Document
false--12-31Q22019000147929014.95341130000.0010.00195000000950000003697520344105474369752035210000.0010.0015000000500000000000 0001479290 2019-01-01 2019-06-30 0001479290 2019-07-26 0001479290 2018-12-31 0001479290 2019-06-30 0001479290 2018-01-01 2018-06-30 0001479290 2018-04-01 2018-06-30 0001479290 2019-04-01 2019-06-30 0001479290 us-gaap:CommonStockMember 2018-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0001479290 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001479290 us-gaap:CommonStockMember 2019-01-01 2019-06-30 0001479290 us-gaap:RetainedEarningsMember 2018-03-31 0001479290 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0001479290 us-gaap:CommonStockMember 2018-03-31 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001479290 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001479290 us-gaap:RetainedEarningsMember 2019-03-31 0001479290 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001479290 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-06-30 0001479290 us-gaap:CommonStockMember 2019-06-30 0001479290 us-gaap:CommonStockMember 2018-12-31 0001479290 us-gaap:RetainedEarningsMember 2018-06-30 0001479290 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001479290 us-gaap:CommonStockMember 2017-12-31 0001479290 us-gaap:CommonStockMember 2018-01-01 2018-06-30 0001479290 2018-06-30 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001479290 us-gaap:RetainedEarningsMember 2018-12-31 0001479290 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001479290 us-gaap:RetainedEarningsMember 2019-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-06-30 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0001479290 us-gaap:CommonStockMember 2019-03-31 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-06-30 0001479290 us-gaap:RetainedEarningsMember 2017-12-31 0001479290 us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001479290 us-gaap:RetainedEarningsMember 2018-01-01 2018-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001479290 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-06-30 0001479290 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001479290 rvnc:FollowOnOfferingMember 2019-01-01 2019-06-30 0001479290 2017-12-31 0001479290 2019-01-01 0001479290 rvnc:MylanIrelandLimitedMember 2019-06-30 0001479290 rvnc:DevelopmentServicesMember 2019-06-30 0001479290 rvnc:ShanghaiFosunPharmaceuticalIndustrialDevelopmentCo.Ltd.Member 2019-06-30 0001479290 rvnc:DevelopmentServicesMember 2019-01-01 2019-06-30 0001479290 rvnc:ShanghaiFosunPharmaceuticalIndustrialDevelopmentCo.Ltd.Member 2018-12-01 2018-12-31 0001479290 rvnc:MylanIrelandLimitedMember 2018-02-28 2018-02-28 0001479290 rvnc:MylanIrelandLimitedMember 2018-02-28 0001479290 rvnc:DevelopmentServicesMember 2019-04-01 2019-06-30 0001479290 rvnc:ShanghaiFosunPharmaceuticalIndustrialDevelopmentCo.Ltd.Member 2019-01-01 2019-01-31 0001479290 rvnc:MylanIrelandLimitedMember rvnc:DevelopmentMilestonesMember 2018-02-28 2018-02-28 0001479290 rvnc:ShanghaiFosunPharmaceuticalIndustrialDevelopmentCo.Ltd.Member 2019-01-31 0001479290 rvnc:DevelopmentServicesMember 2018-12-31 0001479290 rvnc:DevelopmentServicesMember 2018-01-01 2018-06-30 0001479290 rvnc:DevelopmentServicesMember 2018-04-01 2018-06-30 0001479290 us-gaap:CreditRiskContractMember rvnc:MedicisPharmaceuticalCorporationMember 2018-06-30 0001479290 us-gaap:CreditRiskContractMember us-gaap:MeasurementInputExpectedTermMember rvnc:MedicisPharmaceuticalCorporationMember 2019-01-01 2019-06-30 0001479290 rvnc:MedicisPharmaceuticalCorporationMember 2012-10-01 2012-10-31 0001479290 us-gaap:CreditRiskContractMember us-gaap:MeasurementInputEntityCreditRiskMember rvnc:MedicisPharmaceuticalCorporationMember 2018-01-01 2018-06-30 0001479290 us-gaap:CreditRiskContractMember us-gaap:MeasurementInputRiskFreeInterestRateMember rvnc:MedicisPharmaceuticalCorporationMember 2019-01-01 2019-06-30 0001479290 us-gaap:CreditRiskContractMember us-gaap:MeasurementInputEntityCreditRiskMember rvnc:MedicisPharmaceuticalCorporationMember 2019-01-01 2019-06-30 0001479290 rvnc:ProceedsSharingArrangementMember rvnc:MedicisPharmaceuticalCorporationMember 2013-01-01 2013-12-31 0001479290 rvnc:ProceedsSharingArrangementMember rvnc:MedicisPharmaceuticalCorporationMember 2014-01-01 2014-12-31 0001479290 us-gaap:CreditRiskContractMember us-gaap:MeasurementInputRiskFreeInterestRateMember rvnc:MedicisPharmaceuticalCorporationMember 2018-01-01 2018-06-30 0001479290 us-gaap:CreditRiskContractMember rvnc:ValeantPharmaceuticalsInternationalInc.Member 2019-06-30 0001479290 rvnc:ProceedsSharingArrangementMember rvnc:MedicisPharmaceuticalCorporationMember 2012-10-31 0001479290 us-gaap:CreditRiskContractMember us-gaap:MeasurementInputExpectedTermMember rvnc:MedicisPharmaceuticalCorporationMember 2018-01-01 2018-06-30 0001479290 us-gaap:CreditRiskContractMember rvnc:MedicisPharmaceuticalCorporationMember 2019-06-30 0001479290 us-gaap:CommercialPaperMember 2018-12-31 0001479290 us-gaap:USTreasurySecuritiesMember 2018-12-31 0001479290 us-gaap:MoneyMarketFundsMember 2019-06-30 0001479290 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2019-06-30 0001479290 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-12-31 0001479290 us-gaap:OtherCurrentAssetsMember 2019-06-30 0001479290 us-gaap:CashEquivalentsMember 2019-06-30 0001479290 us-gaap:OtherCurrentAssetsMember 2018-12-31 0001479290 us-gaap:CashEquivalentsMember 2018-12-31 0001479290 us-gaap:USTreasurySecuritiesMember 2019-06-30 0001479290 us-gaap:MoneyMarketFundsMember 2018-12-31 0001479290 us-gaap:CommercialPaperMember 2019-06-30 0001479290 2018-01-01 2018-12-31 0001479290 rvnc:J.P.MorganSecuritiesLLCMember 2018-01-01 2018-12-31 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2018-12-31 0001479290 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001479290 us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2018-12-31 0001479290 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2018-12-31 0001479290 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2018-12-31 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2018-12-31 0001479290 rvnc:DerivativeLiabilitySettlementMember 2019-06-30 0001479290 rvnc:DerivativeLiabilitySettlementMember 2018-12-31 0001479290 rvnc:DerivativeLiabilitySettlementMember 2019-01-01 2019-06-30 0001479290 us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember 2019-06-30 0001479290 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0001479290 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2019-06-30 0001479290 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2019-06-30 0001479290 us-gaap:FairValueMeasurementsRecurringMember rvnc:DerivativeLiabilitySettlementMember 2019-06-30 0001479290 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasurySecuritiesMember 2019-06-30 0001479290 rvnc:BotulinumToxinResearchAssociatesInc.Member 2019-06-30 0001479290 us-gaap:CreditRiskContractMember rvnc:ListLaboratoriesMember 2019-06-30 0001479290 us-gaap:OtherCurrentLiabilitiesMember 2019-01-01 2019-06-30 0001479290 rvnc:BioSentinelInc.Member 2019-06-30 0001479290 us-gaap:ServiceAgreementsMember rvnc:AjinomotoAltheaInc.Member 2019-06-30 0001479290 rvnc:EmployeeStockOptionandRestrictedStockAwardsMember rvnc:TwoThousandAndFourteenEquityIncentivePlanMember 2019-04-01 2019-06-30 0001479290 rvnc:FollowOnOfferingMember 2019-01-31 0001479290 srt:WeightedAverageMember us-gaap:WarrantMember 2019-06-30 0001479290 rvnc:AttheMarketOfferingMember 2019-01-01 2019-06-30 0001479290 us-gaap:EmployeeStockOptionMember rvnc:TwoThousandAndFourteenInducementPlanMember 2019-06-30 0001479290 rvnc:FollowOnOfferingMember 2019-01-01 2019-01-31 0001479290 us-gaap:EmployeeStockMember 2019-01-01 2019-01-01 0001479290 us-gaap:EmployeeStockOptionMember rvnc:TwoThousandAndFourteenInducementPlanMember 2019-01-01 2019-06-30 0001479290 us-gaap:OverAllotmentOptionMember 2019-01-01 2019-01-31 0001479290 us-gaap:EmployeeStockMember 2019-06-30 0001479290 rvnc:EmployeeStockOptionandRestrictedStockAwardsMember rvnc:TwoThousandAndFourteenEquityIncentivePlanMember 2019-01-01 2019-01-01 0001479290 rvnc:EmployeeStockOptionandRestrictedStockAwardsMember rvnc:TwoThousandAndFourteenEquityIncentivePlanMember 2019-06-30 0001479290 us-gaap:RestrictedStockMember 2019-01-01 2019-06-30 0001479290 us-gaap:WarrantMember 2018-01-01 2018-06-30 0001479290 us-gaap:RestrictedStockMember 2018-01-01 2018-06-30 0001479290 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-06-30 0001479290 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-06-30 0001479290 us-gaap:WarrantMember 2019-01-01 2019-06-30 0001479290 us-gaap:ResearchAndDevelopmentExpenseMember 2018-01-01 2018-06-30 0001479290 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-06-30 0001479290 us-gaap:ResearchAndDevelopmentExpenseMember 2018-04-01 2018-06-30 0001479290 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-04-01 2019-06-30 0001479290 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-04-01 2018-06-30 0001479290 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-01-01 2018-06-30 0001479290 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-06-30 0001479290 us-gaap:ResearchAndDevelopmentExpenseMember 2019-04-01 2019-06-30 0001479290 rvnc:AttheMarketOfferingMember 2018-01-01 2018-06-30 0001479290 srt:WeightedAverageMember us-gaap:WarrantMember 2018-12-31 0001479290 stpr:CA 2019-01-01 2019-06-30 iso4217:USD xbrli:shares xbrli:pure xbrli:shares iso4217:USD
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 001-36297
 
 
 
Revance Therapeutics, Inc.
 
(Exact name of registrant as specified in its charter)
 
 
 
 

Delaware
77-0551645

 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 

7555 Gateway Boulevard, Newark, California, 94560
(Address, including zip code, of principal executive offices)

(510) 742-3400
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
RVNC
Nasdaq Global Market
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial statement accounting standards provide pursuance to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Number of shares outstanding of the registrant's common stock, par value $0.001 per share, as of July 26, 2019: 44,102,532

 




Table of Contents
 
 
 
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 
 
 
 
 
 
“Revance Therapeutics,” the Revance logos and other trademarks or service marks of Revance appearing in this quarterly report on Form 10-Q are the property of Revance Therapeutics, Inc. This Form 10-Q contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. The Company does not intend its use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of the Company by, these other companies.




PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
REVANCE THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
 
June 30,
 
December 31,
 
2019
 
2018
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
90,034

 
$
73,256

Short-term investments
151,858

 
102,556

Accounts receivable

 
27,000

Prepaid expenses and other current assets
8,013

 
5,110

Total current assets
249,905

 
207,922

Property and equipment, net
15,263

 
14,449

Operating lease right of use assets
27,602

 

Restricted cash
730

 
730

Other non-current assets
2,392

 
3,247

TOTAL ASSETS
$
295,892

 
$
226,348

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable
$
7,966

 
$
8,434

Accruals and other current liabilities
14,737

 
14,948

Deferred revenue, current portion
18,825

 
8,588

Operating lease liabilities, current portion
3,168

 

Total current liabilities
44,696

 
31,970

Derivative liability associated with the Medicis settlement
2,824

 
2,753

Deferred revenue, net of current portion
32,169

 
42,684

Operating lease liabilities, net of current portion
27,661

 

Deferred rent

 
3,319

TOTAL LIABILITIES
107,350

 
80,726

Commitments and Contingencies (Note 7)

 

STOCKHOLDERS’ EQUITY
 
 
 
Convertible preferred stock, par value $0.001 per share — 5,000,000 shares authorized, and no shares issued and outstanding as of June 30, 2019 and December 31, 2018

 

Common stock, par value $0.001 per share — 95,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 44,105,474 and 36,975,203 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
44

 
37

Additional paid-in capital
945,851

 
830,368

Accumulated other comprehensive income (loss)
116

 
(8
)
Accumulated deficit
(757,469
)
 
(684,775
)
TOTAL STOCKHOLDERS’ EQUITY
188,542

 
145,622

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
295,892

 
$
226,348

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

3

Table of Contents
REVANCE THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$

 
$
686

 
$
278

 
$
880

Operating expenses:
 
 
 
 
 
 
 
Research and development
25,526

 
22,871

 
49,521

 
45,111

General and administrative
13,596

 
12,734

 
26,506

 
26,350

Total operating expenses
39,122

 
35,605

 
76,027

 
71,461

Loss from operations
(39,122
)
 
(34,919
)
 
(75,749
)
 
(70,581
)
Interest income
1,596

 
1,081

 
3,166

 
2,103

Interest expense

 

 

 
(44
)
Change in fair value of derivative liability associated with the Medicis settlement
21

 
(70
)
 
(71
)
 
(104
)
Other income (expense), net
115

 
(172
)
 
(40
)
 
(492
)
Net loss
(37,390
)
 
(34,080
)
 
(72,694
)
 
(69,118
)
Unrealized gain (loss) and adjustment on securities included in net loss
46

 
52

 
124

 
(224
)
Comprehensive loss
$
(37,344
)
 
$
(34,028
)
 
$
(72,570
)
 
$
(69,342
)
Basic and diluted net loss
$
(37,390
)
 
$
(34,080
)
 
$
(72,694
)
 
$
(69,118
)
Basic and diluted net loss per share
$
(0.86
)
 
$
(0.94
)
 
$
(1.71
)
 
$
(1.92
)
Basic and diluted weighted-average number of shares used in computing net loss per share
43,260,317

 
36,123,659

 
42,434,137

 
36,037,604

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

4

Table of Contents
REVANCE THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share and per share amounts)
(Unaudited) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Convertible Preferred Stock

 
$

 

 
$

 

 
$

 

 
$

Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — Beginning of period
44,004,658

 
44

 
36,742,847

 
37

 
36,975,203

 
37

 
36,516,075

 
37

Issuance of common stock in connection with the 2019 follow-on offering

 

 

 

 
6,764,705

 
7

 

 

Issuance of common stock upon exercise of stock options
5,416

 

 
150,698

 

 
8,240

 

 
233,088

 

Issuance of restricted stock awards, net of cancellation
67,997

 

 
10,345

 

 
391,023

 

 
205,686

 

Net settlement of restricted stock awards for employee taxes
(7,763
)
 

 
(4,962
)
 

 
(68,863
)
 

 
(55,921
)
 

Issuance of common stock relating to employee stock purchase plan
35,166

 

 
18,795

 

 
35,166

 

 
18,795

 

Balance — End of period
44,105,474

 
44

 
36,917,723

 
37

 
44,105,474

 
44

 
36,917,723

 
37

Additional Paid-In Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — Beginning of period

 
941,068

 

 
814,084

 

 
830,368

 

 
810,975

Issuance of common stock in connection with the 2019 follow-on offering, net of issuance costs of $521

 

 

 

 

 
107,572

 

 

Stock-based compensation expense

 
4,420

 

 
4,172

 

 
8,579

 

 
8,330

Issuance of common stock upon exercise of stock options

 
75

 

 
2,779

 

 
93

 

 
3,395

Net settlement of restricted stock awards for employee taxes

 
(99
)
 

 
(147
)
 

 
(1,148
)
 

 
(1,813
)
Issuance of common stock relating to employee stock purchase plan

 
387

 

 
438

 

 
387

 

 
439

Balance — End of period

 
945,851

 

 
821,326

 

 
945,851

 

 
821,326

Other Accumulated Comprehensive Gain (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — Beginning of period

 
70

 

 
(276
)
 

 
(8
)
 

 

Unrealized gain (loss) and adjustment on securities included in net loss

 
46

 

 
52

 

 
124

 

 
(224
)
Balance — End of period

 
116

 

 
(224
)
 

 
116

 

 
(224
)
Accumulated Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — Beginning of period

 
(720,079
)
 

 
(577,204
)
 

 
(684,775
)
 

 
(542,167
)
Net loss

 
(37,390
)
 

 
(34,080
)
 

 
(72,694
)
 

 
(69,117
)
Balance — End of period

 
(757,469
)
 

 
(611,284
)
 

 
(757,469
)
 

 
(611,284
)
Total Stockholders’ Equity
44,105,474

 
$
188,542

 
36,917,723

 
$
209,855

 
44,105,474

 
$
188,542

 
36,917,723

 
$
209,855

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

5

Table of Contents
REVANCE THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited) 
 
Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(72,694
)
 
$
(69,118
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
1,418

 
807

Amortization of discount on investments
(1,481
)
 
(610
)
Stock-based compensation expense
8,579

 
8,330

Other non-cash operating activities
338

 
263

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
27,000

 

Prepaid expenses and other current assets
(2,903
)
 
(6,970
)
Operating lease right of use assets
(2,938
)
 

Other non-current assets
853

 
(2,291
)
Accounts payable
(321
)
 
(958
)
Accruals and other liabilities
(914
)
 
(1,274
)
Deferred revenue
(278
)
 
24,120

Operating lease liabilities
2,637

 

Net cash used in operating activities
(40,704
)
 
(47,701
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of investments
(164,970
)
 
(212,197
)
Purchases of property and equipment
(1,466
)
 
(2,335
)
Proceeds from maturities of investments
117,000

 
18,000

Proceeds from sales of property and equipment
7

 
146

Payment for acquisition of in-process research and development

 
(100
)
Net cash used in investing activities
(49,429
)
 
(196,486
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of common stock in connection with the 2019 follow-on offering, net of commissions and discount
108,100

 

Proceeds from the exercise of stock options and employee stock purchase plan
480

 
3,834

Net settlement of restricted stock awards for employee taxes
(1,148
)
 
(1,813
)
Payment of offering costs
(521
)
 
(366
)
Principal payments made on financing obligations

 
(932
)
Net cash provided by financing activities
106,911

 
723

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
16,778

 
(243,464
)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period
73,986

 
283,476

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period
$
90,764

 
$
40,012

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
      Cash paid for income taxes
$
3,000

 
$

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
 
 
 
Property and equipment purchases included in accounts payable and accruals
$
1,408

 
$
2,128

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

6

Table of Contents
REVANCE THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. The Company and Summary of Significant Accounting Policies
The Company
Revance Therapeutics, Inc. (“the Company” or “Revance”) is a biotechnology company developing new innovations in neuromodulators for aesthetic and therapeutic indications. The Company's lead product candidate, DaxibotulinumtoxinA for Injection (“DAXI”), combines a proprietary stabilizing peptide excipient with a highly purified botulinum toxin that does not contain human or animal-based components. The Company has successfully completed a Phase 3 program for DAXI in glabellar (frown) lines, demonstrating efficacy and long-lasting duration of effect, and is pursuing U.S. regulatory approval in 2020. The Company is also evaluating DAXI in forehead lines and lateral canthal lines (crow’s feet), as well as three therapeutic indications including cervical dystonia, adult upper limb spasticity, and plantar fasciitis, with plans to study migraine. Beyond DAXI, the Company has begun development of a biosimilar to BOTOX®, which would compete in the existing short-acting neuromodulator marketplace. Revance is dedicated to making a difference by transforming patient experiences.
Since inception, the Company has devoted substantially all of its efforts to identifying and developing product candidates for the aesthetic and therapeutic pharmaceutical markets, recruiting personnel, raising capital, conducting preclinical and clinical development of, and manufacturing development for DAXI, DaxibotulinumtoxinA Topical and the biosimilar to BOTOX®. The Company has incurred losses and negative cash flows from operations. The Company has not commenced commercial operations, has not generated product revenue to date, and will continue to incur significant research and development and other expenses related to its ongoing operations. For the three and six months ended June 30, 2019, the Company had a net loss of $37.4 million and $72.7 million, respectively. As of June 30, 2019, the Company had a working capital surplus of $205.2 million and an accumulated deficit of $757.5 million. The Company has funded its operations primarily through the issuance and sale of common stock, convertible preferred stock, notes payable, and convertible notes. As of June 30, 2019, the Company had capital resources of $241.9 million consisting cash, cash equivalents, and investments. The Company believes that its existing capital resources will fund the operating plan through at least the next 12 months following the issuance of this Form 10-Q, and may identify additional capital resources to fund its operations.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements are unaudited, and reflect all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the interim periods presented.
The Condensed Consolidated Balance Sheet for the year ended December 31, 2018 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2019, or any other future period. The Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (“SEC”), on February 28, 2019.
The Condensed Consolidated Financial Statements include the Company’s accounts and those of its wholly-owned subsidiaries, and have been prepared in conformity with U.S. GAAP. The Company operates in one segment.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of the company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

7

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Such management estimates include revenue recognition, deferred revenue, accruals including clinical trial accruals, stock-based compensation, fair value of derivative liability, and the valuation of deferred tax assets. The Company bases its estimates on historical experience and on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which requires an entity to recognize right-of-use asset and lease liabilities arising from a lease for both financing and operating leases with terms greater than twelve months. In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842), Codification Improvements and ASU 2018-11, Leases (Topic 842), Targeted Improvements, to provide additional guidance for the Topic 842 adoption. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU 2018-11 provides an alternative transition method to allow entities initially applying Topic 842 at the adoption date, rather than at the beginning of the earliest comparative period presented, and recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. ASU 2018-11 also provides a number of optional practical expedients in transition. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements. The Company evaluated ASU 2019-01 in its entirety and determined that Issue 3, Transition disclosures related to Topic 250, Accounting Changes and Error Corrections, is the only provision that currently applies to the Company. Issue 3 of ASU 2019-01 exempts certain interim disclosures in the fiscal year of adoption. ASU 2018-11, ASU 2018-10, ASU 2016-02, and Issue 3 of ASU 2019-01 (collectively, “the new lease standards”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has elected the transition method under ASU 2018-11 at the adoption date of January 1, 2019 on a modified retrospective basis and will not restate comparative periods. The Company has also elected all of the available practical expedients except the practical expedient allowing the use of hindsight in determining the lease term and assessing impairment of right-of-use assets based on all facts and circumstances through the effective date of the new standard. The Company has elected the recognition exemption for short-term leases for all leases that qualify. Under this exemption, the Company will not recognize right-of-use assets or lease liabilities for those leases that qualify as a short-term lease. For real estate leases, the Company did not elect the practical expedient to combine lease and non-lease components, therefore the Company accounts for lease and non-lease components separately. For equipment leases, lease and non-lease components are accounted for as a single lease component. The Company recognized $24.7 million and $28.2 million as total right-of-use assets and total lease liabilities, respectively, on its Condensed Consolidated Balance Sheet as of January 1, 2019 for its existing operating lease agreements for the office and manufacturing spaces in Newark, California and equipment leases. The existing deferred rent liabilities of $3.5 million associated with the same lease agreements was reversed as of January 1, 2019.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company is evaluating the impact of this standard on its Condensed Consolidated Financial Statements and disclosures.

8

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

2. Revenue    
Mylan Collaboration and License Agreement    
The Company and Mylan entered into a collaboration agreement in February 2018 (the “Mylan Collaboration”), pursuant to which the companies will collaborate exclusively, on a world-wide basis (excluding Japan), to develop, manufacture, and commercialize a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®.
Under the Mylan Collaboration, Mylan paid the Company a non-refundable upfront payment of $25.0 million with additional contingent payments of up to $100.0 million in the aggregate, upon the achievement of specified clinical and regulatory (i.e. biosimilar biological pathway) milestones and of specified, tiered sales milestones of up to $225.0 million. The upfront payment does not represent a financing component for the transfer of goods or services. The contingent payments would be payable following Mylan’s decision to continue development services for Initial Phase and Phase 3 clinical trials and upon meeting certain milestones. In addition, Mylan would pay the Company low to mid double-digit royalties on any sales of the biosimilar in the U.S., mid double-digit royalties on any sales in Europe, and high single-digit royalties on any sales in other areas excluding Japan. However, the Company agreed to waive royalties for U.S. sales, up to a limit of $50.0 million in annual sales, during the first approximately four years after commercialization to defray launch costs.
Revenue Recognition
In accordance with ASC 606, transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for promised goods or services to a customer. The initial estimated transaction price was $81.0 million which included a $25.0 million upfront payment, $40.0 million of development milestones, and the estimated variable consideration for cost-sharing payments from Mylan. The Company re-evaluates the transaction price at each reporting period. As of June 30, 2019, the transaction price allocated to the unfulfilled performance obligations is $76.4 million.
The Company recognizes revenue and estimates deferred revenue based on the cost of services incurred over the total estimated cost of services to be provided for the development period. For revenue recognition purposes, the development period is estimated to extend through 2022. However, it is possible that this period will change and is assessed at each reporting date.
For the three months ended June 30, 2019, the Company recognized no revenue as no development services were provided during this period, and for the six months ended June 30, 2019, the Company recognized revenue related to development services provided of $0.3 million. For the three and six months ended June 30, 2018, the Company recognized revenue related to development services of $0.7 million and $0.9 million, respectively. As of June 30, 2019 and December 31, 2018, the Company estimated short-term deferred revenue of $18.8 million and $8.6 million, respectively; and long-term deferred revenue of $2.2 million and $12.7 million, respectively.
Fosun License Agreement
The Company and Fosun entered into a license agreement (the “Fosun License Agreement”) in December 2018, whereby the Company has granted Fosun the exclusive rights to develop and commercialize the Company’s proprietary DAXI in mainland China, Hong Kong and Macau (the “Fosun Territory”) and certain sublicense rights.
Under the Fosun License Agreement, the Company received a non-refundable upfront payment of $30.0 million net of foreign withholding tax of $3.0 million from Fosun in January 2019. The Company is also eligible to receive (i) additional contingent payments of up to $230.5 million upon the achievement of specified milestones, and (ii) tiered royalty payments in low double-digit to high-teen percentages on annual net sales.

9

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Revenue Recognition
In accordance with ASC 606, transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for promised goods or services to a customer. The Company estimated the transaction price for the Fosun License Agreement using the most likely amount method. The Company evaluated all of the variable payments to be received during the duration of the contract, which included payments from specified milestones, royalties, and estimated supplies to be delivered, and concluded only a certain milestone of $1.0 million was included in the transaction price. The Company will re-evaluate the transaction price at each reporting period and upon a change in circumstances. As of June 30, 2019, the transaction price allocated to unfulfilled performance obligation is $31.0 million. The Company will recognize revenue on the single performance obligation as control of the manufactured product is supplied to Fosun.
For the six months ended June 30, 2019, no revenue has been recognized from the Fosun License Agreement. As of June 30, 2019 and December 31, 2018, substantially all of the $30.0 million non-refundable upfront payment was included in long-term deferred revenue.
3. Medicis Settlement
In July 2009, the Company and Medicis Pharmaceutical Corporation (“Medicis”) entered into a license agreement granting Medicis worldwide aesthetic and dermatological rights to the Company’s investigational botulinum toxin type A product candidate. In October 2012, the Company entered into a settlement and termination agreement with Medicis. The terms of the settlement provided for the reacquisition of the rights related to all territories of DAXI and DaxibotulinumtoxinA Topical from Medicis and for consideration payable by the Company to Medicis of up to $25.0 million, comprised of (i) an upfront payment of $7.0 million, which was paid in 2012, (ii) a proceeds sharing arrangement payment of $14.0 million due upon specified capital raising achievements by the Company, of which $6.9 million was paid in 2013 and $7.1 million in 2014, and (iii) a product approval payment of $4.0 million to be paid upon the achievement of regulatory approval for DAXI or DaxibotulinumtoxinA Topical by the Company. In December 2012, Medicis was subsequently acquired by Valeant Pharmaceuticals International Inc., now known as Bausch Health Companies Inc.
The Company determined that the settlement provisions related to the proceeds sharing arrangement payment in (ii) above and product approval payment in (iii) above were derivative instruments that require fair value accounting as a liability and periodic fair value remeasurements until settled.
As of June 30, 2019, the fair value of the Company’s liability for the product approval payment was $2.8 million, which was measured using a term of 1.4 years, a risk-free rate of 1.8% and a credit risk adjustment of 7.5%. As of December 31, 2018, the fair value of the Company’s liability for the product approval payment was $2.7 million, which was measured using a term of 1.5 years, a risk-free rate of 2.6% and a credit risk adjustment of 8.0%. The term is based on an expected Biologics License Application (“BLA”) approval in 2020. For the six months ended June 30, 2019 and 2018, no payment was made for the product approval payment.

10

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

4. Cash Equivalents and Investments
The Company’s cash equivalents and investments consist of money market funds, U.S. treasury securities, U.S. government agency obligations, and commercial paper which are classified as available-for-sale securities.
The following table is a summary of amortized cost, unrealized gains and losses, and fair value:
 
June 30, 2019
 
December 31, 2018
 
 
 
Unrealized
 
 
 
 
 
Unrealized
 
 
(in thousands)
Cost
 
Gains
 
Fair Value
 
Cost
 
Gains
 
Losses
 
Fair Value
Money market funds
$
81,734

 
$

 
$
81,734

 
$
38,354

 
$

 
$

 
$
38,354

U.S. treasury securities
113,991

 
116

 
114,107

 
80,844

 
5

 
(5
)
 
80,844

U.S. government agency obligations

 

 

 
52,586

 

 
(8
)
 
52,578

Commercial paper
44,730

 

 
44,730

 

 

 

 

Total cash equivalents and available-for-sale securities
$
240,455

 
$
116

 
$
240,571

 
$
171,784

 
$
5

 
$
(13
)
 
$
171,776

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Classified as:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
$
88,713

 
 
 
 
 
 
 
$
69,220

Short-term investments
 
 
 
 
151,858

 
 
 
 
 
 
 
102,556

Total cash equivalents and available-for-sale securities
 
 
 
 
$
240,571

 
 
 
 
 
 
 
$
171,776


As of June 30, 2019 and December 31, 2018, the Company has no other-than-temporary impairments on its available-for-sale securities.
Related Party Transactions
The Company had no related party transactions for the six months ended June 30, 2019.
As of December 31, 2018, JPMorgan Chase & Co. and its wholly owned subsidiaries JPMorgan Chase Bank, National Association (NA), J.P. Morgan Investment Management Inc., and JPMorgan Asset Management (UK) Limited held approximately 3.8 million shares or 10.3% of the Company’s outstanding common stock. J.P. Morgan Securities LLC is an affiliate of JPMorgan Chase Bank, NA, and it acts as a custodian and trustee for certain investments of the Company. As of December 31, 2018, cash, cash equivalents, and investments of $87.7 million were held in an investment account with J.P. Morgan Securities LLC. As of June 30, 2019, JPMorgan Chase & Co. and its wholly owned subsidiaries owned less than 10% of the Company’s outstanding common stock.
5. Fair Value Measurements
The Company determines the fair value of certain financial assets and liabilities using three levels of inputs as follows:
Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — Valuations based on unobservable inputs to the valuation methodology and including data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

11

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

The following table summarizes, for assets and liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy:
 
June 30, 2019
(in thousands)
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Money market funds
$
81,734

 
$
81,734

 
$

 
$

U.S. treasury securities
114,107

 
114,107

 

 

Commercial paper
44,730

 

 
44,730

 

Total assets measured at fair value
$
240,571

 
$
195,841

 
$
44,730

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Derivative liability associated with the Medicis settlement
$
2,824

 
$

 
$

 
$
2,824

Total liabilities measured at fair value
$
2,824

 
$

 
$

 
$
2,824

 
December 31, 2018
(in thousands)
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Money market funds
$
38,354

 
$
38,354

 
$

 
$

U.S. treasury securities
80,844

 
80,844

 

 

U.S. government agency obligations
52,578

 

 
52,578

 

Total assets measured at fair value
$
171,776

 
$
119,198

 
$
52,578

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Derivative liability associated with the Medicis settlement
$
2,753

 
$

 
$

 
$
2,753

Total liabilities measured at fair value
$
2,753

 
$

 
$

 
$
2,753


The Company classifies U.S. government agency obligations and commercial paper within Level 2 because it uses alternative pricing sources and models utilizing market observable inputs to determine their fair values.
The following table summarizes the change in the fair value of the Company’s Level 3 financial instrument:
(in thousands)
Derivative Liability Associated with the Medicis Settlement
Fair value as of December 31, 2018
$
2,753

Change in fair value
71

Fair value as of June 30, 2019
$
2,824


The fair value of the derivative liability associated with the Medicis settlement was determined by estimating the timing and probability of the related regulatory approval and multiplying the payment amount by this probability percentage and a discount factor based primarily on the estimated timing of the payment and a credit risk adjustment (Note 3). Generally, increases or decreases in these unobservable inputs would result in a directionally similar impact to the fair value measurement of this derivative instrument. The significant unobservable inputs used in the fair value measurement of the product approval payment derivative are the expected timing and probability of the payments at the valuation date and the credit risk adjustment.

12

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

6. Leases
The Company has non-cancelable operating leases for facilities for research, manufacturing, and administrative functions, and equipment operating leases. One of the facility operating leases commenced in February 2019. As of June 30, 2019, the weighted average remaining lease term is 7.2 years. The monthly payments for the facility lease escalate over the facility lease term with the exception of a decrease in payments at the beginning of 2022. The Company has options to extend the facility operating leases for up to 14 years. The Company’s lease contracts do not contain termination options, residual value guarantees or restrictive covenants.
The operating lease costs are summarized as follows:
 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2019
 
June 30, 2019
Operating lease cost
$
1,425

 
$
2,768

Variable lease cost (1)
298

 
588

Total operating lease costs
$
1,723

 
$
3,356

(1) Variable lease cost includes management fees, common area maintenance, property taxes, and insurance, which are not included in the lease liabilities and are expensed as incurred.
As of June 30, 2019, maturities of the Company’s operating lease liabilities are as follows:
Year Ending December 31,
(in thousands)
2019 remaining six months
$
3,268

2020
6,735

2021
6,942

2022
5,464

2023
5,557

2024 and thereafter
17,959

Total operating lease payments
45,925

Less imputed interest (1)
(15,096
)
Present value of operating lease payments
$
30,829

(1) The Company’s lease contracts do not provide a readily determinable implicit rate. The imputed interest was based on a weighted average discount rate of 12.0%, which represents the estimated incremental borrowing based on the information available at the adoption or commencement dates.


13

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

As of December 31, 2018, the aggregate total future minimum lease payments under non-cancelable operating leases were as follows:
Year Ending December 31,
(in thousands)
2019
$
5,826

2020
6,011

2021
6,196

2022
4,696

2023 and thereafter
20,173

Total payments
$
42,902


Supplemental cash flow information related to the operating leases was as follows:
 
Six Months Ended
(in thousands)
June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
3,069

Right-of-use assets obtained in exchange for operating lease liabilities
$
3,890



7. Commitments and Contingencies
Purchase Commitments
The Company and Ajinomoto Althea, Inc. (“Althea”) are parties to a Technology Transfer, Validation and Commercial Fill/Finish Services Agreement (the “Althea Services Agreement”), under which Althea provides the Company a contract development and manufacturing organization, which allows the Company to have expanded capacity and a second source for drug product manufacturing in order to support a global launch of DAXI. Under the Althea Services Agreement, the initial term is to 2024, unless terminated sooner by either company, and the Company has minimum purchase obligations based on its production forecasts. As of June 30, 2019, the Company made non-refundable advanced payments of $1.9 million under the Althea Services Agreement. The remaining services can be canceled at any time, with the Company required to pay costs incurred through the cancellation date.
Contingencies
The Company is obligated to pay $2.0 million milestone payment to a developer of botulinum toxin, List Biological Laboratories, Inc. (“List Laboratories”), when a certain regulatory milestone is achieved. As of June 30, 2019, the milestone has not been achieved. The Company is also obligated to pay royalties to List Laboratories on future sales of botulinum toxin products.
The Company and Botulinum Toxin Research Associates, Inc. (“BTRX”) are parties to an asset purchase agreement (the “BTRX Purchase Agreement”), under which the Company is obligated to pay up to $16.0 million to BTRX upon the satisfaction of milestones relating to the Company’s product revenue, intellectual property, and clinical and regulatory events. As of June 30, 2019, a one-time intellectual property development milestone liability of $1.0 million has been recorded in accruals on the Company’s Condensed Consolidated Balance Sheets.
The Company and BioSentinel, Inc. (“BioSentinel”) are parties to an agreement under which the Company in-licenses BioSentinel’s technology and expertise for research, development and manufacturing purposes. The Company is obligated to pay BioSentinel minimum quarterly use fees, and a one-time milestone payment of $0.3 million when regulatory approval is achieved. As of June 30, 2019, the milestone has not been achieved.

14

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Indemnification
The Company has standard indemnification agreements in the ordinary course of business. Under these indemnification agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual after the execution of the agreements. The maximum potential amount of future payments the Company is obligated to pay under these indemnification agreements is not determinable because it involves claims that may be made against the Company in the future, but have not been made. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
The Company has indemnification agreements with its directors and officers that may require the Company to indemnify them against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
For the six months ended June 30, 2019, no amounts associated with the indemnification agreements have been recorded.
8. Stockholders’ Equity
Common Stock Warrants
As of June 30, 2019 and December 31, 2018, 34,113 common stock warrants were outstanding at an exercise price of $14.95 per share, which expire in 2020.
Stock Option Plan
2014 Equity Incentive Plan (“2014 EIP”)
On January 1, 2019, the number of shares of common stock reserved for issuance under the 2014 EIP increased by 1,479,008 shares. For the six months ended June 30, 2019, 1,070,950 stock options and 460,325 restricted stock awards were granted under the 2014 EIP. As of June 30, 2019, 1,984,483 shares were available for issuance under the 2014 EIP.
2014 Inducement Plan (the “2014 IN”)
For the six months ended June 30, 2019, no stock options or restricted stock awards were granted under the 2014 IN. As of June 30, 2019, 170,019 shares were available for issuance under the 2014 IN.
2014 Employee Stock Purchase Plan (the “2014 ESPP”)
On January 1, 2019, the number of shares of common stock reserved for issuance under the 2014 ESPP increased by 300,000 shares. As of June 30, 2019, 1,443,774 shares were available for issuance under the 2014 ESPP.

15

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Stock-Based Compensation
Stock-based compensation expense was allocated as follows:
(in thousands)
Three Months Ended June 30,
 
Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
Research and development
$
2,253

 
$
1,868

 
$
4,332

 
$
3,791

General and administrative
2,167

 
2,304

 
4,247

 
4,539

Total stock-based compensation expense
$
4,420

 
$
4,172

 
$
8,579

 
$
8,330


Net Loss per Share
The Company’s basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, which includes the vested restricted stock awards. The diluted net loss per share is calculated by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, outstanding stock options, outstanding common stock warrants, unvested restricted stock awards, and shares of common stock expected to be purchased under 2014 ESPP are considered common stock equivalents, which were excluded from the computation of diluted net loss per share because including them would have been antidilutive.
Common stock equivalents that were excluded from the computation of diluted net loss per share are presented as below:
 
As of June 30,
 
2019
 
2018
Outstanding common stock options
4,438,894

 
3,530,799

Outstanding common stock warrants
34,113

 
34,113

Unvested restricted stock awards
797,190

 
668,619


Follow-On Public Offering
In January 2019, the Company completed the 2019 follow-on public offering, pursuant to which the Company issued 6,764,705 shares of common stock at $17.00 per share, including the exercise of the underwriters’ over-allotment option to purchase 882,352 additional shares of common stock, for net proceeds of $107.6 million, after underwriting discounts, commissions and other offering expenses.
At-The-Market Offering
The Company and Cantor Fitzgerald & Co. (“Cantor Fitzgerald”) are parties to a Controlled Equity Offering sales agreement (the “2018 ATM Agreement”), under which the Company may offer and sell common stock having aggregate proceeds of up to $125.0 million through Cantor Fitzgerald as its sales agent. Under the 2018 ATM Agreement, sales of common stock through Cantor Fitzgerald will be made by means of ordinary brokers’ transactions on the Nasdaq Global Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise agreed upon by the Company and Cantor Fitzgerald. From time to time, Cantor Fitzgerald may sell the common stock based upon the Company’s instructions, and the Company will pay a commission to Cantor Fitzgerald of up to 3.0% of the gross sales proceeds of any common stock sold through Cantor Fitzgerald. For the six months ended June 30, 2019 and 2018, no common stock was sold under the 2018 ATM Agreement.

16

Table of Contents
REVANCE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

9. Income Taxes
California State Apportionment
In 2018, the Company petitioned the California Franchise Tax Board for an alternative apportionment percentage due to the insignificant apportionment percentage derived from the single sales factor methodology for California. In January 2019, the California Franchise Tax Board approved the use of an alternative apportionment method. The Company’s net operating losses (“NOL”) in California is estimated to increase by approximately $209 million as a result of the change in apportionment model. The Company has increased its deferred tax assets by $15 million with a corresponding offsetting adjustment to its valuation allowance. There is no impact to the Company’s net loss in the period as a result of the adjustment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes appearing elsewhere in this Quarterly Report on this Form 10-Q and in our other Securities and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019. The words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. The following discussion and analysis contains forward-looking statements within meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding the results, timing and completion of our clinical trials and regulatory submissions needed for the approval of DAXI, including but not limited to, for the treatment of glabellar (frown) lines, forehead lines, lateral canthal lines, cervical dystonia, plantar fasciitis, and adult upper limb spasticity in the United States (“U.S.”), Europe and other countries;
our expectations regarding our future development of DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates for other indications, including but not limited to, migraine;
our expectations regarding the development of future product candidates;
the potential for commercialization by us of DAXI, if approved;
our expectations regarding the potential market size, opportunity and growth potential for DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates, if approved for commercial use;
our belief that DAXI, DaxibotulinumtoxinA Topical, biosimilar or any future product candidates can expand overall demand for botulinum toxin;
our ability to build our own sales and marketing capabilities, or seek collaborative partners including distributors, to commercialize our product candidates, if approved;
our ability to manufacture in our facility and to scale up our manufacturing capabilities and those of future third-party manufacturers if our product candidates are approved;
estimates of our expenses, future revenue, capital requirements and our needs for additional financing;
the timing or likelihood of regulatory filings and approvals;

17



our ability to advance product candidates into, and successfully complete, clinical trials;
the implementation of our business model, and strategic plans for our business, product candidates and technology;
the initiation, timing, progress and results of future preclinical studies and clinical trials and our research and development programs;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
our ability to establish collaborations or obtain additional funding;
our financial performance, including future revenue targets; and
developments and projections relating to our competitors and our industry.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” included in Part II, Item 1A and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is neither possible for management to predict all risks nor assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Overview
We are a biotechnology company developing new innovations in neuromodulators for aesthetic and therapeutic indications. Our lead product candidate, DaxibotulinumtoxinA for Injection (“DAXI”), combines a proprietary stabilizing peptide excipient with a highly purified botulinum toxin that does not contain human or animal-based components. We have successfully completed a Phase 3 program for DAXI in glabellar (frown) lines, demonstrating efficacy and long-lasting duration of effect, and is pursuing U.S. regulatory approval in 2020. We are also evaluating DAXI in forehead lines and lateral canthal lines (crow’s feet), as well as three therapeutic indications including cervical dystonia, adult upper limb spasticity, and plantar fasciitis, with plans to study migraine. Beyond DAXI, we have begun development of a biosimilar to BOTOX®, which would compete in the existing short-acting neuromodulator marketplace. We are dedicated to making a difference by transforming patient experiences.
Since inception, we have devoted substantially all of our effort to identifying and developing product candidates for the aesthetic and therapeutic pharmaceutical markets, recruiting personnel, raising capital, conducting preclinical and clinical development of, and manufacturing development for DAXI, DaxibotulinumtoxinA Topical and the biosimilar to BOTOX®. We have incurred losses and negative cash flows from operations. We have not commenced commercial operations, have not generated product revenue to date, and will continue to incur significant research and development and other expenses related to our ongoing operations. For the three and six months ended June 30, 2019, we had a net loss of $37.4 million and $72.7 million, respectively. As of June 30, 2019, we had a working capital surplus of $205.2 million and an accumulated deficit of $757.5 million. We have funded our operations primarily through the issuance and sale of common stock, convertible preferred stock, notes payable, and convertible notes. As of June 30, 2019, we had capital resources of $241.9 million consisting of cash, cash equivalents, and investments. We believe that our existing capital resources will fund the operating plan through at least the next 12 months following the issuance of this Form 10-Q, and may identify additional capital resources to fund our operations.

18



Neuromodulator Pipeline
DAXI Aesthetics
Glabellar lines. In December 2018, we announced top-line results for the SAKURA 3 open-label, long-term safety study. DAXI appeared to be generally well-tolerated with no new tolerability or safety concerns reported. We held a pre-BLA meeting with the U.S. Food and Drug Administration (“FDA”) in December 2018 to agree upon the content and format of the BLA. We are in the process of compiling one of the largest clinical data packages for an aesthetic indication. We have been working in parallel to develop a 100-unit vial in addition to an initial 50-unit vial. This added additional work streams for process validation and stability. We expect to submit the BLA in the Fall of 2019, and are on track for a 2020 approval and launch for DAXI for the treatment of glabellar lines. We plan to file marketing applications in the European Union, Canada, and certain Latin American and Asian countries after filing in the U.S.
Forehead lines. In January 2019, we initiated a Phase 2 multicenter, open-label, dose-escalation study to evaluate treatment of moderate or severe dynamic forehead lines (“FHL” or “frontalis”) in conjunction with treatment of the glabellar complex. The objective is to understand the potential dosing and injection patterns of DAXI in other areas of the upper face in addition to the lead indication in glabellar lines. We completed enrollment for the study in July 2019. We expect to release top-line results in the first half of 2020.
Lateral canthal lines. In March 2019, we initiated a Phase 2 multicenter, open-label, dose-escalation study to evaluate the treatment of moderate or severe lateral canthal lines (also known as “crow’s feet”). Similar to the FHL study above, the objective is to understand the potential dosing and injection patterns of DAXI in other areas of the upper face in addition to the lead indication in glabellar lines. We expect to complete enrollment for the study in the summer of 2019 and release top-line results in the first half of 2020.
DAXI Therapeutics
Cervical dystonia. In June 2018, we announced the initiation of patient dosing in our ASPEN Phase 3 clinical program based on the Phase 2 safety and efficacy results and guidance from the FDA and European Medicines Agency (“EMA”). The ASPEN Phase 3 clinical program consists of two trials to evaluate the safety and efficacy of DAXI for the treatment of cervical dystonia in adults including: a randomized, double-blind, placebo-controlled, parallel group trial, and an open-label, long-term safety trial. We plan to complete the ASPEN Phase 3 pivotal trial enrollment by the end of 2019, and release topline results in the second half of 2020.
Adult upper limb spasticity. In December 2018, we initiated a Phase 2 trial for the treatment of adult upper limb spasticity (JUNIPER). This is a randomized, double-blind, placebo-controlled, parallel group, dose-ranging trial to evaluate the efficacy and safety of DAXI for the treatment of ULS in adults after stroke or traumatic brain injury. We expect to complete Phase 2 trial enrollment in the first half of 2020.
Plantar fasciitis. In September 2018, we completed a Type C meeting with the FDA discussing the design of the Phase 2 dose-finding study. We initiated another Phase 2 trial in December 2018. The Phase 2 prospective, randomized, double-blind, multi-center, placebo-controlled study will evaluate the safety and efficacy of two doses of administration of our investigational drug candidate DAXI in reducing the signs and symptoms of plantar fasciitis. We expect to complete Phase 2 trial enrollment by the end of 2019 and release topline results in the second half of 2020.
Migraine. We are in the process of finalizing our migraine clinical development strategy. We plan to initiate a study with DAXI for the treatment of migraine in 2020.

19



OnabotulinumtoxinA Biosimilar
We and Mylan entered into the Mylan Collaboration in February 2018, under which the companies will collaborate exclusively, on a worldwide basis (excluding Japan), to develop, manufacture, and commercialize a biosimilar to the branded biologic product (onabotulinumtoxinA) marketed as BOTOX®. Under the Mylan Collaboration, we are responsible for conducting initial non-clinical development activities with the goal of preparing for and conducting a scientific advice meeting with the FDA to receive feedback as to whether a biosimilar biological pathway is feasible for BOTOX®.
In February 2019, Revance had a biosimilar initial advisory meeting (BIAM) with the FDA and Mylan on a proposed biosimilar to BOTOX®. In this meeting, the FDA provided guidance on their expectations for a development program to establish biosimilarity to BOTOX®. Based on the FDA’s feedback, the companies believe that a 351(k) pathway for the development of a biosimilar to onabotulinumtoxinA is viable and provides the opportunity to develop and commercialize the first biosimilar product for potentially all thirteen currently approved indications of BOTOX® and BOTOX® Cosmetic. In April 2019, we received the official FDA minutes from the BIAM and have met with Mylan to discuss the development program going forward, which could lead to a near-term milestone payment to Revance.
Fosun License Agreement
We and Fosun entered into the Fosun License Agreement in December 2018, whereby we granted Fosun the exclusive rights to develop and commercialize our proprietary DAXI in the Fosun Territory and certain sublicense rights. Additionally, our proprietary peptide excipient technology can be used for molecules other than botulinum toxin. We plan to partner or license the peptide excipient technology opportunistically to monetize our technology platform.
Under the Fosun License Agreement, we received a non-refundable upfront payment of $30.0 million, net of foreign withholding tax of $3.0 million, from Fosun in January 2019.
Follow-On Public Offering
In January 2019, we completed the 2019 follow-on public offering, pursuant to which we issued 6,764,705 shares of common stock at $17.00 per share, including the exercise of the underwriters’ over-allotment option to purchase 882,352 additional shares of common stock, for net proceeds of $107.6 million, after underwriting discounts, commissions and other offering expenses.
Results of Operations
Revenue
For the three and six months ended June 30, 2019, our total revenue decreased $0.7 million or 100%, and $0.6 million or 68%, respectively, compared to the same periods in 2018, due to the timing of the initial development activities from the Mylan Collaboration which was completed in February 2019.
Operating Expenses
Our operating expenses consist of research and development expenses and general and administrative expenses. The largest component of our operating expenses is our personnel costs including stock-based compensation. We expect our expenses to increase in the near term as we initiate and complete additional clinical trials and associated programs related to DAXI for the treatment of glabellar lines and indications in muscle movement and other disorders, such as cervical dystonia, plantar fasciitis, upper limb spasticity, migraine, and our biosimilar product candidate.

20



Research and Development Expenses
We recognize research and development expenses as they are incurred. Since our inception, we have focused on our clinical development programs and the related research and development. Since 2002, we have been developing one or more of DAXI, DaxibotulinumtoxinA Topical, and our biosimilar product candidate and have typically shared our employees, consultants and infrastructure resources across all programs. We believe that the strict allocation of costs by product candidate would not be meaningful, therefore, we generally do not track these costs by product candidates.
Research and development expenses consist primarily of:
salaries and related expenses for personnel in research and development functions, including stock-based compensation;
expenses related to the initiation and completion of clinical trials and studies for DAXI, DaxibotulinumtoxinA Topical and our biosimilar candidate, including expenses related to production of clinical supplies;
fees paid to clinical consultants, CROs and other vendors, including all related fees for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;
other consulting fees paid to third parties;
expenses related to establishment and maintenance of our own manufacturing facilities;
expenses related to the manufacture of drug substance and drug product supplies for ongoing and future preclinical and clinical trials and other pre-commercial supplies;
expenses to support our product development and establish manufacturing capabilities to support potential future commercialization of any products for which we may obtain regulatory approval;
expenses related to license fees and milestone payments under in-licensing agreements;
expenses related to compliance with drug development regulatory requirements in the U.S., the European Union and other foreign jurisdictions; and
depreciation and other allocated expenses.
Our research and development expenses are subject to numerous uncertainties primarily related to the timing and cost needed to complete our respective projects. Further, the development timelines, probability of success and development expenses can differ materially from expectations and the completion of clinical trials may take several years or more depending on the type, complexity, novelty and intended use of a product candidate. Accordingly, the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development. We expect our research and development expenses to maintain or increase as we continue our clinical development of DAXI for the treatment of facial wrinkles and other neuroscience indications, such as cervical dystonia, plantar fasciitis, adult upper limb spasticity, and migraine, any future new indications, and our biosimilar product candidate or if the FDA requires us to conduct additional clinical trials for approval.
Our research and development expenses fluctuate as projects transition from one development phase to the next. Depending on the stage of completion and level of effort related to each development phase undertaken, we may reflect variations in our research and development expense. We expense both internal and external research and development expenses as they are incurred.

21



Our research and development expenses are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except percentages)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Clinical and regulatory
$
12,747

 
$
11,891

 
7
%
 
$
25,114

 
$
23,776

 
6
 %
Manufacturing and quality
7,727

 
6,499

 
19
%
 
15,089

 
12,495

 
21
 %
Other research and development expenses
2,799

 
2,613

 
7
%
 
4,986

 
5,049

 
(1
)%
Stock-based compensation
2,253

 
1,868

 
21
%
 
4,332

 
3,791

 
14
 %
Total research and development expenses
$
25,526

 
$
22,871

 
12
%
 
$
49,521

 
$
45,111

 
10
 %
Clinical and regulatory
Clinical and regulatory expenses include personnel costs, external clinical trial costs for clinical sites, clinical research organizations, central laboratories, data management, contractors and regulatory activities associated with the development of DAXI. For the three months ended June 30, 2019 and 2018, clinical and regulatory costs totaled $12.7 million, or 50%, and $11.9 million, or 52%, respectively, of the total research and development expenses for the respective periods. For the six months ended June 30, 2019 and 2018, clinical and regulatory costs totaled $25.1 million, or 51%, and $23.8 million, or 53%, respectively, of the total research and development expenses for the respective periods.
For the three and six months ended June 30, 2019, clinical and regulatory expenses increased by $0.9 million, or 7%, and $1.3 million, or 6%, respectively, compared to the same period in 2018. This increase is primarily due to increased costs related to hiring additional personnel and outside services to support BLA preparation activities. We expect to maintain or increase our clinical and regulatory expenses in the near term as we initiate and complete clinical trials and other associated programs related to DAXI for the treatment forehead lines, lateral canthal lines, cervical dystonia, plantar fasciitis, adult upper limb spasticity, and migraine, and our anticipated BLA submission for DAXI for the treatment of glabellar (frown) lines.
Manufacturing and quality
Manufacturing and quality expenses include personnel and occupancy expenses, external contract manufacturing costs and pre-approval manufacturing of drug product used in our research and development of DAXI. Manufacturing and quality expenses also include raw materials, lab supplies, and storage and shipment of our product to support quality control and assurance activities. These expenses do not include clinical expenses associated with the development of DAXI. For the three months ended June 30, 2019 and 2018, manufacturing and quality expenses were $7.7 million, or 30%, and $6.5 million, or 28%, respectively, of the total research and development expenses for the respective periods. For the six months ended June 30, 2019 and 2018, manufacturing and quality expenses were $15.1 million, or 30%, and $12.5 million, or 28%, respectively, of the total research and development expenses for the respective periods.
For the three and six months ended June 30, 2019, manufacturing and quality expenses increased by $1.2 million, or 19%, and $2.6 million, or 21%, respectively, compared to the same period in 2018, primarily due to increased costs related to pre-BLA manufacturing and quality activities, hiring additional personnel and outside services to address compliance requirements, and infrastructure build-out. We expect to increase our manufacturing and quality efforts as we approach commercialization.
Other research and development expenses
Other research and development expenses include expenses for personnel, contract research organizations, consultants, raw materials, and lab supplies used to conduct preclinical research and development of DAXI and our biosimilar product candidate. We expect to maintain these activities to continue developing DAXI and our biosimilar product candidate. For the three months ended June 30, 2019 and 2018, other research and development expenses were $2.8 million, or 11%, and $2.6 million, or 11%, respectively, of the total research and development expenses for the respective periods. For the six months ended June 30, 2019 and 2018, other research and development expenses were $5.0 million, or 10%, and $5.0 million, or 11%, respectively, of the total research and development expenses for the respective periods.

22



Stock-based compensation
For the three and six months ended June 30, 2019, stock-based compensation included in research and development expenses increased by $0.4 million, or 21%, and $0.5 million, or 14%, respectively, compared to the same periods in 2018, primarily due to increased employee headcount, offset by an average decrease in fair value of stock options granted during these periods.
General and Administrative Expenses
General and administrative expenses consist primarily the following:
pre-commercial activities including market research, public relations, promotion and advertising;
personnel and service costs in our finance, information technology, commercial, investor relations, legal, human resources, and other administrative functions; and
professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents and litigation.
We expect that our general and administrative expenses will maintain or increase with the continued development of, and if approved, the commercialization of DAXI.
Our general and administration expenses are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except percentages)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
General and administrative expenses before stock-based compensation
$
11,429

 
$
10,430

 
10
 %
 
$
22,259

 
$
21,811

 
2
 %
Stock-based compensation
2,167

 
2,304

 
(6
)%
 
4,247

 
4,539

 
(6
)%
Total general and administrative expenses
$
13,596

 
$
12,734

 
7
 %
 
$
26,506

 
$
26,350

 
1
 %
General and administrative expenses before stock-based compensation
For the three months ended June 30, 2019, general and administrative expenses before stock-based compensation increased by $1.0 million, or 10%, compared to the same period in 2018, primarily due to increased personnel in administrative functions and costs related to infrastructure build-out. For the six months ended June 30, 2019, general and administrative expenses before stock-based compensation increased by $0.4 million, or 2% compared to the same period in 2018, primarily due to increased personnel in administrative functions, costs related to first-year effort to comply with Sarbanes-Oxley 404(b) requirements, and costs related to infrastructure build-out.
Stock-based compensation
For the three and six months ended June 30, 2019, stock-based compensation included in general and administrative expenses decreased by $0.1 million, or 6%, and $0.3 million, or 6%, respectively, compared to the same period in 2018, primarily due to an average decrease in fair value of stock option granted during the period, offset by higher employee headcount.
Net Non-Operating Income and Expense
Interest Income
Interest income primarily consists of interest income earned on our deposit, money market fund, and investment balances. We expect interest income to vary each reporting period depending on our average deposit, money market fund, and investment balances during the period and market interest rates.

23



Interest Expense
Interest expense primarily consists of the interest charges associated with our financing obligations and capitalized interest. Interest expense includes cash and non-cash components with the non-cash components consisting of effective interest recognized on the financing obligations and interest capitalized for assets constructed for use in operations.
Change in Fair Value of Derivative Liability associated with the Medicis settlement
The product approval payment associated with the Medicis settlement is classified as a liability on our Condensed Consolidated Balance Sheet. This liability is remeasured to fair value at each balance sheet date with the corresponding gain or loss recorded. We will continue to record adjustments to the fair value of the Medicis settlement derivative liability until the product approval payment is paid.
Other Expense, net
Other expense, net primarily consists of miscellaneous tax and other expense items.
Our net non-operating income and expense are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except percentages)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Interest income
$
1,596

 
$
1,081

 
48
 %
 
$
3,166

 
$
2,103

 
51
 %
Interest expense

 

 
 %
 

 
(44
)
 
(100
)%
Change in fair value of derivative liability associated with the Medicis settlement
21

 
(70
)
 
(130
)%
 
(71
)
 
(104
)
 
(32
)%
Other income (expense), net
115

 
(172
)
 
(167
)%
 
(40
)
 
(492
)
 
(92
)%
Total net non-operating income
$
1,732

 
$
839

 
106
 %
 
$
3,055

 
$
1,463

 
109
 %
For the three months ended June 30, 2019, our total net non-operating income increased by $0.9 million compared to the same period in 2018, primarily due to an increase in interest income of $0.5 million from our investments and an increase of $0.3 million in other income. For the six months ended June 30, 2019, our total net non-operating income increased by $1.6 million compared to the same period in 2018, primarily due to our higher cash, cash equivalents, and investments balance and higher interest rates in 2019.
Liquidity and Capital Resources
Our financial condition is summarized as follows:
 
June 30,
 
December 31,
 
Increase
(in thousands)
2019
 
2018
 
Cash, cash equivalents, and investments
$
241,892

 
$
175,812

 
$
66,080

Working capital
$
205,209

 
$
175,952

 
$
29,257

Total stockholders’ equity
$
188,542

 
$
145,622

 
$
42,920

Sources and Uses of Cash
We hold our cash, cash equivalents, and investments in a variety of non-interest bearing bank accounts and interest-bearing instruments subject to investment guidelines allowing for holdings in money market funds, U.S. treasury securities, U.S. government agency securities, and commercial paper. Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs.

24



As of June 30, 2019 and December 31, 2018, we had cash, cash equivalents and investments of $241.9 million and $175.8 million, respectively, which represented an increase of $66.1 million. The increase was primarily driven by the proceeds from issuance of common stock (net of commissions and discount) of $108.1 million in connection with the 2019 follow-on offering, the upfront payment (net of withholding tax) received under the Fosun License Agreement of $27.0 million, and the proceeds from maturity of investments of $117.0 million. These increases were primarily offset by cash used in other operating activities of $67.7 million, purchases of investments of $165.0 million, and purchases of property and equipment of $1.5 million.
Through June 30, 2019, we have funded substantially all of our operations through the issuance and sale of common stock, convertible preferred stock, notes payable, and convertible notes. Since our inception, we have generated significant net loss due to our substantial research and development expenses. We expect to continue to incur net loss for at least the next several years as we advance DAXI through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization. As a result, we will need additional capital to fund our operations which we may obtain from additional financings, public offerings, or other sources.
We derived the following summary of our Condensed Consolidated Cash Flows for the periods indicated from our unaudited Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q:
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
Net cash provided by (used in):
 
 
 
Operating activities
$
(40,704
)
 
$
(47,701
)
Investing activities
$
(49,429
)
 
$
(196,486
)
Financing activities
$
106,911

 
$
723

Cash Flows from Operating Activities
Our cash used in operating activities is primarily driven by personnel, manufacturing costs, clinical development, and facility related expenditures. The changes in net cash used in operating activities are primarily related to our net loss, working ca