OREXIGEN THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Orexigen Therapeutics, Inc., or the Company, a Delaware corporation, is a biopharmaceutical company focused on the development and commercialization of pharmaceutical product candidates for the treatment of obesity. The Company was incorporated in September 2002 and commenced operations in 2003. The Company operates in one segment.
The Company’s primary activities since incorporation have been organizational activities, including recruiting personnel, conducting research and development, including clinical trials, raising capital, and preparing for the marketing and commercialization of its sole product, Contrave®, in the United States. Contrave was launched commercially in the United States by the Company’s former partner, Takeda Pharmaceutical Company Limited, or Takeda, in October 2014. In August 2016, the collaboration agreement between the Company and Takeda was terminated and the Company is now solely responsible for developing and commercializing Contrave within the United States and the rest of the world. The Company has experienced losses since its inception, and as of March 31, 2017, had an accumulated deficit of $714.3 million. The Company expects to continue to incur losses for at least the next several years. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure, and until that time, the Company may need to continue to raise additional equity or debt financing.
Basis of Presentation
The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial information. The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The Company follows the provisions of FASB Accounting Standard Codification (ASC) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that in aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year from the date that the financial statements are issued.
The Company has a board approved plan which projects that the Company’s existing working capital can fund its operations for one year after the financial statements are issued. This plan is based on management’s best estimate and assumptions for U.S. sales of Contrave, for which the Company reacquired the rights to sell in August 2016, and sales of Contrave or Mysimba outside the U.S. for which there is limited history or no history. Due to the inherent uncertainty in achieving the forecasted global revenues in the plan, the Company has identified certain forecasted expenses that can be reduced during the second half of 2017 and through May 2018 if revenues are less than forecasted or if the Company is not able to raise additional equity or debt financing during the interim period.
The identified cost cutting actions could include a reduction of certain discretionary sales, general and administrative expenses. Management has evaluated that, if required, the cost cutting measures described above could be effectively implemented during the second half of 2017 and through May 2018, and that when implemented, would allow the Company to reduce its working capital requirements. Thus, management has concluded that there is not substantial doubt that the Company can meet its obligations as they become due within one year after the financial statements are issued.
The financial statements of the Company’s foreign subsidiary with a functional currency other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders’ equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations in other income (expense).
The balance sheet as of December 31, 2016 has been derived from the audited financial statements as of December 31, 2016 but does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For more complete financial information, the accompanying unaudited condensed consolidated financial statements and