. Juniper’s CODM does not review its assets, operating expenses or non-operating income and expenses by business segment.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures at the date of the financial statements during the reporting period. Significant estimates are used for, but are not limited to revenue recognition, sales return reserves, allowance for doubtful accounts, inventory reserves, impairment analysis of goodwill and intangibles including their useful lives, research and development accruals, deferred tax assets, liabilities and valuation allowances, and fair value of stock options. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates.

Foreign Currency

The assets and liabilities of the Company’s subsidiaries in the United Kingdom and France are translated into U.S. dollars at current exchange rates at the end of the period and revenue and expense items are translated at average rates of exchange prevailing during the period. The functional currency of these subsidiaries is considered to be the local currency for each entity and, accordingly, translation adjustments for these subsidiaries are included in accumulated other comprehensive income (loss) within stockholders’ equity. Certain intercompany and third-party foreign currency-denominated transactions generated foreign currency remeasurement losses of approximately $0.6 million, $0.2 million and $70,000 during the years ended December 31, 2017, 2016 and 2015, respectively, which are included in other expense, net in the consolidated statements of operations.

F-9


Cash Equivalents

The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported values. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement and Disclosures, (ASC 820) 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 amount that would be received for an asset or paid to transfer a liability (i.e., 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 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 and 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 cash and cash equivalents are classified as Level 1 at December 31, 2017 and 2016.

Some of the estimates and assumptions in the Company's goodwill impairment assessment include: the amount and timing of the projected net cash flows, the discount rate, and the tax rate.    

 

The fair value of accounts receivable and accounts payable approximate their carrying amount. The Company’s long-term debt is carried at amortized cost, which approximates fair value based on current market pricing of similar debt instruments and is categorized as a Level 2 measurement.

 

The Company did not have transfers of financial assets between Level 1 and Level 2.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market, determined on a first-in, first-out method. We monitor standard costs on a monthly basis and update them annually as necessary to reflect change in raw material costs and labor and overhead rates. Components of inventory cost include materials, labor and manufacturing overhead. Inventories consist of the following (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

1,921

 

 

$

856

 

Work in process

 

 

3,299

 

 

 

3,806

 

Finished goods

 

 

1,106

 

 

 

959

 

Total

 

$

6,326

 

 

$

5,621

 

 

We provide inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. We balance the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact our gross margins. Reserves for excess and obsolete inventory were $0.5 million and $45,000 at December 31, 2017 and 2016, respectively. During the fiscal year ended December 31, 2017, the Company recorded charges in the condensed consolidated statements of operations for excess and obsolete inventory of $0.4 million. No charges were recorded for the fiscal year ended December 31, 2016. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact the Company’s gross margins.

 

F-10


Accounts Receivable, net of allowances

Accounts receivable are reported at their outstanding unpaid principal balances reduced by allowances for doubtful accounts. The Company estimates doubtful accounts based on its historical collection experience, factors related to specific customers’ ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectable.

Accounts receivable allowance activity consisted of the following for the years ended December 31 (in thousands):

 

 

 

2017

 

 

2016

 

 

2015

 

Balance at beginning of year

 

$

37

 

 

$

263

 

 

$

358

 

Additions

 

 

78

 

 

 

 

 

 

 

Deductions

 

 

 

 

 

(226

)

 

 

(95

)

Balance at end of year

 

$

115

 

 

$

37

 

 

$

263

 

 

Juniper’s accounts receivable balance, net of allowance for doubtful accounts, was $4.7 million as of December 31, 2017, and $6.6 million as of December 31, 2016. Included in the accounts receivable balance at December 31, 2017 and 2016 were $3.0 million and $1.3 million of unbilled accounts receivable, respectively. Juniper’s unbilled accounts receivable is derived from services performed that have not been billed as of the balance sheet date.

Property and Equipment, net

Property and equipment is stated at cost less accumulated depreciation. Leasehold improvements are amortized over the lesser of the useful life or the term of the leases. Depreciation is computed on the straight-line basis over the estimated useful lives of the respective assets, as follows:

 

 

 

Years

Machinery and equipment

 

3-10

Furniture and fixtures

 

3-5

Computer equipment and software

 

3-5

Buildings

 

Up to 39

Land

 

Indefinite

 

Costs of major additions and improvements are capitalized and expenditures for maintenance and repairs that do not extend the life of the assets are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation are eliminated from the accounts and any resultant gain or loss is credited or charged to operations.

Juniper continually evaluates whether events or circumstances have occurred that indicate that the remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may be impaired. Juniper evaluates the realizability of its long-lived assets based on profitability and cash flow expectations for the related asset. Any write-downs are treated as permanent reductions in the carrying amount of the assets. Based on this evaluation, Juniper believes, as of each balance sheet date presented, none of Juniper’s long-lived assets were impaired.

Concentration of Risk

As of December 31, 2017, the Company has one major customer. See Note 11 of the Company’s consolidated financial statements for customer and product concentrations.

The Company depends on one supplier for a key excipient (ingredient) used in its products and one supplier for one of the active pharmaceutical ingredients.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. The Company does not amortize its goodwill, but instead tests for impairment annually in the fourth quarter and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying value of the asset.  

F-11


In September 2017, the Company announced a corporate reprioritization to allow it to focus its resources on the core businesses of Crinone progesterone gel and Juniper Pharma Services. The Company considered the announcement to be a triggering event requiring a test for impairment under ASC 350, Goodwill and Other Intangibles (“ASC 350”).

In accordance with ASC 350, the Company uses the two-step approach for each reporting unit. The first step compares the carrying amount of the reporting unit to its estimated fair value (Step 1) utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated using a risk-adjusted discount rate. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value is compared to the implied fair value (Step 2). To the extent that the carrying value of goodwill exceeds the implied fair value of goodwill, impairment exists and must be recognized. The Company has concluded that its business represents two reporting units for goodwill impairment testing, which are product and service.

The Company’s goodwill is assigned to its service reporting unit. The Company has performed tests for impairment as of September 18, 2017, the date of the triggering event, and October 1, 2017, the date of the annual test, and has determined that goodwill is not impaired as of either date. Furthermore, the Company also concluded that no triggering events have occurred subsequent to the most recent Step 1 goodwill impairment test.

Intangible Assets

The Company capitalizes and includes in intangible assets the costs of trademark, developed technology and customer relationships. Intangible assets are recorded at fair value at the time of their acquisition and stated net of accumulated amortization. The Company amortizes its intangible assets that have finite lives 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. Amortization is recorded over the estimated useful lives ranging from 3 to 7 years. The Company evaluates the realizability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to ASC 820, Fair Value Measurements. If the estimate of an intangible asset’s revised useful life is changed, the Company will amortize the remaining carrying value of the intangible asset prospectively over the revised useful life.

Income Taxes

Deferred tax assets or liabilities are determined based on timing differences between when income and expense items are recognized for financial statement purposes versus when they are recognized for tax purposes, as measured by enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be settled. A valuation allowance is provided against deferred tax assets in circumstances where management believes it is more likely than not that all or a portion of the assets will not be realized. The Company has provided a full valuation allowance in the amount of $39.1 million and $59.0 million against its net domestic and foreign deferred tax assets as of December 31, 2017 and 2016, respectively.

Accumulated Other Comprehensive Loss

Changes to accumulated other comprehensive loss during the year ended December 31, 2017 were as follows (in thousands):

 

 

 

Translation

Adjustment

 

Balance – December 31, 2016

 

$

(5,028

)

Current period other comprehensive income

 

 

(1,871

)

Balance – December 31, 2017

 

$

(3,157

)

 

No reclassification from accumulated other comprehensive loss to net (loss) income occurred during the year ended December 31, 2017.

Revenue Recognition

Revenues include product revenues, which primarily consist of sales of Crinone to Merck KGaA, royalty revenues, which primarily consisted of royalty revenues from Allergan on sales of Crinone until the November 2016 monetization agreement, and service revenues, which primarily consist of analytical and consulting services, pharmaceutical development and clinical trial manufacturing services and other revenues.

F-12


Product Revenue

Revenues from the sale of products are recognized when all of the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured. Selling prices to Merck KGaA for Crinone (progesterone gel) are determined on an annual and country-by-country basis and are the greater of (i) a percentage of Merck KGaA’s net estimated selling price, or (ii) Juniper’s direct manufacturing cost plus 20% and are invoiced to Merck KGaA upon shipment. Juniper records revenue at the minimum selling price, which is Juniper’s direct manufacturing cost plus 20% at the time of shipment to Merck KGaA as that amount is considered fixed or determinable. The Company records deferred revenue related to amounts invoiced above the minimum selling price. Upon receiving sell through information from Merck KGaA on a quarterly and country-by-country basis, the Company records an adjustment to increase revenue to reflect the difference between Merck KGaA’s actual net selling price and the minimum price recorded at the time of shipment. Any difference between the amounts invoiced at Merck KGaA’s estimated net selling price and Merck KGaA’s actual net selling price are billed or credited to Merck KGaA in the quarter the product is sold through by Merck KGaA. Accordingly, product revenue in each period includes both an amount for product shipped to Merck KGaA in the current period recognized at the minimum purchase price as well as an amount for product shipped by Merck KGaA to its customers in the current period equal to the difference between Merck KGaA’s actual net selling price and the minimum purchase price. Merck KGaA is also entitled to a volume discount based on annual purchases. The Company records reserves against revenue on a quarterly basis to reflect the volume discount expected to be earned by Merck KGaA during the year.

In April 2013, Juniper’s license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five-year term, extending the expiration date to May 19, 2020. In January 2018, the Company announced the extension of the supply agreement for an additional 4.5-years through at least December 31, 2024.

Royalty revenues, based on sales by licensees, are recorded as revenues when those sales are made by the licensees.  In November 2016, the Company received a one-time payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments due to Juniper.

Service Revenue

The professional service contracts that Juniper enters into and operates under specify whether the engagement will be billed on a time-and-materials or a fixed-price basis. These engagements generally last three to six months, although some of Juniper’s engagements can be longer in duration.

Juniper recognizes substantially all of the Company’s professional services revenues under written contracts when the fee is fixed or determinable, as the services are provided, and only in those situations where collection from the client is reasonably assured. In certain cases, Juniper bills clients prior to work being performed, which requires Juniper to defer revenue in accordance with U.S. GAAP.

Revenues from time-and-materials service contracts are recognized as the services are performed based upon hours worked and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked.

Service revenues from a majority of Juniper’s fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred, substantially all of which are labor-related, to the total estimated project costs. Project costs are classified in costs of services and are based on the direct salary of the employees on the engagement plus all direct expenses incurred to complete the engagement, including any amounts billed to Juniper by its vendors. The proportional performance method is used for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made, based on historical experience and the terms set forth in the contract, and are indicative of the level of benefit provided to Juniper’s clients. In the event of a termination, fixed-price contracts generally provide for payment for services rendered up to the termination date. Service revenues also include reimbursements, which include reimbursement for travel and other out-of-pocket expenses, outside consultants, and other reimbursable expenses.

The Company maintains accounts receivable allowances for estimated losses resulting from disputed amounts or the inability of Juniper’s customers to make required payments. Juniper identifies specific collection issues and establishes an accounts receivable allowance based on its historical collection experience, review of client accounts, current trends, and credit policy. If the financial condition of Juniper’s customers were to deteriorate or disputes were to arise regarding the services provided, resulting in an impairment of their ability or intent to make payment, additional allowances may be required. A failure to estimate accurately the accounts receivable allowances and ensure that payments are received on a timely basis could have a material adverse effect on Juniper’s business, financial condition, and results of operations.

F-13


Juniper collects value added tax from its customers for revenues generated out of the United Kingdom for which the customer is not tax exempt and remits such taxes to the appropriate governmental authorities. Juniper presents its value added tax on a net basis; therefore, these taxes are excluded from revenues.

Deferred Revenue

The Company’s deferred revenue balance consists of the following at December 31, 2017 and 2016 (in thousands):

 

 

 

As of December 31,

 

 

 

2017

 

 

2016

 

Product revenues

 

$

5,888

 

 

$

4,647

 

Service revenues

 

 

253

 

 

 

385

 

Regional Growth Fund

 

 

 

 

 

592

 

Total

 

$

6,141

 

 

$

5,624

 

 

Amounts invoiced but not yet earned on product revenues are recorded as deferred revenue until the Company receives sell through information from Merck KGaA indicating the product has been sold through or otherwise disposed of. Amounts invoiced but not yet earned on service revenue are deferred until such time as performance is rendered or the obligation to perform the service is completed for service revenues.

As part of the acquisition of Juniper Pharma Services, Juniper assumed a $2.5 million obligation under a grant arrangement with the Regional Growth Fund on behalf of the Secretary of State for Business, Innovation, and Skills in the United Kingdom. Juniper Pharma Services used this grant to fund the building of its second facility, which includes analytical labs, office space, and a manufacturing facility. As a part of the arrangement, Juniper Pharma Services was required to create and maintain certain full-time equivalent personnel levels through October 2017. The obligation ended in October 1, 2017 and the Company met all compliance requirements thru that date.

Research and Development Costs

Research and development consist of consultants, material costs, salaries and other personnel related expenses including stock-based compensation of employees and non-employees primarily engaged in research and development activities and materials used and other overhead expenses incurred. All research and development costs are expensed as incurred. Research and development costs that are paid in advance of performance are capitalized as prepaid expenses until incurred.

Clinical trial expenses include expenses associated with clinical research organizations. The invoicing from clinical research organizations for services rendered can lag several months. Juniper accrues the cost of services rendered in connection with clinical research organizations activities based on its estimate of costs incurred. Juniper maintains regular communication with its clinical research organizations to assess the reasonableness of its estimates.

In March 2015, the Company entered into an exclusive patent license agreement with The General Hospital Corporation, d/b/a Massachusetts General Hospital, pursuant to which Juniper has licensed the exclusive worldwide rights to Massachusetts General Hospital patent rights in a novel IVR technology for delivery of one or more pharmaceutical dosages and release rates in a single segmented ring. The Company is leveraging the technology to advance its IVR product candidates: JNP-0101, JNP-0201 and JNP-0301.

In August 2016, the Company announced that the Phase 2b clinical trial evaluating COL-1077, 10% lidocaine bioadhesive vaginal gel, for the reduction of pain intensity in women undergoing an endometrial biopsy with tenaculum placement did not achieve its primary and secondary endpoints. The safety and pharmacokinetic (PK) profiles of COL-1077 were consistent with what has been observed in prior clinical trials of the lidocaine bioadhesive vaginal gel. Based on this study outcome the Company discontinued further development of COL-1077, with resources reallocated to its preclinical programs.

F-14


In September 2017, the Company announced a reduction of approximately 8% of our workforce, primarily in the areas of new product research and development, in order to focus its resources on its core businesses. In addition, as part of its more focused research and development strategy, the Company completed its in vivo preclinical studies and expects to finalize the results of these studies for its IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in early 2018. At the completion of the in vivo preclinical studies and based on the preliminary assessment of the relative clinical data and development funding requirements of its three IVR product candidates, the Company may decide to further advance JNP-0201, a combination of Estradiol plus natural progesterone IVR for hormone replacement therapy (“HRT”) to address symptoms of menopause, or it may decide to seek a partner for JNP-0201 on a stand-alone basis or in combination with one or more partners for one or more of its other IVR product candidates.

 

Stock-based compensation

Under the Company’s stock-based compensation program, the Company periodically grants stock options and restricted stock to employees, directors and nonemployee consultants. The fair value of all awards is recognized in the Company’s statement of operations over the requisite service period for each award. Juniper follows the fair value recognition provisions of ASC 718, Stock Compensation Topic (ASC 718) and ASC Subtopic 505-50, Equity – Equity Based Payments to Nonemployees.

Awards that vest as the recipient provides service are expensed on a straight-line basis over the requisite service period. Other awards, such as performance-based awards that vest upon the achievement of specified goals, are expensed if achievement of the specified goal is considered probable.

The Company uses the Black-Scholes option pricing model to value its stock option awards which requires the Company make certain assumptions regarding the expected volatility of its common stock price, the expected term of the option grants, the risk-free interest rate and the dividend yield with respect to its common stock. Due to the lack of the Company’s own historical data, the Company elected to use the simplified method for “plain vanilla” options to estimate the expected term of the Company’s stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of the grant for instruments with a similar expected life. The Company utilizes a dividend yield of zero based on the fact that the Company has no present intention to pay cash dividends. The Company did not consider any forfeiture rate assumption in its determination of stock-based compensation.

The fair value of equity-classified awards to employees and directors are measured at fair value on the grant on the date the awards are granted. Awards to nonemployee consults are recorded at the grant date fair values and are re-measured at each balance sheet date until the recipient’s services are complete.

During the years ended December 31, 2017, 2016 and 2015, the Company recorded the following stock-based compensation expense (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Cost of revenues

 

$

120

 

 

$

199

 

 

$

79

 

Sales and marketing

 

 

47

 

 

 

50

 

 

 

38

 

Research and development

 

 

16

 

 

 

73

 

 

 

1,126

 

General and administrative

 

 

1,286

 

 

 

879

 

 

 

507

 

Total stock-based compensation

 

$

1,469

 

 

$

1,201

 

 

$

1,750

 

 

Stock-based compensation expense is allocated based upon the department of the employee to whom each award was granted. Expenses recognized in connected with the modification of awards in connection with the Company’s strategic restructuring are allocated to restructuring expense. No related tax benefit of the stock-based compensation expense has been recognized.

 

 


F-15


As of December 31, 2017, total unamortized share-based compensation cost related to non-vested stock options and restricted stock was $2.5 million, which is expected to be recognized on a straight-line basis over a weighted average period of 2.7 years.

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Risk free interest rate

 

1.45%-1.59%

 

 

0.85%-1.45%

 

 

0.87%-1.20%

 

Expected term

 

4.5-4.75 years

 

 

4.75 years

 

 

4.56-4.75 years

 

Dividend yield

 

 

 

 

 

 

 

 

 

Expected volatility

 

53.15%-55.20%

 

 

55.23%-79.29%

 

 

76.86%-83.09%

 

 

 

Net (Loss) Income Per Common Share

The calculation of basic and diluted (loss) income per common and common equivalent share is as follows (in thousands except for per share data):

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Basic net (loss) income per common share

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,060

)

 

$

5,951

 

 

$

(1,496

)

Add: Excess of carrying value of Series C Preferred Stock over redemption value

 

 

459

 

 

 

 

 

 

 

Less: Preferred stock dividends

 

 

(14

)

 

 

(28

)

 

 

(28

)

Net (loss) income applicable to common stockholders

 

$

(1,615

)

 

$

5,923

 

 

$

(1,524

)

Basic weighted average number of common shares

   outstanding

 

 

10,824

 

 

 

10,795

 

 

 

10,774

 

Basic net (loss) income per common share

 

$

(0.15

)

 

$

0.55

 

 

$

(0.14

)

Diluted net (loss) income per common share

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income applicable to common stock

 

$

(1,615

)

 

$

5,923

 

 

$

(1,524

)

Add: Preferred stock dividends

 

 

 

 

 

28

 

 

 

 

Net (loss) income applicable to dilutive common stock

 

$

(1,615

)

 

$

5,951

 

 

$

(1,524

)

Basic weighted average number of common shares

   outstanding

 

 

10,824

 

 

 

10,795

 

 

 

10,774

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive preferred share conversions

 

 

 

 

 

83

 

 

 

 

Dilutive stock awards

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

96

 

 

 

 

Diluted weighted average number of common shares

   outstanding

 

 

10,824

 

 

 

10,891

 

 

 

10,774

 

Diluted net (loss) income per common share

 

$

(0.15

)

 

$

0.55

 

 

$

(0.14

)

 

Basic net (loss) income per common share is computed by dividing the net (loss) income, less preferred dividends and adding the excess of carrying value of Series C Preferred Stock over redemption value recognized on the conversion of the Series C Preferred Stock, by the weighted-average number of shares of common stock outstanding during a period. The diluted net (loss) income per common share calculation gives effect to dilutive options, convertible preferred stock, and other potential dilutive common stock including selected restricted shares of common stock outstanding during the period. Diluted net (loss) income per common share is based on the treasury stock method and includes the effect from potential issuance of common stock, such as shares issuable pursuant to the exercise of stock options, assuming the exercise of all in-the-money stock options. Common share equivalents have been excluded where their inclusion would be anti-dilutive.

Shares to be issued upon the exercise of the outstanding options, convertible preferred stock and selected restricted shares of common stock excluded from the income per share calculation amounted to 1,981,934, 1,658,234 and 1,087,308 for the years ended December 31, 2017, 2016 and 2015, respectively, because the awards were anti-dilutive.

 

 

 


F-16


Recent Accounting Pronouncements

 

Adopted

 

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted the standard as of January 1, 2017. The adoption did not have a material impact on the Company’s financial position.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company adopted the standard as of January 1, 2017. The adoption did not have a material impact on the Company’s financial position.

 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. The Company adopted the standard as of January 1, 2017. The adoption did not have a material impact on the Company’s financial position.

To be adopted

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard will not have an impact on our consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-16, Classification of Certain Cash Receipts and Cash Payments, (“ASU 2016-16”), which amends the guidance of ASC No. 230 on the classification of certain items in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice by making amendments that add or clarify the guidance on eight specific cash flow issues. ASU 2016-15 is effective for all fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2016-15 should be applied retrospectively to all periods presented, but may be applied prospectively from the earliest practicable if retrospective application would be impracticable. The adoption of this standard will not have an impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the method and impact that the adoption will have on its consolidated financial statements and related disclosures.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The standard becomes effective for Juniper beginning in the first quarter of 2018 and early adoption is permitted. The adoption of this standard will not have an impact on our consolidated financial statements and related disclosures.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued ASU No. 2015-

F-17


14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year, but permits companies to adopt one year earlier if they choose (i.e. the original effective date). As such, ASU 2014- 09 will be effective for annual and interim reporting periods beginning after December 15, 2017. In March and April 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Consideration (Reporting Revenue Gross versus Net) and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, respectively, which clarify the guidance on reporting revenue as a principal versus agent, identifying performance obligations and accounting for intellectual property licenses. In addition, in May 2016 and December 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, both of which amend certain narrow aspects of Topic 606. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. The Company undertook a process of reviewing its historical contracts and evaluating the impact of ASU 2014-09 on its accounting policies, processes and system requirements. During the fourth quarter of 2017, the Company finalized its assessment over the impact that the new standard will have on its consolidated results of operations, financial position and disclosures. The Company has identified a change to the pattern of revenue recognition for its arrangements with Merck, where revenue is recorded earlier than under current guidance. Under current guidance, the Company recognized only the contractual minimum invoice price which is fixed or determinable upon delivery, with any amount earned in excess of the minimum when that amount is fixed or determinable, which is not until Merck sells the product onto its customers. Under the new proposed guidance, the amount in excess of the contractual minimum which the Company will account for as variable consideration, with an estimate of the variable consideration recorded upon delivery. The guidance is effective for the Company beginning January 1, 2018 and the Company adopted the standard using the modified retrospective approach. The Company will record a cumulative adjustment to decrease retained earnings as of January 1, 2018 of approximately $5.7 million to reflect the impact of the new guidance. The Company has also evaluated its service revenue arrangements to assess changes in performance obligation, inclusion of variable consideration in the transaction price, allocation of the transaction price based on relative standalone selling prices, timing of recognition, accounting for contract acquisition costs, among other areas, as well as the related financial statement disclosures. The Company did not identify any significant differences in its service revenue contracts under the new guidance. The Company will finalize these assessments in the first quarter of 2018 and identify and implement the necessary changes to its business processes, systems and controls to support revenue recognition and disclosures under the new standard. However, the assessment is ongoing and further analysis may identify future impacts.

3.

Goodwill and Intangible Assets

Changes to goodwill during the years ended December 31, 2017 and 2016 were as follows (in thousands):

 

 

 

Total

 

Balance – December 31, 2015

 

$

10,010

 

Translation adjustment

 

 

(1,668

)

Balance – December 31, 2016

 

 

8,342

 

Translation adjustment

 

 

781

 

Balance – December 31, 2017

 

$

9,123

 

 

Intangible assets consist of the following at December 31, 2017 and December 31, 2016 (in thousands):

 

 

 

Trademark

 

 

Developed

Technology

 

 

Customer

Relationships

 

 

Total

 

Gross carrying amount – December 31, 2017

 

$

300

 

 

$

1,370

 

 

$

1,240

 

 

$

2,910

 

Translation adjustment

 

 

(53

)

 

 

(198

)

 

 

(179

)

 

 

(430

)

Accumulated amortization

 

 

(247

)

 

 

(839

)

 

 

(650

)

 

 

(1,736

)

Balance – December 31, 2017

 

$

 

 

$

333

 

 

$

411

 

 

$

744

 

 

 

 

Trademark

 

 

Developed

Technology

 

 

Customer

Relationships

 

 

Total

 

Gross carrying amount – December 31, 2016

 

$

300

 

 

$

1,370

 

 

$

1,240

 

 

$

2,910

 

Translation adjustment

 

 

(53

)

 

 

(298

)

 

 

(270

)

 

 

(621

)

Accumulated amortization

 

 

(247

)

 

 

(617

)

 

 

(456

)

 

 

(1,320

)

Balance – December 31, 2016

 

$

 

 

$

455

 

 

$

514

 

 

$

969

 

 

F-18


Prior to completing the triggering event based assessment of goodwill on September 18, 2017 under ASC 350, the Company assessed its long-lived assets under ASC 360-10-05, Impairment or Disposal of Long-Lived Assets (“ASC 360”), and concluded that there was no impairment indicated for its long-lived assets.

Amortization expense related to the developed technology is classified as a component of cost of service revenues in the consolidated statements of operations. Amortization expense related to trademark and customer relationships is classified as a component of general and administrative expenses in the consolidated statements of operations.

Acquired intangible assets are amortized over their estimated useful lives based on either the pattern in which the economic benefits of the intangible asset are consumed or on a straight-line method. The estimated useful life represents the anticipated term of the acquired intangible assets. The estimated useful lives for the trademark, developed technology and customer relationships are 3 years, 7 years and 7 years, respectively. The trademark intangible was fully amortized as of December 31, 2016.  The weighted average amortization period in total is 6.6 years.

Amortization expense for the years ended December 31, 2017, 2016 and 2015, was $0.3 million, $0.4 million and $0.4 million, respectively. As of December 31, 2017, amortization expense on existing intangible assets for the next four years is as follows (in thousands):

 

Year

 

Total

 

2018

 

$

289

 

2019

 

 

262

 

2020

 

 

193

 

Total

 

$

744

 

 

4.

Debt and other Contractual Obligations

In September 2013, Juniper assumed debt of $3.9 million in connection with its acquisition of Juniper Pharma Services. Juniper Pharma Services entered into a Business Loan Agreement (“Loan Agreement”) covering three loan facilities (collectively referred to as the “original agreements”) with Lloyds TSB Bank (“Lloyds”), as administrative agent. In May 2017, Juniper Pharma Services repaid one of the existing loan facility upon which Juniper Pharma Services subsequently entered into a new loan facility with the same administrative agent for the same outstanding balance. The refinancing was accounted for as a modification with no resulting gain or loss. The remaining original agreements and the new agreement are collectively referred to as the “loan facilities”.

As of December 31, 2017, the Company owed $2.4 million on the loan facilities. The loan facilities are each repayable by monthly installments, one started repayment in February 2013 and the remaining two commenced in October 2013. All facilities are due for repayment over periods ranging from 7-15 years from the date of drawdown. Two of the facilities bear interest at the Bank of England’s base rate plus 1.95% and 2.55%, respectively. The weighted average interest rate for these two facilities at December 31, 2017 was 2.45% and 3.05%, respectively. The third facility is a fixed rate agreement bearing interest at 2.99% per annum. The weighted average interest rate for the three loan facilities for the year ended December 31, 2017 was 2.76%. The loan facilities are secured by the mortgaged property and an unlimited lien on the other assets of Juniper Pharma Services. The loan facilities contain financial covenants that limit the amount of indebtedness Juniper Pharma Services may incur, requires Juniper Pharma Services to maintain certain levels of net worth, and restricts Juniper Pharma Services’ ability to materially alter the character of its business. As of December 31, 2017 the Company is in compliance with all of the covenants under the loan facilities.

F-19


In September 2013, as part of the acquisition of Juniper Pharma Services, Juniper assumed a $2.5 million obligation under a grant arrangement with the Regional Growth Fund on behalf of the Secretary of State for Business, Innovation, and Skills in the United Kingdom. Juniper Pharma Services used this grant to fund the building of its second facility, which includes analytical labs, office space, and a manufacturing facility. As a part of the arrangement, Juniper Pharma Services was required to create and maintain certain full-time equivalent personnel levels through October 2017. The obligation ended on October 1, 2017. As of December 31, 2017, the Company’s obligation under the grant arrangement is complete and the Company all compliance requirements through October 1, 2017. The income from the Regional Growth Fund was recognized on a decelerated basis over the three-year term of the agreement. Other income associated with the Regional Growth Fund for the years ended December 2015, 2016 and 2017 were $0.5 million, $0.7 million and $0.6 million, respectively.

Additionally, Juniper leases its U.S. corporate office under an operating lease. In October 2015, the Company entered into a lease agreement for its corporate office in Boston, Massachusetts. The initial term of the lease agreement is approximately 39 months and ends in 2019, which includes a three-month free rent period. In January and March 2017, the Company entered into loans of $0.9 million and $0.6 million, respectively, with payments thru March 2022 for equipment in its Nottingham, U.K. facility.  The interest rate for the two loans was 2.09% at December 31, 2017.  The transactions were considered failed sales-leaseback arrangements as the Company will obtain title to the equipment at the end of the term of the financing for little or no consideration. These failed sale-leaseback arrangements have been recorded as a component of long-term debt on the Company’s condensed consolidated balance sheets. The initial terms of the loans are 60 months.

In December 2016, the Company entered into an API Supply Agreement for a manufacturer of progesterone under which the it has agreed to annual minimum volume commitments until December 2019.

The Company’s significant outstanding contractual obligations relate to operating leases for the Company’s facilities and loan agreements. The Company’s facility leases are non-cancellable and contain renewal options. The Company’s future contractual obligations as of December 31, 2017 include the following (in thousands):

 

 

 

Total

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

Operating lease obligations

 

$

517

 

 

$

443

 

 

$

74

 

 

$

 

 

$

 

 

$

 

 

$

 

Loan principal repayments

 

 

2,422

 

 

 

236

 

 

 

241

 

 

 

248

 

 

 

255

 

 

 

263

 

 

 

1,179

 

Capital lease obligations

 

 

1,377

 

 

 

311

 

 

 

324

 

 

 

338

 

 

 

351

 

 

 

53

 

 

 

 

Minimum purchase obligation

 

 

5,720

 

 

 

3,861

 

 

 

1,859

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

10,036

 

 

$

4,851

 

 

$

2,498

 

 

$

586

 

 

$

606

 

 

$

316

 

 

$

1,179

 

 

Rent expense was $0.4 million for December 31, 2017, $0.4 million for December 31, 2016, and $0.3 million for December 31, 2015.

 

Interest expense, net was $0.1 million in each of the years ended December 31, 2017, 2016, and 2015.  

 

 

5.

Property and Equipment, net

Property and equipment consists of the following (dollars in thousands):

 

 

 

Estimated

Useful Life

 

December 31,

 

 

 

(Years)

 

2017

 

 

2016

 

Machinery and equipment

 

3-10

 

$

12,358

 

 

$

8,628

 

Furniture and fixtures

 

3-5

 

 

1,083

 

 

 

1,190

 

Computer equipment and software

 

3-5

 

 

628

 

 

 

538

 

Buildings

 

Up to 39

 

 

7,995

 

 

 

7,310

 

Land

 

Indefinite

 

 

513

 

 

 

469

 

Construction in-process

 

 

 

 

1,133

 

 

 

1,567

 

 

 

 

 

 

23,710

 

 

 

19,702

 

Less: Accumulated depreciation

 

 

 

 

(8,481

)

 

 

(6,336

)

Total

 

 

 

$

15,229

 

 

$

13,366

 

 

Depreciation expense was $1.9 million, $1.5 million and $1.5 million for each of the years ended December 31, 2017, 2016 and 2015, respectively.    

F-20


The net book value of property and equipment subject to lien under the debt agreement is $7.4 million and $5.5 million as of December 31, 2017 and 2016, respectively.

6.

Accrued Expenses and Other

Accrued expenses and other consist of the following (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Payroll

 

$

1,795

 

 

$

1,643

 

Professional fees

 

 

2,006

 

 

 

1,074

 

Clinical studies

 

 

204

 

 

 

740

 

Other

 

 

1,361

 

 

 

1,814

 

Restructuring

 

 

249

 

 

 

-

 

Total

 

$

5,615

 

 

$

5,271

 

 

7.

Income Taxes

(Loss) income before income taxes consists of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Domestic

 

$

(15,887

)

 

$

(2,090

)

 

$

(8,133

)

Foreign

 

 

13,641

 

 

 

8,132

 

 

 

6,642

 

(Loss) income before income taxes

 

$

(2,246

)

 

$

6,042

 

 

$

(1,491

)

 

The components of the (benefit) provision for income taxes are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(46

)

 

$

80

 

 

$

(9

)

State

 

 

 

 

 

11

 

 

 

14

 

Foreign

 

 

 

 

 

 

 

 

 

Total current

 

 

(46

)

 

 

91

 

 

 

5

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

(140

)

 

 

 

 

 

 

Total deferred

 

 

(140

)

 

 

 

 

 

 

(Benefit) provision for income taxes

 

$

(186

)

 

$

91

 

 

$

5

 

 

F-21


The reconciliation of the federal statutory rate to Juniper’s effective tax rate is as follows:

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Federal income tax rate

 

 

34.0

%

 

 

34.0

%

 

 

34.0

%

Foreign rate differential

 

 

182.7

%

 

 

(49.6

)%

 

 

151.5

%

State tax, net of federal benefit

 

 

10.1

 

 

 

13.4

 

 

 

(0.9

)

Permanent Items:

 

 

 

 

 

 

 

 

 

 

 

 

Incentive stock options

 

 

(2.5

)

 

 

1.0

 

 

 

(14.9

)

Dividend from foreign subsidiary

 

 

(165.8

)

 

 

53.5

 

 

 

(79.8

)

Amortization of technical rights

 

 

 

 

 

(34.5

)

 

 

23.4

 

Deferred adjustments

 

 

15.9

 

 

 

30.6

 

 

 

6.6

 

Foreign research and development relief

 

 

26.3

 

 

 

 

 

 

 

Change in U.S. Federal rate

 

 

(970.4

)

 

 

 

 

 

 

Other

 

 

(2.6

)

 

 

(1.1

)

 

 

(0.5

)

Effect of permanent differences

 

 

(1,099.1

)

 

 

49.5

 

 

 

(65.2

)

Effective income tax rate

 

 

(872.3

)

 

 

47.3

 

 

 

119.4

 

Change in valuation allowance

 

 

880.6

 

 

 

(45.8

)

 

 

(119.7

)

Effective income tax rate

 

 

8.3

%

 

 

1.5

%

 

 

(0.3

)%

 

The Company recorded an income tax benefit of $0.2 million as of December 31, 2017. This benefit is primarily attributable to an adjustment to its foreign income inclusion for U.S. tax purposes, which reduced the amount of alternative minimum tax recorded in the Company’s 2016 tax provision and the release of valuation allowance with respect to Alternative Minimum Tax (“AMT”) credit carryover in connection with the Tax Cuts and Jobs Act of 2017.

 

 

Effects of the Tax Cuts and Jobs Act

 

On December 22, 2017 President Donald Trump signed into U.S. law the Tax Cuts and Jobs Act of 2017 (“Tax Reform”). ASC Topic 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions of the law, January 1, 2018.

 

Given the significance of the legislation, the U.S. Securities and Exchange Commission (the "SEC") staff issued Staff Accounting Bulletin ("SAB") No. 118 (“SAB 118”), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended prior to the one year term when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed.

 

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with the law prior to the enactment of the Tax Cuts and Jobs Act.

 

ASC Topic 740, Income Taxes (ASC 740) requires the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December 22, 2017 for the Tax Reform.  ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Company’s deferred taxes were re-measured utilizing the new federal income tax rate of 21% which resulted in a $22.0 million decrease to the Company’s deferred tax assets. The re-measurement calculation is provisional as the Company continues to evaluate the provisions of the Tax Reform.

 

As part of the Tax Reform, the U.S. corporate income tax rate applicable to the Company decreased from 34% to 21%. This rate change resulted in the remeasurement of the Company’s net deferred tax assets and liabilities as of December 31, 2017, the effect of which was completely offset by a change in the Company’s valuation allowance.

F-22


 

The Tax Reform includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries. The Company has performed an estimated earnings and profits analysis. The current estimate of the transition tax results in no income inclusion to the Company. To the extent that a refinement is made that materially changes the estimate calculation, the inclusion should be fully offset by tax losses incurred by the Company. There should be no income tax effect in the current period. The calculation of earnings and profits is provisional and further time is needed for detailed refinement.

 

Pursuant to the Tax Reform, AMT credit carryforwards will be eligible for a 50% refund through tax years 2018 through 2020. Beginning in tax year 2021, any remaining AMT credit carryforwards would be 100% refundable. As a result of these new regulations, the Company has released its valuation allowance of $0.1 million formerly reserved against its AMT credit carryforwards. The Company has recorded a current income tax receivable of $0.1 million and a non-current income tax receivable of $0.1 million in connection with this valuation allowance release in which the entire benefit of $0.2 million is being recorded as a component of Income tax (benefit) expense for the year ended December 31, 2017. The calculation related to AMT credit carryforwards is provisional as the Company continues to evaluate the provisions of the Tax Reform.

 

Other significant provisions that are not yet effective but may impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, limitation on the current deductibility of net interest expense in excess of 30% of adjusted taxable income, a limitation of net operating losses generated after fiscal 2018 to 80% of annual income, an incremental tax (base erosion anti-abuse tax or “BEAT”) on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in excess of 10% of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or “GILTI”). Because of the complexity of the new provisions, the Company is continuing to evaluate how the provisions will be accounted for under the U.S. generally accepted accounting principles wherein companies are allowed to make an accounting policy election of either (i) account for GILTI as a component of tax expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). Currently, the Company has not elected a method and will only do so after its completion of the analysis of the GILTI provisions and its election method will depend, in part, on analyzing its global income to determine whether the Company expects to have future U.S. inclusions in its taxable income related to GILTI and, if so, the impact that is expected.

 

The Company operates in multiple countries. Accordingly, separate tax filings are required based on jurisdiction. Due to the separate tax filings of our U.S., U.K. and France jurisdictions, the Company has evaluated the need for a valuation allowance on a separate jurisdiction basis. As of December 31, 2017, the Company continues to maintain a full valuation allowance against all net deferred tax assets.

 


F-23


The components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

 

 

 

December 31,

2017

 

 

December 31,

2016

 

Deferred Tax Asset

 

 

 

 

 

 

 

 

Net Operating Loss

 

$

37,168

 

 

$

55,521

 

Tax Credits

 

 

1,846

 

 

 

2,034

 

Stock Based Compensation

 

 

900

 

 

 

997

 

Intangibles

 

 

489

 

 

 

843

 

Other

 

 

290

 

 

 

337

 

Subtotal

 

 

40,693

 

 

 

59,732

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

Valuation Allowance

 

 

(39,072

)

 

 

(58,983

)

Total Deferred Tax Assets

 

 

1,621

 

 

 

749

 

 

 

 

 

 

 

 

 

 

Deferred Tax Liabilities

 

 

 

 

 

 

 

 

Fixed Assets

 

 

(1,621

)

 

 

(749

)

Total Deferred Tax Liabilities

 

 

(1,621

)

 

 

(749

)

Net Deferred Tax Asset

 

$

 

 

$

 

 

 

 

 

In assessing the realizability of deferred tax assets, management considers positive and negative evidence to determine whether it is more likely than not that some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Management believes it is more likely than not that the results of future operations will not generate sufficient taxable income in the U.S., U.K. and France in order to realize the full benefits of the deferred tax assets in the respective jurisdictions.

As of December 31, 2017, the Company has federal and state U.S. tax net operating loss carryforwards of approximately $164.0 million and $20.0 million, respectively, which begin to expire in 2020 and 2018, respectively. The Company also has federal research and development credit carryforwards of approximately $1.8 million, which begin to expire in 2018.  

As of December 31, 2017, the Company has non-U.S., net operating loss carryforwards of approximately $11.5 million, with no expiration period.  The Company also has non-U.S. research and development credit carryforwards of approximately $0.3 million, with no expiration period.

 

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company's ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of net operating loss carryforwards before they expire. The Company performed an analysis through June 30, 2014, and determined any potential ownership change under Section 382 during the year would not have a material impact on the future utilization of US net operating losses and tax credits. However, future transactions in the Company's common stock could trigger an ownership change for purposes of Section 382, which could limit the amount of net operating loss carryforwards and other attributes that could be utilized annually in the future to offset taxable income, if any. Any such limitation, whether as the result of sales of common stock by our existing stockholders or sales of common stock by the Company, could have a material adverse effect on results of operations in future years.

The Company follows the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB No. 109. FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with ASC 740-20. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. Juniper recognizes interest and penalties, if any, related to uncertain tax positions in general and administrative expenses.  No uncertain tax positions or interest and penalties related to uncertain tax positions were accrued as of December 31, 2017 or 2016.

F-24


The Company files tax returns in the United States, United Kingdom, France and various state jurisdictions. All of the Company’s tax years remain open to examination by major taxing jurisdictions to which the Company is subject, as carryforward attributes generated in past years may still be adjusted upon examination by the Internal Revenue Service or state and foreign tax authorities if they have or will be used in future periods. The Internal Revenue Service has concluded their audit of the 2011 and 2012 tax years. There were no material findings resulting from their audit.

 

As of December 31, 2017, outside of Columbia Bermuda, the Company does not maintain accumulated earnings and profits in the foreign jurisdictions that it currently does business. The Company has repatriated current earnings from one of its foreign subsidiaries to the United States in 2017 and 2016. To the extent the Company has positive accumulated foreign earnings in the future, the Company will further assess its global business needs and decide whether or not it will permanently reinvest those earnings.

 

8.

Shareholders’ Equity

As of December 31, 2017, the Company had 150,000,000 authorized shares of common stock, $0.01 par value, of which 12,256,980 were issued and 10,844,113 were outstanding. As of December 31, 2017, the Company had 1,000,000 authorized Preferred Stock, $0.01 par value, of which none were issued and outstanding.

 

Preferred Stock

During the quarter ending June 30, 2017, the Company issued a Notice of Conversion to the holders of Series B and a Notice of Redemption to the holders of Series C giving notice that on June 30, 2017 (the “Redemption and Conversion Date”) all outstanding shares of the respective Preferred Stock issuance would be converted, as in the case of the Series B, or redeemed, as in the case of the Series C. The Series B, by its terms, automatically converted into shares of common stock, upon the occurrence of the event. On the Redemption and Conversion Date, each share of the 130 shares of Series B outstanding converted into 2.78 shares of common stock resulting in an issuance of 361 shares.

 

The holders of each share of the 550 shares of Series C outstanding had the right to require the Company to redeem their shares in cash plus all accrued and unpaid dividends thereon the date such redemption is demanded. On the Redemption and Conversion Date, the Company paid to the holders of the Series C approximately $0.01 million and as a result of the transaction recorded the excess of the carrying value of Series C over redemption value of approximately $0.5 million to accumulated deficit for the year ended December 31, 2017. At December 31, 2017, there were no remaining outstanding shares of either the Series B or the Series C.

 

In March 2002, the Company adopted a Stockholder Rights Plan (the “Rights Plan”) designed to protect company stockholders in the event of takeover activity that would deny them the full value of their investment. The Rights Plan was not adopted in response to any specific takeover threat. In adopting the Rights Plan, the Board declared a dividend distribution of one preferred stock purchase right for each outstanding share of common stock of the Company, payable to stockholders of record at the close of business on March 22, 2002. The rights will become exercisable only in the event, with certain exceptions, a person or group of affiliated or associated persons acquires a specified amount (the “Specified Amount”) (originally 15%) or more of the Company’s voting stock, or a person or group of affiliated or associated persons commences a tender or exchange offer which, if successfully consummated, would result in such person or group owning the Specified Amount or more of the Company’s voting stock. Each right, once exercisable, will entitle the holder (other than rights owned by an acquiring person or group) to buy one one-thousandth of a share of a series of the Company’s Series D Junior Participating Preferred Stock at a price of $30 per one-thousandth of a share, subject to adjustments. In addition, upon the occurrence of certain events, holders of the rights (other than rights owned by an acquiring person or group) would be entitled to purchase either the Company’s preferred stock or shares in an “acquiring entity” at approximately half of market value. Further, at any time after a person or group acquires the Specified Amount or more (but less than 50%) of the Company’s outstanding voting stock, subject to certain exceptions, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by an acquiring person or group) for shares of the Company’s common stock having a fair market value on the date of such acquisition equal to the excess of (i) the fair market value of preferred stock issuable upon exercise of the rights over (ii) the exercise price of the rights. The Company generally will be entitled to redeem the rights at $0.01 per right at any time prior to the close of business on the tenth day after there has been a public announcement of the beneficial ownership by any person or group of the Specified Amount or more of the Company’s voting stock, subject to certain exceptions.

In November 2010, the Board of Directors of the Company adopted an amendment and restatement (the “Amendment”) of the Rights Plan, dated as of March 13, 2002 (the “Original Rights Agreement”), between the Company and American Stock Transfer & Trust Company, LLC, as successor rights agent (as amended, the “Rights Plan”). In general, the Amendment leaves the Original Rights Agreement unchanged in all material respects, other than changing the trigger for the Rights becoming exercisable from 15% to 4.99% of the outstanding Voting Rights (as defined in the Rights Plan), expanding the concept of “beneficial ownership” to include

F-25


shares owned (including those owned indirectly and constructively) under Section 382 of the Code and modifying the provisions relating to the exchange of Rights for common stock.

The Company adopted the Amendment to preserve the value of the Company’s net operating loss carry forwards (the “Tax Benefits”), because its ability to fully use the Tax Benefits on an annual basis to offset future income may be substantially limited if the Company experiences an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986 (the “Code”). Generally, the Company would experience an “ownership change” under Section 382 of the Code if a greater than 50 percentage point change in ownership of the Voting Stock (as defined in the Rights Plan and described below) by stockholders who beneficially own (or who are deemed to own) 5% or more of the Company’s Voting Stock occurs over a rolling three year period.

In September 2011, the Company and American Stock Transfer and Trust Company, LLC, as rights agent, further amended the Rights Plan to extend the expiration date of the rights from March 12, 2012 to July 3, 2013. In March 2013, the Company further amended the Rights Plan to extend the expiration date from July 3, 2013, to July 3, 2016. No extension of the Rights Plan was made subsequent to that period.

 

 

9.

Stock-based Compensation

Common Stock

The Company granted 66,234, 42,203 and 13,106 shares of restricted stock to the Company’s independent directors during the years ended December 31, 2017, 2016 and 2015, respectively.

Stock Incentive Plan

In May of 2008, the Company adopted the 2008 Long-term Incentive Plan (“2008 Plan”) which provides for the grant of stock options, stock appreciation rights and restricted stock to certain designated employees of the Company, non-employee directors of the Company and certain other persons performing significant services for the Company as designated by the Compensation Committee of the Board of Directors. At December 31, 2014, the number of common shares reserved for issuance under the 2008 plan was 1,250,000. Options granted under the plan vest either (i) over a 48-month period at the rate of 25% each year until fully vested or (ii) over a vesting period determined by the Board of Directors. This plan was replaced in April 2015 by the 2015 Long term-Incentive Plan (“2015 Plan”) and all remaining shares were made available under this plan.  At December 31, 2015, the number of common shares and restricted stock reserved for issuance under the 2015 plan was 1,000,000 and 200,000, respectively. Options granted under the plan vest either (i) over a 48-month period at the rate of 25% each year until fully vested (ii) over a 48-month period at the rate of 6.25% each quarter until fully vested or (iii) over a vesting period determined by the Board of Directors. This plan was replaced in May 2016 by the 2015 Amended and Restated Long-term Incentive Plan (“Amended and Restated 2015 Plan”) and all remaining shares were made available under the Amended and Restated 2015 Plan. As of December 31, 2017, there were 1,861,142 shares available for future grant under the Amended and Restated 2015 Plan

Stock Incentive Plan – Stock Options

The Company’s stock options have a maximum term of 10 years from the date of grant. Options granted prior to 2006 have a 10-year term. Since 2006, the Company has been granting stock options with a 7-year term.

A following table summarizes stock option activity during the year ended December 31, 2017:

 

 

 

Number of

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life (year)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding, December 31, 2016

 

 

1,516,059

 

 

$

7.25

 

 

 

5.19

 

 

$

48

 

Granted

 

 

680,400

 

 

 

5.17

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(394,409

)

 

 

6.71

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2017

 

 

1,802,050

 

 

$

6.59

 

 

 

4.86

 

 

$

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested

 

 

822,736

 

 

 

7.19

 

 

 

3.85

 

 

 

 

Unvested

 

 

979,314

 

 

 

6.08

 

 

 

5.71

 

 

 

8

 

Vested or expected to vest, December 31, 2017

 

 

1,802,050

 

 

$

6.59

 

 

4.86

 

 

$

8

 

Exercisable, December 31, 2017

 

 

822,736

 

 

$

7.19

 

 

3.85

 

 

 

 

 

F-26


 

Juniper granted 680,400, 657,500 and 387,000 stock options to employees during the years ended December 31, 2017, 2016 and 2015, respectively. Cash received from option exercises was $0.1 million during the year ending December 31, 2015.  No options were exercised in the year ended December 31, 2017 and 2016.

The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock-based awards. The Black-Scholes option pricing model requires the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The weighted-average fair value of the options granted to employees during the years ended December 31, 2017, 2016 and 2015 was $2.43, $4.66 and $4.38, respectively based on the following assumptions:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Risk free interest rate

 

1.45%-1.59%

 

 

0.85%-1.45%

 

 

0.87%-1.20%

 

Expected term

 

4.5-4.75 years

 

 

4.75 years

 

 

4.56-4.75 years

 

Dividend yield

 

 

 

 

 

 

 

 

 

Expected volatility

 

53.15%-55.20%

 

 

55.23%-79.29%

 

 

76.86%-83.09%

 

 

As of December 31, 2017, there was $2.5 million of total unrecognized compensation costs related to non-vested options.  The remaining cost is expected to be recognized over a weighted average period of 2.7 years.

The Company records stock-based compensation expense for stock options granted to non-employees based on the fair value of the stock options, which is re-measured over the graded vesting term resulting in periodic adjustments to stock-based compensation expense. During 2017 and 2016, no stock options were granted by the Company to non-employees.  The stock-based compensation expense recorded for non-employees is primarily reflected in the research and development line of the statement of operations. The non-employee options reflected in the research and development line are re-measured on a quarterly basis from the date of grant. The Company recorded a reduction of stock-based compensation expense for non-employees of $0.1 million for each of the years ended December 31, 2017 and 2016, as a result of impacts of changes in the fair value. Stock-based compensation recorded for non-employees was $1.1 million in the year ended December 31, 2015.  No tax benefit has been recognized due to the net tax losses during the periods presented.

The weighted-average fair value of the options granted to non-employees during the year ended December 31, 2015 was $4.52 based on the following assumptions:

 

 

 

2015

 

Risk free interest rate

 

1.47%-1.54%

 

Expected term

 

7 years

 

Dividend yield

 

 

 

Expected volatility

 

82.88%-83.09%

 

 

  Stock Option Plan – Restricted Stock

The Company periodically grants awards of restricted stock to employees. Restricted stock grants consist of grants of the Company’s common stock that may vest in the future. The Board has set a one, two, or four year vesting period for most of the issued restricted shares except annual grants to independent Directors which vest at the next annual meeting of stockholders. The fair value of each restricted share grant is equal to the market price of the Company’s common stock at the date of grant. Expense relating to restricted shares is recorded at the closing price on the grant date and amortized ratably over the vesting period.    

A summary of the Company’s restricted stock activity and related information for the year ended December 31, 2017 is as follows:

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

Unvested, December 31, 2016

 

 

40,933

 

 

$

7.42

 

Granted

 

 

118,934

 

 

$

5.03

 

Vested

 

 

(40,933

)

 

$

7.42

 

Forfeited

 

 

(15,500

)

 

$

5.15

 

Unvested, December 31, 2017

 

 

103,434

 

 

$

5.01

 

F-27


 

As of December 31, 2017, there was $0.3 million of total unrecognized compensation costs related to non-vested restricted share-based compensation. The remaining cost is expected to be recognized over a weighted average period of approximately 2.1 years. The total fair value of shares vested during the year ended December 31, 2017 was $0.3 million.

Juniper grants performance-based restricted stock units to employees which vest upon the occurrence of certain operational and strategic events that were determined by the Company’s Board of Directors.   A summary of the Company’s performance-based restricted stock activity for the year ended December 31, 2017 is as follows:

 

 

 

Performance-based Restricted Stock Units

 

Unvested, December 31, 2016

 

 

 

Granted

 

 

186,000

 

Vested

 

 

 

Forfeited

 

 

(109,550

)

Unvested, December 31, 2017

 

 

76,450

 

 

No performance-based restricted stock units were awarded during the year ended December 31, 2016. None of the outstanding performance-based restricted stock units were deemed probable of vesting at December 31, 2017. On January 8, 2018, the Company announced the 4.5-year extension of its supply agreement for Crinone with an affiliate of Merck KGaA, Darmstandt, Germany. On February 7, 2018, the Company’s Compensation Committee of the Board of Director approved the vesting of 27,800 awards affiliated with this performance condition and as a result the Company will record a charge to stock compensation expense during the first quarter of 2018 totaling $0.2 million.

 

10.

Legal Proceedings

Claims and lawsuits are filed against the Company from time to time. Although the results of pending claims are always uncertain, the Company believes that it has adequate reserves or adequate insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance coverage in the event of any unfavorable outcome resulting from these actions.

11.

Segments and Geographic Information

The Company and its subsidiaries currently operate in two segments: product and service. The product segment oversees the supply chain and manufacturing of Crinone, the Company’s sole commercialized product. The service segment includes product development, clinical trial manufacturing, and advanced analytical and consulting services for the Company’s customers as well as characterizing and developing pharmaceutical product candidates for the Company’s internal programs and managing certain preclinical activities including manufacturing of the Company’s pipeline products. In September 2013, the Company acquired Juniper Pharma Services, a U.K.-based provider of pharmaceutical development, clinical trial manufacturing, and advanced analytical and consulting services to the pharmaceutical industry. The Company has integrated its supply chain management for its sole commercialized product, Crinone into those operations and have therefore sought to capture synergies by transferring all operational activities related to its historic business.  The Company owns certain plant and equipment physically located at third-party contractor facilities in the United Kingdom and Switzerland. The Company conducts its advanced formulation, analytical and consulting services through its subsidiary, Juniper Pharma Services.

F-28


The Company’s largest customer, Merck KGaA, utilizes a Switzerland-based subsidiary to acquire product from the Company, which it then sells throughout the world excluding the U.S. The Company’s primary domestic customer, Allergan, is responsible for the commercialization and sale of progesterone products in the United States. In November 2016, the Company entered into an agreement with Allergan to monetize future royalty payments.  Under the agreement, the Company received a one-time payment of $11.0 million representing all future U.S. royalty amounts payable.  This amount was included in revenue in the year ended December 31, 2016.  The following tables show selected information by geographic area (in thousands):

Revenues:

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

United States

 

$

10,464

 

 

$

19,955

 

 

$

7,677

 

Switzerland

 

 

33,264

 

 

 

27,302

 

 

 

23,139

 

United Kingdom

 

 

3,559

 

 

 

4,632

 

 

 

4,422

 

Other countries

 

 

2,692

 

 

 

2,684

 

 

 

3,049

 

Subtotal international

 

 

39,515

 

 

 

34,618

 

 

 

30,610

 

Total

 

$

49,979

 

 

$

54,573

 

 

$

38,287

 

 

Total assets:

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

United States

 

$

21,683

 

 

$

21,423

 

Switzerland

 

 

1,366

 

 

 

4,673

 

United Kingdom

 

 

38,129

 

 

 

31,288

 

Other countries

 

 

42

 

 

 

187

 

Total

 

$

61,220

 

 

$

57,571

 

 

Long-lived assets:

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

United States

 

$

523

 

 

$

663

 

Switzerland

 

 

535

 

 

 

369

 

United Kingdom

 

 

15,064

 

 

 

13,468

 

Other countries

 

 

2

 

 

 

2

 

Total

 

$

16,124

 

 

$

14,502

 

 

The following summarizes other information by segment for the year ended December 31, 2017 (in thousands):

 

 

 

Product

 

 

Service

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

32,688

 

 

$

 

 

$

32,688

 

Service revenues

 

 

 

 

 

17,291

 

 

 

17,291

 

Total revenues

 

 

32,688

 

 

 

17,291

 

 

 

49,979

 

Cost of product revenues

 

 

19,013

 

 

 

 

 

 

19,013

 

Cost of service revenues

 

 

 

 

 

9,948

 

 

 

9,948

 

Total cost of revenues

 

 

19,013

 

 

 

9,948

 

 

 

28,961

 

Gross profit

 

$

13,675

 

 

$

7,343

 

 

$

21,018

 

Total operating expenses

 

 

 

 

 

 

 

 

 

 

24,881

 

Total non-operating income

 

 

 

 

 

 

 

 

 

 

1,617

 

Income before income taxes

 

 

 

 

 

 

 

 

 

$

(2,246

)

 

F-29


The following summarizes other information by segment for the year ended December 31, 2016 (in thousands):

 

 

 

Product

 

 

Service

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

27,211

 

 

$

 

 

$

27,211

 

Service revenues

 

 

 

 

 

13,065

 

 

 

13,065

 

Royalties

 

 

14,297

 

 

 

 

 

 

14,297

 

Total revenues

 

 

41,508

 

 

 

13,065

 

 

 

54,573

 

Cost of product revenues

 

 

15,595

 

 

 

 

 

 

15,595

 

Cost of service revenues

 

 

 

 

 

8,698

 

 

 

8,698

 

Total cost of revenues

 

 

15,595

 

 

 

8,698

 

 

 

24,293

 

Gross profit

 

$

25,913

 

 

$

4,367

 

 

$

30,280

 

Total operating expenses

 

 

 

 

 

 

 

 

 

 

25,001

 

Total non-operating income

 

 

 

 

 

 

 

 

 

 

763

 

Loss before income taxes

 

 

 

 

 

 

 

 

 

$

6,042

 

 

The following summarizes other information by segment for the year ended December 31, 2015 (in thousands):

 

 

 

Product

 

 

Service

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

22,891

 

 

$

 

 

$

22,891

 

Service revenues

 

 

 

 

 

11,651

 

 

 

11,651

 

Royalties

 

 

3,745

 

 

 

 

 

 

3,745

 

Total revenues

 

 

26,636

 

 

 

11,651

 

 

 

38,287

 

Cost of product revenues

 

 

13,053

 

 

 

 

 

 

13,053

 

Cost of service revenues

 

 

 

 

 

8,361

 

 

 

8,361

 

Total cost of revenues

 

 

13,053

 

 

 

8,361

 

 

 

21,414

 

Gross profit

 

$

13,583

 

 

$

3,290

 

 

$

16,873

 

Total operating expenses

 

 

 

 

 

 

 

 

 

 

18,746

 

Total non-operating income

 

 

 

 

 

 

 

 

 

 

382

 

Income before income taxes

 

 

 

 

 

 

 

 

 

$

(1,491

)

 

Our chief operating decision maker evaluates the performance of our product and service segments based on revenue and gross profit. Our chief operating decision maker does not review our assets, operating expenses or non-operating income and expenses by business segment at this time. Therefore, such allocations by segment are not provided.

Customer Concentration

The following table presents information about Juniper’s revenues by customer, including product sales, royalty and license revenue and service revenues for each customer accounting for 10% or more of consolidated revenues in any of the three years ended December 31 by segment:

Product

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Merck KGaA

 

 

100

%

 

 

66

%

 

 

86

%

Allergan

 

 

-

 

 

 

34

 

 

 

14

 

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

At December 31, 2017 and 2016, Merck KGaA accounted for 100% of the product segment accounts receivable.

 

F-30


Service

One of our customers in our service segment represented 33% of total service revenue for the year ended December 31, 2017.   No other customers accounted for 10% or more of total service revenue for the year ended December 31, 2017. No customers accounted for 10% or more of total service revenue for the years ended December 31, 2016 and 2015.

At December 31, 2017, one customer accounted for 53% of total service segment net accounts receivable. At December 31, 2016, two customers accounted for 18% and 13% of total service segment net accounts receivable. At December 31, 2015 one customer accounted for 18% of total service segment accounts receivable.  

Patent Expiration

Juniper is a pharmaceutical company focused on developing novel intra-vaginal therapeutics that address unmet medical needs in women’s health. All of the Company’s product sales are outside the United States. The patent for Crinone has expired in all countries other than Argentina. This product accounts for approximately 65% of the Company’s revenues and a higher percentage of gross profit.

Sources of Supply

The major raw materials the Company uses in its products and product candidates are polycarbophil and progesterone. Medical grade, cross-linked polycarbophil, the polymer used in the BDS-based product is currently available from only one supplier, Lubrizol Inc. (“Lubrizol”). The Company believes that Lubrizol will supply as much of the material as it requires because the product ranks among the highest value-added uses of the polymer. In the event that Lubrizol cannot or will not supply enough polycarbophil to satisfy the Company’s needs, however, Juniper will be required to seek alternative sources of supply.

Only one supplier of progesterone for Crinone is approved by regulatory authorities outside the United States. Juniper has not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. The Company expects to receive regulatory approval for this second supplier in the countries where it sells Crinone within the next two years.

 

12.

Quarterly Financial Information (Unaudited)

The following table sets forth specific unaudited consolidated quarterly statement of operations data for the eight quarters ended December 31, 2017 (in thousands). This information is unaudited, but in the opinion of management, it has been prepared on the same basis as the audited consolidated financial statements and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to state fairly the unaudited consolidated quarterly results of operations. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.

 

 

 

First

Quarter

 

 

Second

Quarter

 

 

Third

Quarter

 

 

Fourth

Quarter

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

11,247

 

 

$

13,956

 

 

$

12,986

 

 

$

11,790

 

Gross profit

 

 

4,691

 

 

 

6,306

 

 

 

5,267

 

 

 

4,754

 

Operating expenses

 

 

6,146

 

 

 

6,662

 

 

 

6,802

 

 

 

5,271

 

(Loss) income from operations

 

 

(1,455

)

 

 

(356

)

 

 

(1,535

)

 

 

(517

)

Net (loss) income

 

 

(1,441

)

 

 

(376

)

 

 

(1,410

)

 

 

1,167

 

(Loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.13

)

 

$

0.01

 

 

$

(0.13

)

 

$

0.11

 

Diluted

 

$

(0.13

)

 

$

(0.03

)

 

$

(0.13

)

 

$

0.11

 

F-31


 

 

 

 

First

Quarter

 

 

Second

Quarter

 

 

Third

Quarter

 

 

Fourth

Quarter

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

10,477

 

 

$

11,610

 

 

$

11,556

 

 

$

20,930

 

Gross profit

 

 

4,127

 

 

 

5,143

 

 

 

5,851

 

 

 

15,159

 

Operating expenses

 

 

5,865

 

 

 

7,420

 

 

 

5,674

 

 

 

6,042

 

(Loss) income from operations

 

 

(1,738

)

 

 

(2,277

)

 

 

177

 

 

 

9,117

 

Net (loss) income

 

 

(1,643

)

 

 

(2,268

)

 

 

248

 

 

 

9,614

 

(Loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.15

)

 

$

(0.21

)

 

$

0.02

 

 

$

0.89

 

Diluted

 

$

(0.15

)

 

$

(0.21

)

 

$

0.02

 

 

$

0.88

 

 

The explanation for major variances from the fourth quarter for the year ended December 31, 2016 are:

1.

In the fourth quarter of 2016, the Company entered into an agreement with Allergan to monetize future royalty payments due to us. Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments to us

 

 

13.     Restructuring Charges

          In September 2017, the Company announced a corporate reprioritization which aimed to re-focus its resources on the core businesses of Crinone progesterone gel and JPS and reduce expenditures on research and development activities associated with the Company’s IVR program with the goal of potentially identifying a partner for one or more of its IVR product candidates. As a result, during the fiscal year ended December 31, 2017, the Company incurred approximately $0.8 million in restructuring charges. The Company accounted for these actions in accordance with ASC 420, Exit or Disposal Cost Obligations.

 

The following table summarizes the components of the Company’s restructuring activity recorded in the accompanying balance sheet (in thousands):

 

 

 

Amounts accrued at December 31, 2016

 

 

Expense incurred during the year ended December 31, 2017

 

 

Amounts paid during the year ended December 31, 2017

 

 

Amounts accrued at December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance, benefits and related costs

 

$

 

 

$

412

 

 

$

(340

)

 

$

72

 

Obligations under manufacturing and development contracts

 

 

 

 

 

296

 

 

 

(13

)

 

 

283

 

 

 

$

 

 

$

708

 

 

$

(353

)

 

$

355

 

 

In addition, approximately $17,000 in stock-based compensation expense associated with the modification of the exercise period on options held by an executive, approximately $14,000 related to fixed asset impairments resulting from the discontinuation of use on assets associated with programs terminated and approximately $37,500 in prepaid amortization associated with manufacturing contracts were recorded to Restructuring charges. In total, for the year ended December 31, 2017, the Company incurred $0.8 million in restructuring charges.

        

No significant additional charges are anticipated relating to this restructuring plan. The Company expects to pay approximately $0.2 million and $0.1 million in 2018 and beyond, respectively.