10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 4, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
For the Quarterly Period Ended September 30, 2022
OR
For the transition period from to ________
Commission File Number: 001-34079
(Exact name of Registrant as specified in its charter)
|
|
|
|
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification Number)
|
|
|
|
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
Registrant’s Telephone Number, Including Area Code: (248 ) 681-9815
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of Each Class
|
Trading Symbol(s)
|
Name of Each Exchange on Which Registered
|
||
|
|
|
|
|
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 (section 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of
“large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
|
Large accelerated filer
|
☐ |
|
☒ |
|
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 ☒
The number of outstanding shares of the registrant’s common stock as of November 2, 2022 was 20,807,015 .
OCUPHIRE PHARMA, INC.
FORM 10-Q
INDEX
|
|
|
Page
|
|
|
|
|
|
Item 1.
|
2
|
|
|
|
2 |
|
|
|
3 |
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
|
Item 2.
|
18 |
|
|
Item 3.
|
29 |
|
|
Item 4.
|
29 |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
Item 1.
|
29 |
|
|
Item 1A.
|
29 |
|
|
Item 2.
|
29 |
|
|
Item 3.
|
29 |
|
|
Item 4.
|
29 |
|
|
Item 5.
|
29 |
|
|
Item 6.
|
30 |
|
|
|
|
|
| 31 |
||
| Item 1. |
Financial Statements
|
Ocuphire Pharma, Inc.
(in thousands, except share amounts and par value)
|
As of
|
||||||||
|
September 30,
2022
|
December 31,
2021
|
|||||||
|
(unaudited)
|
||||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Prepaids and other current assets
|
||||||||
|
Short-term investments
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and stockholders’ equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Accrued expenses
|
|
|
||||||
|
Short-term loan
|
||||||||
|
Total current liabilities
|
|
|
||||||
|
Warrant liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies (Note 4, Note 9 and Note 10)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, par value $
|
|
|
||||||
|
Common stock, par value $
|
|
|
||||||
|
Additional paid-in-capital
|
|
|
||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
|
Total stockholders’ equity
|
|
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
Ocuphire Pharma, Inc.
(in thousands, except share and per share amounts)
(unaudited)
|
|
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
||||||||||||||
|
2022
|
2021
|
2022 | 2021 | |||||||||||||
| Collaborations revenue |
$ | $ | $ | $ | ||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
General and administrative
|
|
|
||||||||||||||
|
Research and development
|
|
|
||||||||||||||
|
Total operating expenses
|
|
|
||||||||||||||
|
Loss from operations
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Interest expense
|
|
|
( |
) | ||||||||||||
|
Fair value change of warrant liabilities
|
|
|
( |
) | ||||||||||||
|
Other income (expense), net
|
|
|
( |
) | ||||||||||||
|
Loss before income taxes
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Benefit (provision) for income taxes
|
|
|
||||||||||||||
|
Net loss
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Other comprehensive loss, net of tax
|
|
|
||||||||||||||
|
Comprehensive loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
|
Net loss per share:
|
||||||||||||||||
|
Basic and diluted (Note 11)
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
|
Number of shares used in per share calculations:
|
||||||||||||||||
|
Basic and diluted
|
|
|
||||||||||||||
See accompanying notes.
Ocuphire Pharma, Inc.
(in thousands, except share amounts)
(Unaudited)
|
Common Stock
|
Additional
Paid–In
|
Accumulated
|
Total
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity (Deficit)
|
||||||||||||||||
|
Balance at December 31, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||||||
| Reclassification of Series A warrant liability to equity | — | |||||||||||||||||||
|
Stock–based compensation
|
|
|
|
|
|
|||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
|
Net and comprehensive loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at March 31, 2021
|
|
|
|
(
|
)
|
|
||||||||||||||
| Issuance of common stock and warrants in connection with registered direct offering | ||||||||||||||||||||
| Issuance of common stock in connection with the at-the-market program | ||||||||||||||||||||
| Issuance of common stock in connection with settlement with investors | ||||||||||||||||||||
| Issuance costs | — | ( |
) | ( |
) | |||||||||||||||
|
Stock–based compensation
|
|
|
|
|
|
|||||||||||||||
| Exercise of Series B warrants | ||||||||||||||||||||
|
Net and comprehensive loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at June 30, 2021
|
|
|
|
(
|
)
|
|
||||||||||||||
| Issuance of common stock in connection with the at-the-market program | ||||||||||||||||||||
| Issuance costs |
— | ( |
) | ( |
) | |||||||||||||||
| Share–based compensation | ||||||||||||||||||||
| Exercise of options |
||||||||||||||||||||
| Net and comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance at September 30, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
|
Balance at December 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
| Issuance of common stock in connection with the at-the-market program | ||||||||||||||||||||
| Issuance costs | — | ( |
) | ( |
) | |||||||||||||||
|
Stock–based compensation
|
|
|
|
|
|
|||||||||||||||
|
Exercise of stock options
|
|
|
|
|
|
|||||||||||||||
|
Net and comprehensive loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at March 31, 2022
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Issuance of common stock in connection with the at-the-market program
|
|
|
|
|
||||||||||||||||
|
Issuance costs
|
— |
|
(
|
)
|
(
|
)
|
||||||||||||||
|
Stock–based compensation
|
|
|
|
|
|
|||||||||||||||
|
Net and comprehensive loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at June 30, 2022
|
|
|
|
(
|
)
|
$
|
|
|||||||||||||
| Issuance of common stock in connection with the at-the-market program |
||||||||||||||||||||
| Issuance costs |
— | ( |
) | ( |
) | |||||||||||||||
| Stock–based compensation |
||||||||||||||||||||
| Exercise of Series B warrants |
||||||||||||||||||||
| Net and comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance at September 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
See accompanying notes.
Ocuphire Pharma, Inc.
(in thousands)
(Unaudited)
|
Nine Months Ended
September 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Operating activities
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Stock-based compensation
|
|
|
||||||
|
Depreciation
|
|
|
||||||
|
Fair value change in warrant liabilities
|
|
|
||||||
|
Non-cash share settlement with investors
|
||||||||
|
Receipts of investments related to
license agreement
|
( |
) | ||||||
|
Unrealized loss (gain) from short-term investments
|
( |
) | ||||||
|
Change in assets and liabilities:
|
||||||||
|
Prepaid expenses and other assets
|
|
|
||||||
|
Accounts payable
|
(
|
)
|
|
|||||
|
Accrued and other liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Investing activities
|
||||||||
|
Net cash used in investing activities
|
|
|
||||||
|
Financing activities
|
||||||||
| Proceeds from issuance of common stock – registered direct offering | ||||||||
|
Proceeds from issuance of common stock – at-the-market program
|
||||||||
| Issuance costs | ( |
) | ( |
) | ||||
| Payments in connection with short-term loan | ( |
) | ||||||
|
Exercise of stock options and Series B warrants
|
|
|
||||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net (decrease) increase in cash and cash equivalents
|
(
|
)
|
|
|||||
|
Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosure of cash flow information:
|
||||||||
|
Cash paid for income taxes
|
$
|
|
$
|
|
||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Supplemental non-cash financing transactions:
|
||||||||
|
Non-cash reclassification of Series A warrant liability to equity
|
$
|
|
$
|
|
||||
|
Unpaid issuance and deferred offering costs
|
$
|
|
$
|
|
||||
See accompanying notes.
| 1. |
Company Description and Summary of Significant Accounting Policies
|
Nature of Business
Ocuphire Pharma, Inc. (the “Company” or “Ocuphire”) is a clinical-stage ophthalmic biopharmaceutical company focused on developing and commercializing therapies for the treatment of
refractive and retinal eye disorders. Ocuphire’s pipeline currently includes two small molecule product candidates targeting
several of such indications. The Company’s lead product candidate, Nyxol® Eye Drops (“Nyxol”), is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. The Company’s second
product candidate, APX3330, is a twice-a-day oral tablet designed to target multiple pathways relevant to retinal and choroidal (the vascular layer of the eye) diseases such as diabetic retinopathy (“DR”) and diabetic macular edema
(“DME”) which, if left untreated, can result in permanent visual acuity loss and eventual blindness. The Company has also in-licensed APX2009 and APX2014, which are second-generation product candidates and analogs of APX3330.
The Company has sustained operating losses since inception and expects
such losses to continue indefinitely until a sustained revenue source is realized. Management plans to continue financing the Company’s operations primarily through additional issuances of the Company’s equity and debt securities or through collaborations or partnerships with other companies. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or eliminate part or all of its research and development programs.
The Company’s headquarters is located in Farmington Hills, Michigan.
Global Economic Conditions
Generally,
worldwide economic conditions remain uncertain, particularly due to the effects of the COVID‑19 pandemic and increased inflation. The general economic and capital market conditions both in the U.S. and worldwide, have been volatile in the
past and at times have adversely affected the Company’s access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic
conditions decline, the Company’s future cost of equity or debt capital and access to the capital markets could be adversely affected.
The COVID-19 pandemic that began in late 2019 introduced significant volatility to the
global economy, disrupted supply chains and had a widespread adverse effect on the financial markets. As a result of the COVID-19 pandemic, the Company has experienced, and may continue to experience, delays and disruptions in our
clinical trials, as well as interruptions in our manufacturing, supply chain, shipping and research and development operations. Testing and clinical trials, manufacturing, component supply, shipping and research and development
operations may be further impacted by the continuing effects of COVID-19.
Additionally, the Company’s operating results could be materially impacted by changes in the overall
macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, and steps taken by governments and central banks, particularly
in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest
rates.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
The December 31, 2021 condensed balance sheet was derived from audited financial statements,
and may not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in
conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2021.
In the opinion of management, all adjustments, consisting of only normal recurring adjustments
that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating
results for the full fiscal year or any future periods.
On December 31, 2021, the Company merged its wholly-owned subsidiary, OcuSub Inc,
with and into the Company, with the Company remaining as the surviving entity. The merger of the Company’s wholly-owned subsidiary did not have a financial impact in the periods presented. Upon close of this merger, the Company did not
have any remaining entities that required consolidation for financial statement reporting purposes. All significant intercompany accounts and transactions were eliminated in the preparation of the condensed consolidated financial statements prior to the December 31, 2021 merger with OcuSub Inc.
Going Concern
The Company’s ability to continue operating as a going concern is contingent upon, among other things, its ability to secure additional financing and to
achieve and maintain profitable operations. The Company plans to issue additional equity and/or debt instruments to finance operating and working capital requirements, including additional issuances under the 2021 at-the-market program
discussed further below. While the Company expects to obtain the additional financing that is needed, there is no assurance that the Company will be successful in obtaining the necessary funding for future operations. These factors raise
substantial doubt as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Segment
Information
Operating segments are components of an enterprise for which separate financial information
is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The
Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is
the business of development and commercialization of products related to vision performance and health. Accordingly, the Company has a single reporting segment.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of deposit to be cash equivalents.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company’s cash is held by two long-standing financial institutions in the United States. Amounts on deposit may at times exceed
federally insured limits. Management believes that the financial institutions are financially sound, and accordingly, minimal credit risk exists with respect to the financial institutions. As of September 30, 2022, the Company had
deposits that exceeded federally insured amounts by $13.4 million.
Short-term Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and
are recorded on a settlement date basis. The Company’s short-term investments are comprised of equity securities, which in accordance with the fair value hierarchy described below are recorded at fair value using Level l inputs on the
balance sheets. Subsequent changes in fair values are recorded in other income (expense), net on the condensed consolidated statements of comprehensive loss. The Company classifies investments available to fund current operations as
current assets on its balance sheets. The Company did no t recognize any impairments on its investments to date through
September 30, 2022.
Revenue
Recognition
The Company follows the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The guidance provides a
five-step model to determine how revenue is recognized. The Company has entered into license agreements which have revenue recognition implications. (See Note 10 – Collaboration License Agreements.)
In determining the appropriate amount of revenue to be recognized, the Company performs the following steps: (i) identification of
the contracts with a customer; (ii) determination of the performance obligations in the contract; (iii) measurement of the transaction price, including potential constraints on variable consideration; (iv) allocation of the transaction
price to the performance obligations based on estimated stand-alone selling prices; and (v) recognition of revenue when (or as) the Company satisfies a performance obligation.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of
account in ASC 606. Performance obligations may include license rights, development services, and services associated with regulatory submission and approval processes. Significant management judgment is required to determine the level
of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations are either
completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up
method.
As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the
stand-alone selling price of each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines,
reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. The Company allocates the total transaction price to each performance obligation based on the estimated relative standalone
selling prices of the promised goods or service underlying each performance obligation.
Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the
other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer, and the customer can use and
benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied
over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period
and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone payments: At the inception of each arrangement that includes milestone payments, the Company evaluates whether the
milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value
of the associated milestone (such as a regulatory submission) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of
being achieved until such contingency occurs (such as receipt of those approvals). When the Company’s assessment of probability of achievement changes and variable consideration becomes probable, any additional estimated consideration
is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised goods or service underlying each performance obligation and recorded in collaborations revenue based upon when the
customer obtains control of each element.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the
license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has
been allocated has been satisfied (or partially satisfied).
General and Administrative Expenses
General and administrative expenses (“G&A”) consist primarily of personnel-related costs, including salaries and stock-based
compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for
accounting and tax services, settlement costs with third parties and other services provided by business consultants.
Research and Development Expenses
Research and development expenses (“R&D”) consist of costs incurred in performing research and development activities, including
compensation for research and development employees and consultants, costs associated with preclinical studies and clinical trials, regulatory activities, manufacturing activities to support clinical activities, license fees, fees paid to
external service providers that conduct certain research and development, and an allocation of R&D related overhead expenses.
Other Income
(Expense), net
Other income (expense), net includes payments made by the Company in connection with the Contingent Value Rights Agreement discussed
further below with former stockholders of Rexahn Pharmaceuticals, Inc. (“Rexahn”). In addition, other income (expense), net includes interest earned from cash and cash equivalent investments, realized and unrealized gains (losses) from
equity investments and from foreign currency exchange transactions, and when they occur, reimbursements in connection with grants and other sources.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC 718”), Compensation — Stock Compensation. Accordingly, compensation costs related to equity instruments granted are recognized at the grant date fair value. The Company records forfeitures
when they occur. Stock-based compensation arrangements to non-employees are accounted for in accordance with the applicable provisions of ASC 718.
Warrant Liabilities
The Company issued Series A Warrants in connection with the Pre-Merger Financing (see Note 3 – Pre-Merger Financing) and assumed
Rexahn warrants issued prior to the Merger. The Company accounts for these warrants as a liability while outstanding at fair value during periods when certain provisions preclude equity accounting treatment for these instruments.
Additionally, issuance costs associated with the warrants classified as liabilities are expensed as incurred and reflected as interest expense in the accompanying consolidated statements of comprehensive loss. The change in fair value of
the warrant liabilities while outstanding was recognized as a component of the fair value change in warrant liabilities line item in the condensed consolidated statements of comprehensive loss.
Fair Value Measurements
The Company follows accounting guidance that emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Fair value is defined 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.”
Fair value measurements are defined on a three-level hierarchy:
|
|
● |
Level 1 inputs: Unadjusted quoted prices for identical assets or liabilities in
active markets;
|
|
|
● |
Level 2 inputs: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are
observable, whether directly or indirectly, for substantially the full term of the asset or liability; and
|
|
|
● |
Level 3 inputs: Unobservable inputs that reflect the Company’s own assumptions about
the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
|
As of September 30, 2022 and December 31, 2021, the
fair values of cash and cash equivalents, prepaid and other assets, accounts payable, accrued expenses and short-term loan, while outstanding, approximated their carrying values because of the short-term nature of these assets or
liabilities. The fair value of the short-term investments, while outstanding, were based on observable Level 1 inputs in the form of quoted market prices from a major stock exchange. The fair value of the warrant liabilities, while
outstanding, were based on cash flow models discounted at current implied market rates evidenced in recent arms-length transactions representing expected returns by market participants for similar instruments and were based on Level 3
inputs. There were no
The fair value of financial instruments measured on a
recurring basis is as follows (in thousands):
|
As of September 30, 2022
|
||||||||||||||||
|
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets:
|
||||||||||||||||
| Short-term investments |
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total assets at fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
As of December 31, 2021
|
||||||||||||||||
|
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Short-term investments
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total assets at fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following table provides a roll-forward of short-term investments measured at fair value on a recurring basis using observable level
1 inputs for the nine months ended September 30, 2022 and 2021 (in thousands):
|
2022
|
2021
|
|||||||
|
Short-term investments
|
||||||||
|
Balance as of beginning of period
|
$
|
|
$
|
|
||||
| Receipt of investments related to license agreement | ||||||||
|
Unrealized (loss) gain
|
(
|
)
|
|
|||||
|
Balance as of end of period
|
$
|
|
$
|
|
||||
The following table provides a roll-forward of the
warrant liabilities measured at fair value on a recurring basis using unobservable level 3 inputs for the nine months ended September 30, 2022 and 2021 (in thousands):
|
2022
|
2021
|
|||||||
|
Warrant liabilities
|
||||||||
|
Balance as of beginning of period
|
$
|
|
$
|
|
||||
|
Change in fair value of warrant liabilities
|
|
|
||||||
|
Reclassification of Series A warrants from liability to equity
|
|
(
|
)
|
|||||
|
Balance as of end of period
|
$
|
|
$
|
|
||||
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial
Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (“CECL”) model which requires
the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss
model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. The Company does not expect that the adoption of this ASU on January 1, 2023 will have a significant impact on its condensed consolidated financial statements.
In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.
It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments
and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for public business entities that meet the definition of a Securities and Exchange Commission (“SEC”) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for
fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within
those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its condensed consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance, to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an
entity’s financial statements. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted this guidance on January
1, 2022 and it did not have a material impact to our financial statements.
| 2. |
Merger and Contingent Value Rights Agreement
|
On November 5, 2020, the Company
completed its merger transaction (the “Merger”) with Rexahn. In connection with the Merger, the Company, Shareholder Representatives Services LLC, as representative of the Rexahn stockholders prior to the Merger, and Olde Monmouth Stock
Transfer Co., Inc., as the rights agent, entered into a Contingent Value Rights Agreement (the “CVR Agreement”).
Pursuant to the terms of the Merger
and the CVR Agreement, Rexahn stockholders of record as of immediately prior to the effective time of the Merger received one
contingent value right (“CVR”) for each share of Rexahn common stock held.
Each CVR entitles such holders to
receive, for each calendar quarter (each, a “CVR Payment Period”) during the 15 -year period after the Closing (the “CVR Term”),
an amount equal to the following:
|
|
● |
|
|
|
● |
|
|
|
● |
|
The CVRs are not transferable, except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not accrue interest
and will not be registered with the SEC or listed for trading on any exchange. The CVR Agreement will continue in effect until the later of the end of the CVR Term and the payment of all amounts payable thereunder. As of September 30,
2022, no milestones had been accrued as there were no
Former Rexahn Warrants
Following the closing of the Merger,
231,433 outstanding, unexercised Rexahn warrants to purchase common stock remained outstanding, the majority of which were
subsequently repurchased according to the terms of the original warrant agreements. As of September 30, 2022, 63,734 of the
Rexahn warrants remained outstanding with exercise prices ranging from $38.40 to $146.88 per share with an average remaining contractual life of 1.2
years.
|
3.
|
Pre-Merger Financing
|
Securities Purchase Agreement
On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended
and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300 ,000 invested by five directors of Ocuphire Pharma, Inc., prior to the Merger and one director of Rexahn upon closing of the Merger (the “Pre-Merger Financing”). The Pre-Merger Financing also included the issuance of Series A Warrants and Series B Warrants discussed
further below.
Waiver Agreements
Effective February 3, 2021, each investor that invested in the Pre-Merger Financing entered into a Waiver Agreement with
the Company (collectively, the “Waiver Agreements”). Pursuant to the Waiver Agreements, the investors and the Company agreed to waive certain rights, finalize the exercise price and number of Series A Warrants and Series B Warrants, eliminate
certain financing restrictions, extend the term of certain leak-out agreements, and, in the case of certain investors, grant certain registration rights for the shares underlying the warrants.
The Waiver Agreements provide for the elimination of the full ratchet anti-dilution provisions contained in the Series A Warrants (as certain of the anti-dilution
provisions had previously caused liability accounting treatment for the Series A Warrants). Upon the effective date of the Waiver Agreements, the Series A Warrants were reclassified to equity.
Pursuant to the Waiver Agreements, the number of shares underlying all of the Series B Warrants was fixed in the aggregate with respect to all investors, eliminating
any future resets.
Series A Warrants
The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838
shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein) and were outstanding as of September 30, 2022. Prior to the execution of the Waiver Agreements, the Series A Warrants were accounted for
and classified as liabilities on the accompanying condensed balance sheets given certain price reset provisions not used for a fair valuation under a fixed for fixed settlement scenario as required for equity balance sheet classification. Upon the
February 3, 2021 effective date of the Waiver Agreements, the Series A Warrants were reclassified to equity. A final fair valuation of the Series A Warrants was performed utilizing a Black Scholes model to estimate the aggregate fair value of the
Series A Warrants prior to being re-classified as equity. Input assumptions used were as follows: risk-free interest rate 0.4 %; expected
volatility of 86.6 %; expected life of 4.8
years; and expected dividend yield zero percent. The underlying stock price used was the market price as quoted on Nasdaq as of
February 3, 2021, the effective date of the Waiver Agreement. The fair value change of the Series A Warrants was $33.8 million and was
recorded to the fair value change in warrant liabilities line item on the accompanying condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2021. As a result of the reclassification to equity, the Series A
Warrants are no longer subject to remeasurement.
Series B Warrants
The Series B Warrants have an exercise price of $0.0001 , were exercisable upon issuance and will expire on the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the investor’s
Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares
remain issuable thereunder. The Series B Warrants outstanding as of September 30, 2022 were exercisable for 77,678 shares of common
stock. The Series B Warrants were accounted for and classified as equity on the accompanying condensed balance sheets.
Apexian Sublicense Agreement
On January 21, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc.,
pursuant to which it obtained exclusive worldwide patent and other intellectual property rights. In exchange for the patent and other intellectual rights, the Company agreed to certain milestone payments and royalty payments on future
sales (See Note 9 — Apexian Sublicense Agreement). As of September 30, 2022, there was sufficient uncertainty with regard to any future cash milestone payments under the sublicense agreement, and as such, no liabilities were recorded
related to the sublicense agreement.
Facility Leases
In May 2019, the Company entered into a short-term
non-cancellable facility lease (the “HQ Lease”) for its operations and headquarters for a seven-month term beginning in June
2019. The HQ Lease, as amended, has extended the term to December 31, 2022. Additionally, Ocuphire leased office space in Rockville, Maryland through June 30, 2021 previously occupied by Rexahn (the “Rexahn Lease”). The HQ Lease and the Rexahn Lease qualified for the short-term lease exception under ASC 842, Leases. The monthly base rent, as amended, for the HQ Lease is approximately $3,000 . The monthly base rent for the Rexahn
Lease was $13,000 . The rent expense associated with the HQ Lease and Rexahn Lease amounted to $9,000 30,000 107,000 45,000 through its new December 31, 2023 expiration date as amended in October 2022. (See Note 14 — Subsequent Events).
Other
In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legal proceedings that relate to contractual
allegations, patent infringement and other claims. In addition, the Company from time to time may be potentially committed to reimburse third parties for costs incurred associated with business development related transactions upon the
achievement of certain milestones. The Company establishes accruals when applicable for matters and commitments which it believes losses are probable and can be reasonably estimated. To date, no loss contingency for such matters and
potential commitments have been recorded. Although it is not possible to predict with certainty the outcome of these matters or potential commitments, the Company is of the opinion that the ultimate resolution of these matters and
potential commitments will not have a material adverse effect on its results of operations or financial position.
| 5. |
Supplemental Balance Sheet Information
|
Prepaid and Other Assets
Prepaid and other assets consist of the following (in
thousands):
|
September 30,
2022
|
December 31,
2021
|
|||||||
|
Prepaids
|
$
|
|
$
|
|
||||
|
Other
|
|
|
||||||
|
Total prepaids and other assets
|
$
|
|
$
|
|
||||
Property and Equipment, net
Property and equipment held for use by category are presented in the
following table (in thousands):
|
September 30,
2022
|
December 31,
2021
|
|||||||
|
Equipment
|
$
|
|
$
|
|
||||
|
Furniture
|
|
|
||||||
|
Total property and equipment
|
|
|
|
|
||||
|
Less accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Property and equipment, net
|
$
|
|
$
|
|
||||
Depreciation
expense was $1 3
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
September 30,
|
December 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
R&D services and supplies
|
$
|
|
$
|
|
||||
|
Payroll
|
|
|
||||||
|
Professional services
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Short-Term Loan
The Company entered into an unsecured short-term loan (the “Loan”) agreement in the amount of
$0.6 million in November 2021 related to financing an insurance policy. The Loan was payable in six monthly installments of $108 ,000
beginning in December 2021. The Loan had an annual interest rate of 5.5 % per annum. Interest expense in the amount of $9 ,000 was recognized in connection with the Loan during the nine months ended September 30, 2022. The final payment on the Loan was made in
May 2022.
| 6. |
Related Party Transactions
|
Pre-Merger
Financing and Waiver Agreements
On April 8, 2022, Ocuphire entered into a consulting agreement with a director of the Company. The consulting
agreement provides for $10,000 a month in cash payments, effective as of April 1, 2022. Additionally, on April 8, 2022, in
connection with the consulting arrangement, the director received a stock option grant for 50,000 options, 25 % of which will vest on March 31, 2023, with the remainder vesting in equal monthly installments over 36 months. The consulting agreement was amended on September 19, 2022 to provide for vesting acceleration for stock-based awards in
the event of a change in control. The Company incurred related consulting expenses of $30,000 and $60,000 during the three and nine months ended September 30, 2022, respectively. There were no 10,000 of the related consulting expenses were
unpaid.
| 7. |
Stockholders’ Equity
|
At-The-Market Program
On February 4, 2021, Ocuphire filed a Form S-3 shelf registration under the Securities Act of 1933 which was declared effective by the SEC on February 12, 2021 (the “2021 Shelf”) under which the Company may offer
and sell, from time to time in its sole discretion, securities having an aggregate offering price of up to $125 million. In
connection with the 2021 Shelf, on March 11, 2021, Ocuphire entered into a sales agreement with JonesTrading Institutional Services LLC (“JonesTrading”) under which the Company may offer and sell, from time to time at its sole discretion,
to or through JonesTrading, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $40
million (the “2021 ATM”). During the three and nine months ended September 30, 2022, 634,509 and 1,848,980 shares of common stock were sold under the 2021 ATM for aggregate gross proceeds in the amount of $1.4 million and $4.4 million,
respectively, before deducting issuance expenses, including the placement agent’s fees, legal and accounting expenses, in the amount of $42,000
and $130,000 , respectively. During the three and nine months ended September 30, 2021, 332,600 and 1,233,543 shares were sold
under the 2021 ATM for gross proceeds in the amount of approximately $1.7 million and $5.8 million, before deducting issuance expenses in the amount of approximately $0.1 and $0.3 million, respectively.
Registered Direct Offering
On June 4, 2021, the Company entered into a placement agency agreement for a registered direct offering (“RDO”) with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the placement agency agreement, AGP on June 8, 2021
sold an aggregate of 3,076,923 shares of the Company’s common stock and warrants to purchase 1,538,461 shares of the Company’s common stock (the “RDO Warrants”) at an offering price of $4.875 per one share and 0.50 RDO Warrants, for gross
proceeds of approximately $15,000,000 , before AGP’s fees and related offering expenses in the amount of approximately $1.1 million.
The RDO Warrants have an exercise price of $
| 8. |
Stock-based Compensation
|
Stock-based
compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed consolidated statements of comprehensive loss for the three and nine month periods indicated below
(in thousands):
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
General and administrative
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Research and development
|
|
|
|
|
||||||||||||
|
Total stock-based compensation
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Ocuphire Stock Options
Inducement
Plan
On February 22, 2021, the Company adopted the
Ocuphire Pharma, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 325,258 shares of its
common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the
meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.
2020 Equity Incentive Plan
The stockholders of the Company approved the 2020
Equity Incentive Plan (the “2020 Plan”) for stock-based awards. The 2020 Plan became effective on November 5, 2020. Under the 2020 Plan, (i) 1,000,000
new shares of common stock were reserved for issuance and (ii) up to 70,325 additional shares of common stock may be issued,
consisting of (A) shares that remain available for the issuance of awards under prior equity plans and (B) shares of common stock subject to outstanding stock options or other awards covered by prior equity plans that have been cancelled
or expire on or after the date that the 2020 Plan became effective. The 2020 Plan permits the grant of incentive and nonstatutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock and net loss
awards, and other stock-based awards.
2018 Equity Incentive Plan
Prior to the 2020 Plan, the Company had adopted a 2018
Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,175,000 shares of the Company’s common stock were reserved
for issuance to employees, directors and consultants. Upon the effective date of the 2020 Plan, no additional shares were
available for issuance under the 2018 Plan.
2020 Plan
Evergreen Provision
Under the 2020 Plan, the shares reserved automatically
increase on January 1 of each year, for a period of not more than ten years from the date the 2020 Plan is approved by the
stockholders of the Company, commencing on January 1, 2021 and ending on (and including) January 1, 2030, by an amount equal to 5 %
of the shares of common stock outstanding as of December 31 of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1 of a given year to provide that there will be no January 1
increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. On January 1, 2022, 942,291 shares were added to the 2020 Plan as a result of the evergreen provision.
General
During the three and nine months ended September 30, 2022, 167,000 and 893,305 stock options were granted to
directors, officers, employees and consultants, respectively, generally vesting over a ten (10 ) to forty-eight (48 ) month period. During the three and nine months ended September 30, 2021, 128,000 and 387,800 stock options were granted to newly-hired
consultants and employees, respectively, generally vesting over a six (6 ) to forty-eight (48 ) month period. The Company recognized $394 ,000 and
$452 ,000 in stock-based compensation expense related to stock options during the three months ended September 30, 2022 and 2021, respectively,
and $1,229 ,000 and $1,331 ,000
during the nine months ended September
30, 2022 and 2021, respectively. During the nine months ended September
30, 2022, 24,309 stock options were exercised with an intrinsic value of $59,000 . During the three and nine months ended September 30, 2021, 66,056 and
73,442 stock options were exercised, respectively, with an intrinsic value of $271,000 and $345,000 , respectively.
The weighted average fair value per share of options granted during the
three and nine months ended September 30, 2022 was $1.65 and $2.06 , respectively.
The weighted average fair value per share of options granted during the three and nine months ended September 30, 2021 was $3.69 and
$4.47 , respectively. The Company measures the fair value of stock options with service-based and performance-based vesting
criteria to employees, directors, consultants and directors on the date of grant using the Black-Scholes option pricing model. The Company does not have history to support a calculation of volatility and expected term. As such, the
Company has used a weighted-average volatility considering the volatilities of several guideline companies.
For purposes of identifying similar entities, the
Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average
expected life of the options was based on the contractual term for agreements that allow for exercise of vested options through the end of the contractual term upon termination of continuous service, and for all other agreements, was
based on the midpoint between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk-free interest rate is determined by reference to implied
yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.
The weighted-average assumptions used
in the Black-Scholes option pricing model are as follows during the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended September 30, |
||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Expected stock price volatility
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Expected life of options (years)
|
|
|
|
|
||||||||||||
|
Expected dividend yield
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Risk free interest rate
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
During the three and nine months ended September 30, 2022,
During the three and nine months ended September
30, 2022, 13,500 and 27,788 options were forfeited, respectively. During the nine months ended September 30, 2021, 25,558 options were forfeited. As of September 30, 2022, 892,920 No shares were available for future
issuance under the 2018 Plan.
Unrecognized
stock-based compensation cost was $3.0 million as of September 30, 2022. The unrecognized stock-based expense is expected to be recognized over a weighted average
period of 1.3 years.
Ocuphire Restricted Stock Awards
The Company did no zero
and 40,000 RSAs vested, respectively, and no zero and $22,000 , respectively.
Common Stock Issued for Services
The Company granted stock for services in the amount of 52,225 common shares during the three months ended September 30, 2022 to four board members who elected to receive their board retainers in the form of stock for services performed as compared to 5,047 shares of common stock granted for services to two
board members during the three months ended September 30, 2021. During the nine months ended September 30, 2022 and 2021, 74,396
and 14,444 common shares were issued to board members for services, respectively. The stock-based compensation related to
these services amounted to $99 ,000 and $26 ,000 during the three months ended September 30, 2022 and 2021, respectively, and $154 ,000
and $82 ,000 during the nine months ended September 30, 2022 and 2021, respectively.
Former
Rexahn Options
| 9. |
Apexian Sublicense Agreement
|
On
January 21, 2020, the Company entered into a sublicense agreement (as amended on June 4, 2020, the “Apexian Sublicense Agreement”) with Apexian, pursuant to which it obtained exclusive worldwide patent and other intellectual property
rights that constitute a Ref-1 Inhibitor program relating to therapeutic applications to treat disorders related to ophthalmic and diabetes mellitus conditions. The lead compound in the Ref-1 Inhibitor program is APX3330, which the
Company intends to develop as an oral pill therapeutic to treat diabetic retinopathy and diabetic macular edema initially, and potentially later to treat wet age-related macular degeneration. In connection with the Apexian Sublicense
Agreement, the Company issued a total of 891,422 shares of its common stock to Apexian and to certain affiliates of Apexian
in calendar year 2020. As a result of the common stock issued pursuant to the Apexian Sublicense Agreement, Apexian is considered by Ocuphire to be a related party.
The Company
also agreed to make one-time milestone payments under the Apexian Sublicense Agreement for each of the first ophthalmic indication and the first diabetes mellitus indication for the development and regulatory milestones, and once for each
of several sales milestones. These milestone payments include (i) payments for specified developmental and regulatory milestones (including completion of the first Phase 2 trial and the first Phase 3 pivotal trial in the United States, and
filing and achieving regulatory approval from the FDA for the first New Drug Application for a compound) totaling up to $11
million in the aggregate and (ii) payments for specified sales milestones of up to $20 million in the aggregate, which net sales
milestone payments are payable once, upon the first achievement of such milestone. Lastly, the Company also agreed to make a royalty payment equal to a single-digit percentage of its net sales of products associated with the covered patents
under the Apexian Sublicense Agreement. If it is not terminated pursuant to its terms, the Apexian Sublicense Agreement shall remain in effect until expiration of the last to expire of the covered patents.
None of the criteria to recognize
milestone or royalty obligations were met during the three and nine month periods ended September
30, 2022 and
2021.
|
10.
|
Collaboration and License Agreements
|
BioSense License and Assignment Agreement
On March 10, 2020,
pre-Merger, Rexahn entered into an amendment to its collaboration and license agreement, (as amended, the “BioSense License and Assignment Agreement”) with 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 “BioSense Territory”). Under the terms of the BioSense License and Assignment Agreement, the Company (i) granted BioSense an exclusive license to develop and
commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the BioSense Territory and (ii) assigned and transferred all of the former Rexahn patents and patent applications related to RX-3117 in the
BioSense Territory. The upfront payment consisted of an aggregate of $1,650,000 , of which $1,550,000 was paid to Rexahn prior to the Merger. During the nine month period ended September 30,
2021, the Company satisfied a performance obligation for the $100,000 payment that was remaining and recorded this amount as
collaboration revenue.
Under the BioSense License and Assignment Agreement, the Company is
eligible to receive additional milestone payments in an aggregate of up to
$84,500,000 upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties at low double-digit rates on annual net
sales in the BioSense Territory. The Company determined that none of the milestone payments under the BioSense License and Assignment Agreement were probable of payment as of September 30, 2022, and as a result, no revenue related to the milestones was recognized as the achievement of events entitling the Company to any milestone payments were 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.
Payments received under the BioSense License and Assignment Agreement are subject to the
CVR Agreement described in Note 2 – Merger and Contingent Value Rights Agreement.
Processa License Agreement
On June 16, 2021, the
Company entered into a license agreement (the “Processa License Agreement”) with Processa Pharmaceuticals, Inc. (“Processa”), pursuant to which the Company has agreed to grant Processa an exclusive license to develop, manufacture and commercialize RX-3117 globally, excluding the BioSense Territory.
As consideration for the Processa License Agreement, the Company received an upfront payment in July 2021 consisting of 44,689 shares of Processa common stock with a fair value of $289,000 (at the contract date) and a $200,000 cash payment.
The Company was restricted from selling the Processa common stock for a period of one year ending June 16, 2022. As additional
consideration, Processa will make payments to the Company upon the achievement of certain development and regulatory milestones, which primarily consist of dosing a patient in pivotal trials or having a drug indication approved by a regulatory
authority in the United States or another country. In addition, Processa will pay the Company mid-single-digit royalties based on annual sales under the license and will make one -time sales milestone payments based on the achievement during a calendar year of certain thresholds for annual sales. Processa is also required to give the Company