10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 7, 2020
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 March 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.:001-34079
Rexahn Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware
|
11-3516358
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
15245 Shady Grove Road, Suite 455
Rockville, MD
|
20850
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Telephone: (240) 268-5300
(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, $.0001 par value
|
REXN
|
Nasdaq Capital 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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “accelerated
filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
☐ |
Accelerated filer
|
☐ |
|
Non-accelerated filer
|
☑
|
Smaller reporting company
|
☑ |
|
Emerging growth company
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,019,141 shares as of May 7, 2020.
REXAHN PHARMACEUTICALS, INC.
| |
Page
|
||
|
PART I
|
1
|
||
|
Item 1
|
1
|
||
| 1) |
1
|
||
| 2) |
2
|
||
| 3) |
3
|
||
| 4) |
4
|
||
| 5) |
5
|
||
| 6) |
6
|
||
|
Item 2
|
21
|
||
|
Item 3
|
27
|
||
|
Item 4
|
27
|
||
|
PART II
|
28
|
||
|
Item 1A
|
28
|
||
|
Item 6
|
28
|
||
|
29
|
|||
REXAHN PHARMACEUTICALS, INC.
(Unaudited)
|
March 31, 2020
|
December 31, 2019
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
10,998,096
|
$
|
9,219,547
|
||||
|
Marketable securities
|
-
|
2,997,220
|
||||||
|
Prepaid expenses and other current assets
|
290,756
|
447,206
|
||||||
|
Total Current Assets
|
11,288,852
|
12,663,973
|
||||||
|
Security Deposits
|
25,681
|
25,681
|
||||||
|
Operating Lease Right-of-Use Assets
|
171,870
|
203,348
|
||||||
|
Equipment, Net
|
66,515
|
75,770
|
||||||
|
Total Assets
|
$
|
11,552,918
|
$
|
12,968,772
|
||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$
|
1,237,007
|
$
|
1,265,731
|
||||
|
Deferred revenue
|
600,000
|
1,500,000
|
||||||
|
Operating lease liabilities, current
|
144,610
|
139,765
|
||||||
|
Total Current Liabilities
|
1,981,617
|
2,905,496
|
||||||
|
Operating Lease Liabilities, non-current
|
25,790
|
63,605
|
||||||
|
Warrant Liabilities
|
100,109
|
41,717
|
||||||
|
Total Liabilities
|
2,107,516
|
3,010,818
|
||||||
|
Commitments and Contingencies (note 11)
|
||||||||
|
Stockholders’ Equity:
|
||||||||
|
Preferred stock, par value $0.0001, 10,000,000 authorized shares, none issued and outstanding
|
-
|
-
|
||||||
|
Common stock, par value $0.0001, 75,000,000 authorized shares, 4,019,141 issued and outstanding
|
402
|
402
|
||||||
|
Additional paid-in capital
|
173,354,446
|
173,278,144
|
||||||
|
Accumulated other comprehensive income
|
-
|
2,084
|
||||||
|
Accumulated deficit
|
(163,909,446
|
)
|
(163,322,676
|
)
|
||||
|
Total Stockholders’ Equity
|
9,445,402
|
9,957,954
|
||||||
|
Total Liabilities and Stockholders’ Equity
|
$
|
11,552,918
|
$
|
12,968,772
|
||||
(See accompanying notes to the condensed financial statements)
REXAHN PHARMACEUTICALS, INC.
(Unaudited)
|
|
For the Three Months Ended March 31,
|
|||||||
|
2020
|
2019
|
|||||||
|
Revenues
|
$
|
1,150,000
|
$
|
-
|
||||
|
Expenses:
|
||||||||
|
General and administrative
|
1,256,006
|
1,695,523
|
||||||
|
Research and development
|
456,790
|
2,242,229
|
||||||
|
Total Expenses
|
1,712,796
|
3,937,752
|
||||||
|
Loss from Operations
|
(562,796
|
)
|
(3,937,752
|
)
|
||||
|
Other Income
|
||||||||
|
Interest income
|
34,418
|
81,385
|
||||||
|
Unrealized (loss) gain on fair value of warrants
|
(58,392
|
)
|
1,513,371
|
|||||
|
Total Other (Loss) Income
|
(23,974
|
)
|
1,594,756
|
|||||
|
Net Loss Before Provision for Income Taxes
|
(586,770
|
)
|
(2,342,996
|
)
|
||||
|
Provision for Income Taxes
|
-
|
-
|
||||||
|
Net Loss
|
$
|
(586,770
|
)
|
$
|
(2,342,996
|
)
|
||
|
Net loss per share, basic and diluted
|
$
|
(0.15
|
)
|
$
|
(0.62
|
)
|
||
|
|
||||||||
|
Weighted average number of shares outstanding, basic and diluted
|
4,019,141
|
3,779,953
|
||||||
(See accompanying notes to the condensed financial statements)
REXAHN PHARMACEUTICALS, INC.
(Unaudited)
|
For the Three Months Ended March 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Net Loss
|
$
|
(586,770
|
)
|
$
|
(2,342,996
|
)
|
||
|
Unrealized (loss) gain on available-for-sale securities
|
(2,084
|
)
|
5,234
|
|||||
|
Comprehensive Loss
|
$
|
(588,854
|
)
|
$
|
(2,337,762
|
)
|
||
(See accompanying notes to the condensed financial statements)
REXAHN PHARMACEUTICALS, INC.
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
|
Common Stock
|
||||||||||||||||||||||||
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Total
Stockholders'
Equity
|
|||||||||||||||||||
|
Balances at January 1, 2020
|
4,019,141
|
$
|
402
|
$
|
173,278,144
|
$
|
(163,322,676
|
)
|
$
|
2,084
|
$
|
9,957,954
|
||||||||||||
|
Stock-based compensation
|
-
|
-
|
76,302
|
-
|
-
|
76,302
|
||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
(586,770
|
)
|
-
|
(586,770
|
)
|
||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
-
|
(2,084
|
)
|
(2,084
|
)
|
||||||||||||||||
|
Balances at March 31, 2020
|
4,019,141
|
$
|
402
|
$
|
173,354,446
|
$
|
(163,909,446
|
)
|
$
|
-
|
$
|
9,445,402
|
||||||||||||
|
Balances at January 1, 2019
|
3,122,843
|
$
|
312
|
$
|
165,267,656
|
$
|
(154,687,242
|
)
|
$
|
(17,836
|
)
|
$
|
10,562,890
|
|||||||||||
|
Issuance of common stock and units, net of issuance costs
|
895,834
|
90
|
7,553,738
|
-
|
-
|
7,553,828
|
||||||||||||||||||
|
Common stock issued from vested restricted stock units
|
464
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Stock-based compensation
|
-
|
-
|
161,000
|
-
|
-
|
161,000
|
||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
(2,342,996
|
)
|
-
|
(2,342,996
|
)
|
||||||||||||||||
|
Other comprehensive income
|
-
|
-
|
-
|
-
|
5,234
|
5,234
|
||||||||||||||||||
|
Balances at March 31, 2019
|
4,019,141
|
$
|
402
|
$
|
172,982,394
|
$
|
(157,030,238
|
)
|
$
|
(12,602
|
)
|
$
|
15,939,956
|
|||||||||||
(See accompanying notes to the condensed financial statements)
REXAHN PHARMACEUTICALS, INC.
(Unaudited)
|
For the Three Months Ended
March 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net loss
|
$
|
(586,770
|
)
|
$
|
(2,342,996
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
9,255
|
11,533
|
||||||
|
Loss on sale of equipment
|
-
|
9,594
|
||||||
|
Amortization of premiums and discounts on marketable securities, net
|
(4,864
|
)
|
(18,499
|
)
|
||||
|
Stock-based compensation
|
76,302
|
161,000
|
||||||
|
Unrealized loss (gain) on fair value of warrants
|
58,392
|
(1,513,371
|
)
|
|||||
|
Changes in assets and liabilities:
|
||||||||
|
Prepaid expenses and other assets
|
156,450
|
73,367
|
||||||
|
Accounts payable and accrued expenses
|
(28,724
|
)
|
(906,350
|
)
|
||||
|
Deferred revenue
|
(900,000
|
)
|
150,000
|
|||||
|
Other, net
|
(1,492
|
)
|
(4,373
|
)
|
||||
|
Net Cash Used in Operating Activities
|
(1,221,451
|
)
|
(4,380,095
|
)
|
||||
|
Cash Flows from Investing Activities:
|
||||||||
|
Purchase of equipment
|
-
|
(13,181
|
)
|
|||||
|
Sale of equipment
|
-
|
5,500
|
||||||
|
Purchase of marketable securities
|
-
|
(8,887,566
|
)
|
|||||
|
Redemption of marketable securities
|
3,000,000
|
3,000,000
|
||||||
|
Net Cash Provided by (Used in) Investing Activities
|
3,000,000
|
(5,895,247
|
)
|
|||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Issuance of common stock and units, net of issuance costs
|
-
|
7,653,828
|
||||||
|
Net Cash Provided by Financing Activities
|
-
|
7,653,828
|
||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
1,778,549
|
(2,621,514
|
)
|
|||||
|
Cash and Cash Equivalents - beginning of period
|
9,219,547
|
8,744,301
|
||||||
|
Cash and Cash Equivalents - end of period
|
$
|
10,998,096
|
$
|
6,122,787
|
||||
|
Supplemental Cash Flow Information
|
||||||||
|
Operating cash flows paid for amounts included in the measurement of lease liabilities
|
$
|
38,262
|
$
|
84,651
|
||||
|
Non-cash financing and investing activities:
|
||||||||
|
Warrants issued
|
$
|
-
|
$
|
4,735,913
|
||||
|
Operating lease right-of-use assets obtained in exchange for lease obligations
|
$
|
-
|
$
|
380,935
|
||||
(See accompanying notes to the condensed financial statements)
Operations
Rexahn Pharmaceuticals, Inc. (the “Company”), a Delaware corporation, is a biopharmaceutical company whose principal operations are the development of innovative treatments for
cancer. The Company had an accumulated deficit of $163,909,446 at March 31, 2020 and anticipates incurring losses in the foreseeable future. In September 2019, the Company commenced a process to explore and evaluate strategic alternatives to
enhance shareholder value and engaged a financial advisory firm to assist in the process.
The Company believes that its cash and cash equivalents of approximately $11.0 million as of March 31, 2020 will be sufficient to cover its cash flow requirements for its
current activities for at least the next 12 months from the date these financial statements were issued.
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission
for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of
the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of March 31, 2020 and December 31, 2019 and of the results of operations,
comprehensive loss, stockholders’ equity and cash flows for the three months ended March 31, 2020 and 2019 have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of results that may be
expected for any other interim period or the full fiscal year ending December 31, 2020. The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). Information included in the condensed balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements for the
year ended December 31, 2019 included in the 2019 Form 10-K. The unaudited condensed financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and
satisfaction of liabilities and commitments in the ordinary course of business.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management’s best knowledge of
current events and actions the Company may undertake in the future. Actual results may ultimately differ from these estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the
period in which they become available.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
COVID-19 Pandemic
The outbreak of the COVID-19 disease, which the World Health Organization declared a pandemic in March 2020, has led to disruption in the global economy and the
biopharmaceutical industry. The extent of the COVID-19 pandemic’s impact on the Company’s business, financial condition and results of operations, as well as the Company’s ability to enter into and complete a strategic transaction, is highly
uncertain and will depend on various factors, including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, other actions taken to contain
the impact of the pandemic, and impacts on the Company’s ability or the ability of potential strategic partners to access the markets on favorable terms, or at all.
|
2.
|
Marketable Securities
|
Marketable securities are considered “available-for-sale” in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 320, “Debt and Equity Securities,” and
thus are reported at fair value in the Company’s accompanying balance sheet, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity. Amounts reclassified out of accumulated other
comprehensive income (loss) into realized gains and losses are accounted for on the basis of specific identification and are included in other income or expense in the statement of operations. The Company classifies such investments as current on
the balance sheet as the investments are readily marketable and available for use in current operations.
The Company had no marketable securities as of March 31, 2020. The following table shows the Company’s marketable securities’ adjusted cost, gross unrealized gains and losses, and fair value by significant investment
category as of December 31, 2019:
|
December 31, 2019
|
||||||||||||||||
|
Cost
Basis
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
|
Commercial Paper
|
$
|
1,996,216
|
$
|
1,184
|
$
|
-
|
$
|
1,997,400
|
||||||||
|
Corporate Bonds
|
998,920
|
900
|
-
|
999,820
|
||||||||||||
|
Total Marketable Securities
|
$
|
2,995,136
|
$
|
2,084
|
$
|
-
|
$
|
2,997,220
|
||||||||
REXAHN PHARMACEUTICALS, INC.
(Unaudited)
|
3.
|
Equipment, Net
|
|
March 31,
2020
|
December 31,
2019
|
|||||||
|
Furniture and fixtures
|
$
|
67,650
|
$
|
67,650
|
||||
|
Office and computer equipment
|
163,440
|
163,440
|
||||||
|
Leasehold improvements
|
116,403
|
116,403
|
||||||
|
Total equipment
|
347,493
|
347,493
|
||||||
|
Less: Accumulated depreciation and amortization
|
(280,978
|
)
|
(271,723
|
)
|
||||
|
Net carrying amount
|
$
|
66,515
|
$
|
75,770
|
||||
| 4. |
Accounts Payable and Accrued Expenses
|
|
March 31,
2020
|
December 31,
2019
|
|||||||
|
Trade payables
|
$
|
891,419
|
$
|
488,285
|
||||
|
Accrued expenses
|
165,931
|
471,700
|
||||||
|
Accrued research and development contract costs
|
125,992
|
221,170
|
||||||
|
Payroll liabilities
|
53,665
|
84,576
|
||||||
|
$
|
1,237,007
|
$
|
1,265,731
|
|||||
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
|
5.
|
License Agreements
|
BioSense Global LLC
On March 10, 2020, the Company entered into an amendment to its collaboration and license agreement, (as amended, the “License and Assignment Agreement”) with BioSense Global
LLC (“BioSense”) to advance the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “Territory”). Under the terms of the License and Assignment Agreement, upon
payment in full of an upfront payment, the Company will (i) grant BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the Territory and (ii) assign and
transfer all of the Company’s patents and patent applications related to RX-3117 in the Territory. The upfront payment consists of an aggregate of $1,650,000, of which $1,500,000 has been received to date. Under the License and Assignment
Agreement, the Company is eligible to receive milestone payments in an aggregate of up to $84.5 million upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties in the mid-single
digits to low tens on annual net sales in the Territory.
The Company has evaluated the License and Assignment Agreement under ASC 606, “Revenue from Contracts with Customers,” to determine the appropriate amount of revenue to be
recognized as the Company fulfills its obligations under the License and Assignment Agreement. The Company identified the exclusive license to develop RX-3117 and the supply of RX-3117 drug product, drug substance and intermediate materials
(collectively, the “Transferred Materials”) as the distinct performance obligations in the contract. The Company has determined that it will recognize revenue related to the exclusive license to develop RX-3117 and the supply of the Transferred
Materials transfers to BioSense at a point in time when the exclusive license is conveyed and the Transferred Materials are made available for delivery to BioSense, respectively.
The Company has determined the transaction price contains both fixed and variable consideration. The fixed consideration is equal to the upfront payment of $1,650,000. The
variable consideration relates to the milestone payments and future sales-based royalty payments. The Company estimates the variable consideration in the contract using the most likely amount method. The Company determined at the contract outset
and as of March 31, 2020 that all milestone payments should be fully constrained, as it is not probable that a significant reversal of revenue will not occur in a future period, given the significance of the milestone payments and that the payments
are earned based upon the achievement of events that are highly susceptible to factors outside of the Company’s control. Future sales-based royalties related to the exclusive license to develop RX-3117 will be recognized in the period the
underlying sales transaction occurs.
The $1,650,000 upfront payment has been allocated to the performance obligations on the basis of the relative standalone selling price estimated for each performance
obligation. The Company has determined the standalone selling price of the exclusive license to develop RX-3117 using the adjusted market approach, which represents the price the market will bear based on the license rights granted and the state of
the intellectual property, and has determined the standalone selling price of the supply of the Transferred Materials using a cost approach. Accordingly, the Company has allocated $750,000 of the upfront transaction price to the exclusive license
to develop RX-3117 and $900,000 to the supply of the Transferred Materials. Additional transaction price recognized in future periods related to milestone payments and royalties will be allocated solely to the exclusive license to develop RX-3117,
as these amounts relate to efforts associated with the development and commercialization of products related to the exclusive license to develop RX-3117.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
As of March 31, 2020, $1,500,000 of the upfront payment had been paid, and the remaining $150,000 remained unpaid. As of March 31, 2020, the Company had satisfied the
performance obligation related to the Transferred Materials and therefore recognized $900,000 in revenue which was previously classified as deferred revenue. As of March 31, 2020, the exclusive license had not been transferred and no revenue was
recognized related to that performance obligation. Therefore, the Company has recorded the additional $600,000 of transaction consideration received as of March 31, 2020 as deferred revenue on the Company’s balance sheet.
Zhejiang HaiChang Biotechnology Co., Ltd.
On February 8, 2020, the Company entered into an exclusive license agreement (the “HaiChang License Agreement”) with Zhejiang HaiChang Biotechnology Co., Ltd.
(“HaiChang”) pursuant to which the Company granted HaiChang an exclusive (even as to the Company), royalty-bearing, sublicensable worldwide license to research, develop and commercialize pharmaceutical products comprising RX-0201 (subject
to and limited by the exclusive rights of NEXT BT Co. Ltd (“Next BT”) with respect to RX-0201 in Asia), the nano-liposomal formulation of RX-0201 known as RX-0301, and RX-0047, a proprietary compound currently in preclinical development. HaiChang
has agreed to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize one product comprising RX-0301 and one product comprising RX-0047.
HaiChang paid a one-time upfront payment of $250,000 to the Company for certain materials to be transferred by the Company to HaiChang. HaiChang will pay the Company development milestone payments
in an aggregate of up to $63,000,000 with respect to RX-0201 and RX-0301 and up to $33,000,000 with respect to RX-0047, and royalties based on percentages of net sales in the low tens with respect to RX-0201 and RX-0301 and the mid-single digits
with respect to RX-0047. However, if HaiChang exclusively sublicenses its rights to a third party with respect to RX-0201 and RX-0301 or RX-0047 in a particular jurisdiction, instead of the foregoing milestones and royalties to the extent relating
to such compound(s) and jurisdiction, HaiChang will pay the Company a percentage of any sublicensing revenue received by HaiChang, provided that in any event HaiChang will pay a milestone payment on initiation of a Phase 3 clinical trial that is
subject to reduction by the amount of any sublicensing revenue paid with respect to the applicable compound(s) as of the time of initiation of the trial.
The Company accounts for the HaiChang License Agreement under ASC 606. The Company has determined the performance obligations under the contract relate to the transfer of materials and the license
of intellectual property. Revenue associated with the materials and license are recognized at a point in time. The Company has determined the transaction price contains both fixed and variable consideration.
The fixed consideration is equal to the upfront payment of $250,000. At the outset of the contract, the value of the license was determined to be de minimis given the early stage of clinical development of the intellectual property, and
allocated the entire fixed consideration to the materials. The Company transferred the materials during the three months ended March 31, 2020 and therefore recognized the entire fixed consideration as revenue. The
variable consideration relates to the milestone payments, sublicense fees and future sales-based royalty payments. The Company estimates variable consideration under the contract using the expected value method. Given the early stage and
the uncertain success of the development work to be performed by HaiChang, the Company has determined that the variable consideration in the contract should be fully constrained at the contract outset and as of March 31, 2020.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
| 6. |
Leases
|
The Company leases 5,466 square feet of office space in Rockville, Maryland, with a lease term ending June 30, 2024. Under the lease agreement, the Company pays its allocable portion of real
estate taxes and common area operating charges, which are recorded as variable lease costs. The lease has escalating rent payments for which the Company records lease expense on a straight-line basis over the lease term, and an option to terminate
the leased premises, without penalty, on June 30, 2021. The Company is reasonably certain that it will not remain in these leased premises after the optional termination date, and therefore, is using the optional termination date in assessing the
lease term.
The following table summarizes the right of use lease assets and lease liabilities as of March 31, 2020:
|
Right-of-Use Assets
|
$
|
171,870
|
||
|
Operating Lease Liabilities
|
||||
|
Current
|
$
|
144,610
|
||
|
Long Term
|
25,790
|
|||
|
Total Operating Lease Liabilities
|
$
|
170,400
|
The components of lease expense were as follows:
|
For the Three Months Ended
March 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Operating lease cost
|
$
|
36,771
|
$
|
80,279
|
||||
|
Variable lease cost
|
5,693
|
16,012
|
||||||
|
Total Lease Cost
|
$
|
42,464
|
$
|
96,291
|
||||
The right-of-use asset and lease liability were calculated using an estimated incremental borrowing rate of 11%. At March 31, 2020, the weighted average lease term was 1.3 years.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
The table below summarizes the Company’s scheduled future minimum lease payments recorded on the balance sheet, as of March 31, 2020:
|
Year Ending December 31:
|
||||
|
2020 (excluding the three months ended March 31, 2020)
|
$
|
117,018
|
||
|
2021
|
65,364
|
|||
|
Minimum lease payments
|
182,382
|
|||
|
Less: Imputed interest
|
(11,982
|
)
|
||
|
Present value of minimum lease payments
|
170,400
|
|||
|
Less: current maturities of lease obligations
|
(144,610
|
)
|
||
|
Long-term lease obligations
|
$
|
25,790
|
||
|
7.
|
Net Loss per Common Share
|
Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Diluted loss per common share
is computed by dividing net loss by the weighted average number of shares of common stock outstanding, plus the number of common share equivalents that would be dilutive. As of March 31, 2020 and December 31, 2019, there were stock options, and
warrants to acquire, in the aggregate, 2,070,511 and 2,126,063 shares of the Company’s common stock, respectively, that are potentially dilutive. However, diluted loss per share is the same as basic loss per share for all periods presented because
the inclusion of common share equivalents would be anti-dilutive.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
|
8.
|
Stock-Based Compensation
|
As of March 31, 2020, the Company had 149,022 options to purchase common stock outstanding.
In June 2013, the Company’s shareholders voted to approve the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan (the “2013 Plan”). Under the 2013 Plan, the Company grants
equity awards to key employees, directors and consultants of the Company. The Company has reserved 283,333 shares of common stock for issuance pursuant to the 2013 Plan. As of March 31, 2020, there were 144,366 options outstanding under the 2013
Plan, and 136,936 shares were available for issuance. In addition, as of March 31, 2020, there were 4,656 options outstanding under a previously established stock option plan under which no new stock options may be granted.
Accounting for Awards
Stock-based compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite vesting service period for the entire
portion of the award. Total stock-based compensation recognized by the Company for the three months ended March 31, 2020 and 2019 is as follows:
|
For the Three Months Ended
March 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Statement of operations line item:
|
||||||||
|
General and administrative
|
$
|
72,420
|
$
|
116,679
|
||||
|
Research and development
|
3,882
|
44,321
|
||||||
|
Total
|
$
|
76,302
|
$
|
161,000
|
||||
No income tax benefit has been recognized in the statement of operations for stock-based compensation arrangements as the Company has provided for a 100% valuation allowance on
its deferred tax assets.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
Summary of Stock Option Transactions
A summary of stock option activity for the three months ended March 31, 2020 is as follows:
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
||||||||||
|
Outstanding, January 1, 2020
|
204,574
|
$
|
35.60
|
7.3 years
|
$
|
-
|
|||||||
|
Granted
|
-
|
$
|
-
|
||||||||||
|
Exercised
|
-
|
$
|
-
|
||||||||||
|
Expired
|
(2,498
|
)
|
$
|
159.60
|
|||||||||
|
Cancelled
|
(53,054
|
)
|
$
|
60.40
|
|||||||||
|
Outstanding, March 31, 2020
|
149,022
|
$
|
24.69
|
7.8 years
|
$
|
-
|
|||||||
|
Exercisable, March 31, 2020
|
75,304
|
$
|
37.16
|
7.0 years
|
$
|
-
|
|||||||
A summary of the Company’s unvested options as of March 31, 2020 and changes during the three months ended March 31, 2020 is presented below:
|
2020
|
||||||||
|
Number of
Options
|
Weighted Average Fair
Value at Grant Date
|
|||||||
|
Unvested at January 1, 2020
|
81,311
|
$
|
7.90
|
|||||
|
Granted
|
-
|
$
|
-
|
|||||
|
Vested
|
(7,593
|
)
|
$
|
8.34
|
||||
|
Cancelled
|
-
|
$
|
-
|
|||||
|
Unvested at March 31, 2020
|
73,718
|
$
|
7.85
|
|||||
As of March 31, 2020, there was $501,655 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average
vesting period of 1.7 years.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
|
9.
|
Warrants
|
The following table summarizes the Company’s outstanding warrants to purchase common stock as of March 31, 2020 and December 31, 2019:
|
Number of Warrants:
|
|||||||||||||
|
Warrant Issuance
|
March 31, 2020
|
December 31,
2019
|
Exercise Price
|
Expiration
Date
|
|||||||||
|
Liability-classified Warrants
|
|||||||||||||
|
November 2015 Investors
|
104,168
|
104,168
|
$
|
63.60
|
May 2021
|
||||||||
|
November 2015 Placement Agent
|
279
|
279
|
$
|
63.60
|
Nov. 2020
|
||||||||
|
March 2016 Investors
|
50,651
|
50,651
|
$
|
50.40
|
Sept. 2021
|
||||||||
|
September 2016 Investors
|
67,084
|
67,084
|
$
|
36.00
|
Mar. 2022
|
||||||||
|
June 2017 Investors
|
126,264
|
126,264
|
$
|
48.00
|
Dec. 2022
|
||||||||
|
June 2017 Placement Agent
|
15,153
|
15,153
|
$
|
49.50
|
June 2022
|
||||||||
|
October 2017 Investors
|
136,058
|
136,058
|
$
|
34.20
|
Apr. 2023
|
||||||||
|
October 2017 Placement Agent
|
16,327
|
16,327
|
$
|
36.72
|
Oct. 2022
|
||||||||
|
Total liability classified warrants
|
515,984
|
515,984
|
|||||||||||
|
Equity-classified Warrants
|
|||||||||||||
|
October 2018 Investors
|
480,771
|
480,771
|
$
|
20.04
|
Apr. 2024
|
||||||||
|
October 2018 Placement Agent
|
28,848
|
28,848
|
$
|
19.50
|
Oct. 2023
|
||||||||
|
January 2019 Investors
|
895,886
|
895,886
|
$
|
9.60
|
Jan. 2024
|
||||||||
|
Total equity-classified warrants
|
1,405,505
|
1,405,505
|
|||||||||||
|
Total outstanding warrants
|
1,921,489
|
1,921,489
|
|||||||||||
The following table summarizes the Company’s warrant activity for the three months ended March 31, 2020:
|
Number of Warrants
|
||||||||||||||||
|
Liability-
classified
|
Equity-
classified
|
Total
|
Weighted
average
exercise price
|
|||||||||||||
|
Balance, January 1, 2020
|
515,984
|
1,405,505
|
1,921,489
|
$
|
22.10
|
|||||||||||
|
Issued during the period
|
-
|
-
|
-
|
$
|
-
|
|||||||||||
|
Exercised during the period
|
-
|
-
|
-
|
$
|
-
|
|||||||||||
|
Expired during the period
|
- |
-
|
-
|
$
|
-
|
|||||||||||
|
Balance, March 31, 2020
|
515,984
|
1,405,505
|
1,921,489
|
$
|
22.10
|
|||||||||||
At March 31, 2020, the weighted average remaining contractual life of the outstanding warrants was 3.4 years.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
The following table summarizes the fair value of the liability-classified warrants as of the respective balance sheet dates:
|
Fair Value as of:
|
||||||||
|
Warrant Issuance:
|
March 31, 2020
|
December 31, 2019
|
||||||
|
November 2015 Investors
|
$
|
971
|
$
|
55
|
||||
|
November 2015 Placement Agent
|
-
|
-
|
||||||
|
March 2016 Investor
|
1,240
|
439
|
||||||
|
September 2016 Investors
|
14,639
|
3,196
|
||||||
|
June 2017 Investors
|
30,364
|
11,736
|
||||||
|
June 2017 Placement Agent
|
2,574
|
845
|
||||||
|
October 2017 Investors
|
46,178
|
23,772
|
||||||
|
October 2017 Placement Agent
|
4,143
|
1,674
|
||||||
|
Total:
|
$
|
100,109
|
$
|
41,717
|
||||
The assumptions used in calculating the fair values of the liability-classified warrants are as follows:
|
March 31, 2020
|
December 31, 2019
|
|||||||
|
Trading market prices
|
$
|
1.80
|
$
|
1.91
|
||||
|
Estimated future volatility
|
100
|
%
|
102
|
%
|
||||
|
Dividend
|
-
|
-
|
||||||
|
Estimated future risk-free rate
|
0.20-0.41
|
%
|
1.57-1.72
|
%
|
||||
|
Equivalent volatility
|
113-129
|
%
|
85-94
|
%
|
||||
|
Equivalent risk-free rate
|
0.13-0.19
|
%
|
1.57-1.59
|
%
|
||||
|
Fundamental transaction likelihood
|
50
|
%
|
50
|
%
|
||||
|
Fundamental transaction timing
|
July 2020
|
April 2020
|
||||||
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
Changes in the fair value of the warrant liabilities, carried at fair value, reported as “unrealized (loss) gain on fair value of warrants” in the statement of operations:
|
For the Three Months Ended March 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
November 2015 Investors
|
$
|
(916
|
)
|
$
|
197,084
|
|||
|
November 2015 Placement Agent
|
-
|
380
|
||||||
|
March 2016 Investors
|
(801
|
)
|
114,799
|
|||||
|
September 2016 Investors
|
(11,443
|
)
|
217,869
|
|||||
|
June 2017 Investors
|
(18,628
|
)
|
388,391
|
|||||
|
June 2017 Placement Agent
|
(1,729
|
)
|
41,911
|
|||||
|
October 2017 Investors
|
(22,406
|
)
|
496,501
|
|||||
|
October 2017 Placement Agent
|
(2,469
|
)
|
56,436
|
|||||
|
Total:
|
$
|
(58,392
|
)
|
$
|
1,513,371
|
|||
|
10.
|
Income Taxes
|
No provision for federal and state income taxes was required for the three months ended March 31, 2020 and 2019 due to the Company’s operating losses and
increased deferred tax asset valuation allowance. At March 31, 2020 and December 31, 2019, the Company had unused net operating loss carry-forwards of approximately $157,964,000 and $156,586,000
respectively, which portions of expire at various dates beginning in 2021. Some of this amount may be subject to annual limitations under certain provisions of the Internal Revenue Code related to “changes in ownership.”
As of March 31, 2020 and December 31, 2019, the deferred tax assets related to the aforementioned carry-forwards have been fully offset by valuation allowances, because
significant utilization of such amounts is not presently expected in the foreseeable future.
Deferred tax assets and valuation allowances consist of:
|
March 31,
2020
|
December 31,
2019
|
|||||||
|
Net Operating Loss Carryforwards
|
$
|
44,230,000
|
$
|
43,844,000
|
||||
|
Stock Compensation Expense
|
551,000
|
1,191,000
|
||||||
|
Book Tax Differences on Assets and Liabilities
|
163,000
|
464,000
|
||||||
|
Valuation Allowance
|
(44,944,000
|
)
|
(45,499,000
|
)
|
||||
|
Net Deferred Tax Assets
|
$
|
-
|
$
|
-
|
||||
The Company files income tax returns in the U.S. federal and Maryland state jurisdictions. Tax years for fiscal 2016 through 2019 are open and potentially subject to examination by the federal and Maryland state
taxing authorities.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
|
11.
|
Commitments and Contingencies
|
|
a)
|
The Company has contracted with various vendors for services, with terms that require payments over the terms of the agreements, usually ranging from two to 36 months. The costs to be incurred are
estimated and are subject to revision. As of March 31, 2020, the total estimated cost to complete these agreements was approximately $800,000. All of these agreements may be terminated by either party upon appropriate notice as
stipulated in the respective agreements.
|
|
|
b) |
On June 22, 2009, the Company entered into a License Agreement with Korea Research Institute of Chemical Technology (“KRICT”) to acquire the rights to all intellectual property related to
quinoxaline-piperazine derivatives that were synthesized under a Joint Research Agreement. The agreement with KRICT calls for a one-time milestone payment of $1,000,000 within 30 days after the first achievement of marketing approval of
the first commercial product arising out of or in connection with the use of KRICT’s intellectual property. As of March 31, 2020, the milestone has not occurred.
|
|
|
c) |
The Company has established a 401(k) plan for its employees. The Company has elected to match 100% of the first 3% of an employee’s compensation plus 50% of an additional 2% of the employee’s deferral.
Expense related to this matching contribution aggregated to $11,229 and $27,879 for the three months ended March 31, 2020 and 2019, respectively.
|
|
|
d) |
On February 5, 2018, the Company and Next BT terminated a research collaboration agreement between the Company and Rexgene Biotech Co., Ltd, a predecessor in interest to Next BT. The Company agreed to pay
Next BT a royalty in the low single digits of any net sales of RX-0201 the Company makes in Asia and 50% of the Company’s licensing revenue related to licensing of RX-0201 in Asia, up to an aggregate of $5,000,000. As of March 31, 2020,
the Company has not made any royalty payments to Next BT.
|
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
|
12.
|
Fair Value Measurements
|
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels are described below:
|
Level 1 Inputs
|
—
|
Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company;
|
|
Level 2 Inputs
|
—
|
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
|
|
Level 3 Inputs
|
—
|
Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.
|
The following tables present assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
|
Fair Value Measurements at March 31, 2020
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Warrant Liabilities
|
$
|
100,109
|
$
|
-
|
$
|
-
|
$
|
100,109
|
||||||||
|
Fair Value Measurements at December 31, 2019
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Commercial Paper
|
$
|
1,997,400
|
$
|
-
|
$
|
1,997,400
|
$
|
-
|
||||||||
|
Corporate Bonds
|
999,820
|
-
|
999,820
|
-
|
||||||||||||
|
Total Assets:
|
$
|
2,997,220
|
$
|
-
|
$
|
2,997,220
|
$
|
-
|
||||||||
|
Liabilities:
|
||||||||||||||||
|
Warrant Liabilities
|
$
|
41,717
|
$
|
-
|
$
|
-
|
$
|
41,717
|
||||||||
There have been no changes in the methodologies used at March 31, 2020 and December 31, 2019, and no transfers between Level 1, 2 and 3 during the three months ended March 31, 2020.
REXAHN PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Unaudited)
The reconciliation of changes to the fair value of the Company’s warrant liabilities for the three months ended March 31, 2020 is as follows:
|
Warrant Liabilities
|
||||
|
Balance at January 1, 2020
|
$
|
41,717
|
||
|
Unrealized losses, net
|
58,392
|
|||
|
Balance at March 31, 2020
|
$
|
100,109
|
||
|
13.
|
Subsequent Event
|
On April 7, 2020, the Company notified Merck Sharp & Dohme B.V. (“Merck”) that it was terminating the Clinical Trial Collaboration and Supply Agreement dated as of August
16, 2018, by and between the Company and Merck, effective immediately, in connection with the Company’s determination to discontinue development of RX-5902 for the treatment of metastatic triple negative breast cancer.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
OVERVIEW
The following discussion should be read in conjunction with the unaudited condensed financial statements and notes thereto set forth in Item 1 of this
Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking
statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on
Form 10-Q, words such as “believe”, “estimate”, “expect”, “anticipate”, “will”, “may”, “intend” and other similar expressions, are intended to identify forward-looking statements. We caution that forward-looking statements are based largely on our
expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors that are, in many instances, beyond our control. Actual results, performance or achievements may differ materially
from those contemplated, expressed or implied by the forward-looking statements.
Although we believe that the expectations reflected in our forward-looking statements are reasonable as of the date we make them, actual results could
differ materially from those currently anticipated due to a number of factors, including risks relating to:
|
|
● |
uncertainties about the exploration and evaluation of strategic alternatives, including that they may not result in a definitive transaction or enhance shareholder value and may create a
distraction or uncertainty that may adversely affect our operating results, business, or investor perceptions;
|
|
|
● |
uncertainties about the paths of our programs and our ability to evaluate and identify a path forward for those programs, particularly given the constraints we have as a small company with limited financial,
personnel and other operating resources;
|
|
|
● |
the impact of the COVID-19 pandemic on the economy, our industry, and our financial condition and results of operations, as well as our ability to enter into and complete a strategic
transaction;
|
|
|
● |
our understandings and beliefs regarding the role of certain biological mechanisms and processes in cancer;
|
|
|
● |
our product candidates being in early stages of development, including in preclinical development;
|
|
|
● |
our ability to successfully and timely complete clinical trials for our drug candidates in clinical development;
|
|
|
● |
uncertainties related to the timing, results and analyses related to our drug candidates in preclinical development;
|
|
|
● |
our ability to obtain the necessary U.S. and international regulatory approvals for our drug candidates;
|
|
|
● |
our reliance on third-party contract research organizations and other investigators and collaborators for certain research and development services;
|
|
|
● |
our ability to maintain or engage third-party manufacturers to manufacture, supply, store and distribute supplies of our drug candidates for our clinical trials;
|
|
|
● |
our ability to form strategic alliances and partnerships with pharmaceutical companies and other partners for development, sales and marketing of certain of our product candidates;
|
|
|
● |
demand for and market acceptance of our drug candidates;
|
|
|
● |
the scope and validity of our intellectual property protection for our drug candidates and our ability to develop our candidates without infringing the intellectual property rights of
others;
|
|
|
● |
our lack of profitability and the need for additional capital to operate our business; and
|
|
|
● |
other risks and uncertainties, including those set forth herein and in the 2019 Form 10-K under the caption “Risk Factors” and those detailed from time to time in our filings with the
Securities and Exchange Commission.
|
These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
We are a clinical stage biopharmaceutical company developing innovative therapies to improve patient outcomes in cancers that are difficult to treat. Our pipeline features two clinical-stage
product candidates and additional compounds in preclinical development.
|
|
● |
RX-3117 is a novel, investigational oral, small molecule nucleoside compound. Once intracellularly activated (phosphorylated) by the enzyme UCK2, it is incorporated into the DNA or RNA of cells and inhibits both DNA and RNA synthesis,
which induces apoptotic cell death of tumor cells. RX-3117 is the subject of a Phase 2a clinical trial in combination with Celgene’s Abraxane® (paclitaxel protein-bound particles for injectable suspension) as a first-line treatment in
patients newly diagnosed with metastatic pancreatic cancer. The trial reached its target enrollment in February 2019. As of July 24, 2019, an overall response rate of 23% had been observed in 40 patients that had at least one scan on
treatment. Preliminary and unaudited data indicates that the median progression free survival for patients in the study is approximately 5.4 months. Complete data from the trial is expected to be available in 2020. We do not plan to
conduct or sponsor any additional trials with RX-3117.
|
On March 10, 2020, we amended our collaboration and license agreement (as amended, the “License and Assignment Agreement”) with BioSense Global LLC (“BioSense”) to advance the
development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “Territory”). Under the terms of the License and Assignment Agreement, upon payment in full of an upfront
payment, we will grant BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the Territory and assign and transfer to BioSense all of our patents and patent
applications related to RX-3117 in the Territory. The upfront payment consists of an aggregate of $1,650,000, of which $1,500,000 has been received to date. Under the License and Assignment Agreement, we are eligible to receive milestone payments
in an aggregate of up to $84.5 million upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties in the mid-single digits to low tens on annual net sales in the Territory.
|
|
● |
RX-5902 is a potential first-in-class small molecule modulator of the Wnt/beta-catenin pathway which plays a key role in cancer cell proliferation and tumor growth. In August 2018, we entered into a Clinical Trial Collaboration and
Supply Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme B.V. (“Merck”) to evaluate the combination of RX-5902 and Merck’s anti-PD-1 therapy, KEYTRUDA® (pembrolizumab) in a Phase 2 trial in patients with
metastatic triple negative breast cancer (“TNBC”). On April 7, 2020, we notified Merck that we were terminating the Collaboration Agreement, effective immediately, in connection with our determination to discontinue development of RX-5902
for the treatment of TNBC. We are evaluating development options for RX-5902 and may or may not sponsor additional clinical trials with the compound.
|
|
|
● |
RX-0301 is a potential best-in-class, potent inhibitor of the synthesis of the protein kinase Akt-1, which we believe plays a critical role in cancer cell proliferation, survival, angiogenesis, metastasis, and drug resistance. RX-0301
is currently in preclinical development by Zhejiang HaiChang Biotechnology Co., Ltd. (“HaiChang”) as a nano-liposomal formulation of RX-0201 (Archexin®) using HaiChang’s proprietary QTsome™ technology On February 8, 2020, we
entered into an exclusive license agreement with HaiChang (the “HaiChang License Agreement”) pursuant to which we granted HaiChang an exclusive (even as to us), royalty-bearing, sublicensable worldwide license to research, develop and
commercialize RX-0201 and RX-0301. The HaiChang License Agreement supersedes a prior agreement with HaiChang to develop RX-0301 under which HaiChang was to conduct certain preclinical and clinical activities through completion of a Phase 2a
proof-of-concept clinical trial in hepatocellular carcinoma.
|
We have no product sales to date, and our major sources of working capital have been proceeds from various private and public financings and licensing and collaboration
agreements with our partners. In September 2019, we commenced a process to explore and evaluate strategic alternatives to enhance shareholder value, and have engaged Oppenheimer and Co. Inc. as our financial advisor to assist us in this process.
Potential strategic alternatives include an acquisition, merger, reverse merger, other business combination, sales of assets, licensing, or other strategic alternatives. In connection with the evaluation of strategic alternatives, we are
evaluating opportunities to extend our resources and have reduced our headcount to five employees.
The outbreak of the COVID-19 disease, which the World Health Organization declared a pandemic in March 2020, has led to disruption in the global economy and the
biopharmaceutical industry. The extent of the COVID-19 pandemic’s impact on our business, financial condition and results of operations, as well as on our ability to enter into and complete a strategic transaction, is highly uncertain and will
depend on various factors, including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities, other actions taken to contain the impact of the
pandemic, and impacts on our ability or the ability of potential strategic partners to access the markets on favorable terms, or at all.
Results of Operations
Comparison of the Three Months Ended March 31, 2020 and March 31, 2019
Total Revenues
We recorded revenues of $1,150,000 during the three months ended March 31, 2020, consisting of $250,000 earned from the HaiChang License Agreement and $900,000 from the BioSense License and
Assignment Agreement. We had no revenues for the three months ended March 31, 2019.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees, and other
corporate expenses, including business development, investor relations, and general legal activities.
General and administrative expenses decreased approximately $440,000, or 25.9%, to approximately $1,256,000 for the three months ended March 31, 2020 from $1,696,000 for the three months ended
March 31, 2019. The decreases were primarily attributable to decreased personnel and operating costs resulting from the streamlining of operations.
Research and Development Expenses
Research and development costs are expensed as incurred. These costs consist primarily of salaries and related personnel costs, and amounts paid to contract research organizations, hospitals and
laboratories for the provision of services and materials for drug development and clinical trials. Our research and development expenses are currently related to our oncology drug candidates.
Research and development expenses decreased approximately $1,785,000, or 79.6%, to approximately $457,000 for the three months ended March 31, 2020, from approximately $2,242,000 for the three
months ended March 31, 2019. The decreases are a result of the completion of our RX-3117 and RX-5902 clinical trials, and decreased drug manufacturing costs.
The table below summarizes the approximate amounts incurred in each of our research and development projects for the three months ended March 31, 2020 and 2019:
|
For the Three Months Ended
March 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Clinical Candidates:
|
||||||||
|
RX-3117
|
$
|
326,900
|
$
|
1,078,400
|
||||
|
RX-5902
|
4,200
|
342,400
|
||||||
|
RX-0201
|
1,800
|
115,800
|
||||||
|
|
||||||||
|
Preclinical, Personnel and Overhead
|
123,890
|
705,629
|
||||||
|
Total Research and Development Expenses
|
$
|
456,790
|
$
|
2,242,229
|
||||
We expect total research and development expenses to decrease in the remainder of 2020 as compared to the three months ended March 31, 2020 as we complete our Phase 2a clinical trial of RX-3117
with Abraxane and explore and evaluate strategic alternatives.
Interest Income
Interest income decreased approximately $47,000, or 57.7% for the three months ended March 31, 2020, compared to the same period in 2019. The decreases were primarily attributable to lower
interest rates and balances of cash, cash equivalents and marketable securities for the three months ended March 31, 2020 compared to the same period in 2019.
Unrealized (Loss) Gain on Fair Value of Warrants
Our warrants are recorded as liabilities at fair value, and the warrants are valued using a lattice model. Changes in the fair value of warrants are recorded as an unrealized gain or loss in our
statement of operations. During the three months ended March 31, 2020 and 2019, we recorded unrealized (losses) gains on the fair value of our warrants of approximately $(58,000) and $1,513,000, respectively. Estimating fair values of warrants
requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the warrants due to related changes to external market factors. The large unrealized gain for the three months ended March
31, 2019 primarily resulted from a significant decrease in the stock price of the underlying common stock at the end of this period compared to the beginnings of this period.
Net Loss
As a result of the above, net loss for the three months ended March 31, 2020 was approximately $587,000 or $0.15 per share, compared to approximately $2,343,000, or $0.62 for the three months ended
March 31, 2019.
Liquidity and Capital Resources
Current and Future Financing Needs
We have incurred negative cash flow from operations since we started our business. We expect to continue to incur negative cash flow and operating losses as we explore strategic alternatives. We
have spent, and subject to our exploration of strategic alternatives, expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials and
our research and development efforts. Subject to the result of our exploration of strategic alternatives, we will need to raise additional capital through public or private equity or debt offerings or through arrangements with strategic partners
or other sources in order to continue to develop our drug candidates. In conjunction with our exploration of strategic alternatives, we are exploring opportunities to extend our resources. We believe that our
cash and cash equivalents of approximately $11.0 million as of March 31, 2020 will be sufficient to cover our cash flow requirements for our current activities for at least the next 12 months following the issuance of the financial statements
contained in this Quarterly Report. However, our resource requirements could materially change to the extent we identify and enter into any strategic transaction. Our ability to enter into a strategic transaction could also be impacted by our,
or any potential partner’s ability to, raise additional capital.
Cash Flows
Cash used in operating activities was approximately $1,221,000 for the three months ended March 31, 2020. The operating cash flows during the three months ended March 31, 2020 reflect a net loss
of approximately $587,000, a net decrease of cash components of working capital and non-cash charges totaling $634,000. Cash used in operating activities was approximately $4,380,000 for the three months ended March 31, 2019. The operating cash
flows during the three months ended March 31, 2019 reflect a net loss of approximately $2,343,000, an unrealized gain on the fair value of warrants of approximately $1,514,000, and a net increase of cash components of working capital and non-cash
charges totaling approximately $523,000.
Cash provided by investing activities was $3,000,000 from the redemption of marketable securities for the three months ended March 31, 2020. Cash used in investing activities was approximately
$5,895,000 for the three months ended March 31, 2019 which consisted of approximately $8,888,000 and approximately $13,000 from the purchases of marketable securities and equipment, respectively, offset by approximately $6,000 from the sale of
equipment and $3,000,000 from the redemption of marketable securities.
There was no cash provided by financing activities for the three months ended March 31, 2020. Cash provided by financing activities was approximately $7,654,000 for the three months ended March
31, 2019, which consisted of net proceeds from our underwritten offering in January 2019.
Contractual Obligations
We have a variety of contractual obligations, as more fully described in the 2019 Form 10-K. These obligations include, but are not limited to, contractual obligations in connection with license
agreements (including related milestone payments), lease payments, employee compensation and incentive program expenses, and contracts with various vendors for services. As of March 31, 2020, the total estimated cost to complete our contracts with
vendors for research and development services was approximately $800,000 under the terms of the applicable agreements. All of these agreements may be terminated by either party upon appropriate notice as stipulated in the respective agreements.
Not required.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that
evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed
by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”) rules and forms and (ii) accumulated and communicated to
our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the
controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2020
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Investing in our stock involves a high degree of risk. You should carefully consider the following discussion of risk
factors in its entirety. In addition to the other information set forth in this report, you should carefully consider the factors set forth in the Risk Factors section of our 2019 Form 10-K, as well as other information contained in the
2019 Form 10-K and in other reports we file with the SEC.
Our business is subject to risks arising from the ongoing COVID-19 pandemic.
The outbreak of COVID-19, which the World Health Organization declared a pandemic in March 2020, has spread across the globe and has led to disruption in the
global economy and the biopharmaceutical industry. COVID-19 poses the risk that we or our employees, licensees, and other partners may be prevented from or restricted in conducting business activities for an indefinite period of time,
including due to spread of the disease within these groups or due to restrictions on business and social distancing guidelines that may be requested or mandated by governmental authorities. We have reduced our headcount to five employees and are
dependent on the efforts of our President and Chief Executive Officer, Douglas J. Swirsky, and other key professionals. The loss of Mr. Swirsky or any of our other key professionals as a result of illness or otherwise in connection with the
COVID-19 pandemic could materially and adversely affect our business and our prospects. In addition, as the COVID-19 pandemic continues to disrupt the economy, our future access to capital on favorable terms and our ability to enter into and
complete a strategic transaction may be adversely impacted.
The extent to which the COVID-19 pandemic impacts our business, financial condition and results of operations as well as on our ability to enter into and
consummate a strategic transaction is highly uncertain and will depend on various factors, including the duration and scope of the pandemic, restrictions on business and social distancing guidelines that may be requested or mandated by governmental
authorities, the other actions that may be taken to contain its impact, and impacts on our ability or the ability of potential strategic partners to access the markets on favorable terms, or at all.
|
Exhibit No.
|
Description
|
|
|
Amendment No. 2 to Collaboration and License Agreement, dated as of March 10, 2020 between BioSense Global LLC and Rexahn Pharmaceuticals, Inc.
|
||
|
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) / 15d-14(a).
|
||
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
||
|
101
|
The following materials from Rexahn Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q, formatted in Extensible Business Reporting Language (“XBRL”): (i) Condensed Balance Sheet; (ii) Condensed Statement
of Operations; (iii) Condensed Statement of Comprehensive Loss; (iv) Condensed Statement of Stockholders’ Equity; (v) Condensed Statement of Cash Flows; and (vi) Notes to the Financial Statements.
|
**Portions of this exhibit have been omitted in compliance with Item 601 of Regulation S-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
REXAHN PHARMACEUTICALS, INC.
|
||
|
(Registrant)
|
||
|
By:
|
/s/ Douglas J. Swirsky
|
|
|
Date: May 7, 2020
|
Douglas J. Swirsky
|
|
|
Chief Executive Officer and President
|
||
|
(principal executive, financial and accounting officer)
|
29