10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 13, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
For the Quarterly Period Ended September 30, 2023
OR
For the transition period from to ________
Commission File Number: 001-34079
(Exact name of Registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s Telephone Number, Including Area Code: (248 ) 957-9024
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:
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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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:
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Large accelerated filer
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Accelerated filer
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Smaller reporting company
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Emerging growth company
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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
7, 2023 was 22,637,600 .
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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| Item 1. |
Financial Statements
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Ocuphire Pharma, Inc.
(in thousands, except share amounts and par value)
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As of
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September 30,
2023
(unaudited)
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December 31,
2022
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Assets
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Current assets:
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Cash and cash equivalents
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$
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$
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| Accounts receivable (Note 9) | ||||||||
| Contract assets and unbilled receivables (Note 9) |
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Prepaids and other current assets
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Short-term investments
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Total current assets
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Property and equipment, net
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Total assets
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$
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$
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Liabilities and stockholders’ equity
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Current liabilities:
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Accounts payable
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$
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$
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Accrued expenses
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Total current liabilities
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Total liabilities
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Commitments and contingencies (Note 3 and Note 8)
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Stockholders’ equity
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Preferred stock, par value $
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Common stock, par value $
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Additional paid-in capital
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Accumulated deficit
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(
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(
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Total stockholders’ equity
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Total liabilities and stockholders’ equity
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$
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$
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See accompanying notes.
Ocuphire Pharma, Inc.
(in thousands, except share and per share amounts)
(Unaudited)
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For the Three Months Ended
September 30,
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For the Nine Months Ended
September 30,
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2023
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2022
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2023 | 2022 | |||||||||||||
| License and collaborations revenue |
$ | $ | $ | $ | ||||||||||||
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Operating expenses:
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General and administrative
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Research and development
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Total operating expenses
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| Income (loss) from operations |
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(
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Financing costs (Note 6)
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Interest expense (Note 4)
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| Fair value change in derivative liability |
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Other income (expense), net
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Income (loss) before income taxes
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Provision for income taxes
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| Net income (loss) |
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(
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| Other comprehensive income (loss), net of tax |
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| Comprehensive income (loss) |
$
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$
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(
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$ | ( |
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| Net income (loss) per share (Note 10): | ||||||||||||||||
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Basic
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$
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$
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(
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$ | ( |
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| Diluted | $ | $ | ( |
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Number of shares used in per share calculations:
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Basic
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See accompanying notes.
Ocuphire Pharma, Inc.
(in thousands, except share amounts)
(Unaudited)
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Common Stock
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Additional
Paid–In
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Accumulated
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Total
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Shares
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Amount
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Capital
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Deficit
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Equity
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Balance at December 31, 2021
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$
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$
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$
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(
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$
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Issuance of common stock in connection with the at-the-market program
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| Issuance costs |
— | ( |
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Stock–based compensation
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Net and comprehensive loss
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—
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Balance at March 31, 2022
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Issuance of common stock in connection with the at-the-market program
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| Issuance costs | — | ( |
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Stock–based compensation
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Net and comprehensive loss
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—
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Balance at June 30, 2022
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Issuance of common stock in connection with the at-the-market program
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| Issuance costs | — | ( |
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| Exercise of Series B warrants |
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| Net and comprehensive loss | — | ( |
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| Balance at September 30, 2022 | $ | $ |
$ |
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Balance at December 31, 2022
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$
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$
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$
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(
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$
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| Issuance costs | — | ( |
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Stock-based compensation
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Exercise of warrants
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Net and comprehensive loss
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—
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Balance at March 31, 2023
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Issuance costs
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— |
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Stock-based compensation
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Net and comprehensive loss
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—
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Balance at June 30, 2023
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Issuance of common stock in connection with the at-the-market program and purchase agreement
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| Issuance costs |
— | ( |
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| Stock–based compensation | ||||||||||||||||||||
| Net and comprehensive income |
— | |||||||||||||||||||
| Balance at September 30, 2023 | $ |
$ |
$ |
( |
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See accompanying notes.
Ocuphire Pharma, Inc.
(in thousands)
(Unaudited)
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For the Nine Months
Ended
September 30,
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2023
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2022
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Operating activities
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Net loss
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$
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$
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Adjustments to reconcile net loss to net cash used in operating activities:
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Stock-based compensation
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Depreciation
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Unrealized loss from short-term investments
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Financing costs
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Fair value change in derivative liability
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| Change in assets and liabilities: |
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Accounts receivable
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Contract assets and unbilled receivables
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Prepaid and other assets
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Accounts payable
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Accrued and other liabilities
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Net cash used in operating activities
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Investing activities
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Net cash used in investing activities
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Financing activities
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Proceeds from issuance of common stock in connection with the at-the-market program and purchase agreement
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| Issuance costs | ( |
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| Payments made in connection with short-term loan | ( |
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| Exercise of Series B warrants |
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Exercise of stock options
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Net cash provided by financing activities
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Net decrease in cash and cash equivalents
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(
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(
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Cash and cash equivalents at beginning of period
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Cash and cash equivalents at end of period
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$
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$
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Supplemental disclosure of cash flow information:
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Cash paid for income taxes
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$
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$
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Cash paid for interest
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$
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$
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Supplemental non-cash financing transactions:
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| Unpaid issuance costs |
$
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$
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| Non-cash issuance of common stock in connection with equity purchase agreement |
$ | $ | ||||||
| Value of derivative established in connection with the equity purchase agreement |
$ | $ | ||||||
See accompanying notes.
| 1. |
Company Description and Summary of Significant Accounting Policies
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Nature of Business
Ocuphire Pharma, Inc. (the “Company” or “Ocuphire”) is a clinical-stage ophthalmic biopharmaceutical company
focused on developing novel therapies for the treatment of unmet needs of patients with retinal and refractive eye disorders.
The Company’s lead retinal product candidate, APX3330, is a first-in-class small-molecule inhibitor of Ref-1 (reduction oxidation
effector factor-1 protein). Ref-1 is a regulator of transcription factors such as HIF-1α and NF-kB. Inhibiting REF-1 reduces levels of vascular endothelial growth factor (“VEGF”) and inflammatory cytokines which are known to play
key roles in ocular angiogenesis and inflammation. Through inhibition of Ref-1, APX3330 normalizes the levels of VEGF to physiologic levels, unlike biologics that deplete VEGF below the levels required for normal function. APX3330
is an oral tablet administered twice per day for the treatment of diabetic retinopathy (“DR”). A Phase 2 study in subjects with DR or diabetic macular edema has recently been completed. A successful End-of-Phase 2 (“EOP2”) meeting
with the U.S. Food and Drug Administration (the “FDA”) was held in
October 2023 at which the Company obtained agreement on the registration endpoint supporting the advancement of APX3330 into Phase 3 clinical trials.
DR affects approximately 10 million people with diabetes and is projected to impact over 14 million Americans by 2050. DR is classified
as Non-Proliferative Diabetic Retinopathy (“NPDR”), the early stage of the disease in which symptoms may be mild or nonexistent or Proliferative Diabetic Retinopathy (“PDR”) which is the more advanced stage of diabetic eye disease
that can be highly symptomatic with loss of vision. Approximately 80% of DR patients have NPDR that will progress to PDR if left untreated. Despite the risk for visual loss associated with this disease, over 90% of NPDR patients
currently receive no course of treatment apart from observation by their eye care specialist until they develop sight-threatening complications. This is due to the treatment burden of the frequent eye injections required with
currently approved therapies for this disease. APX3330, as an oral tablet, has the potential to be an early, non-invasive treatment for the 8 million NPDR patients in the US.
The Company has also in-licensed APX2009 and APX2014, which are second-generation analogs of APX3330. The unique mechanism of action of
these Ref-1 inhibitors of reducing angiogenesis and inflammation could potentially be beneficial in treating other retinal diseases such as age-related macular degeneration, and geographic atrophy.
In November 2022, the Company entered into a license and collaboration agreement (the “Nyxol License Agreement”)
with FamyGen Life Sciences, Inc. (“Famy”) (acquired by Viatris, Inc. (“Viatris”) in January 2023) pursuant to which it granted Viatris an exclusive license to develop, manufacture, import, export and commercialize its refractive
product candidate Phentolamine Ophthalmic Solution 0.75%, formerly known as Nyxol (“POS”). POS is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. POS was
approved by the FDA for the treatment for pharmacologically-induced mydriasis under the brand name RYZUMVI™ in September 2023. POS is currently in Phase 3 clinical trials for presbyopia (age-related blurry near vision). The
VEGA-2 Phase 3 study in presbyopia achieved its primary endpoint. POS is also in Phase 3 for night vision disturbances or dim light vision (“DLD”) (halos, glares and starbursts) and a Special Protocol Assessment (“SPA”) has been
submitted in DLD with the FDA.
The Company’s headquarters is located in Farmington Hills, Michigan.
Reverse Merger with Rexahn
On June 17, 2020, Ocuphire, Rexahn Pharmaceuticals, Inc. (“Rexahn”) and Razor
Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Rexahn (“Merger Sub”), entered into an Agreement and Plan of Merger and Reorganization, as amended on June 29, 2020 (as amended, the “Merger Agreement”),
pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub would merge with and into Ocuphire, with Ocuphire continuing as a wholly-owned
subsidiary of Rexahn and the surviving corporation of the merger (the “Merger”). The Merger closed on November 5, 2020. Upon completion of the Merger, Rexahn changed its name to Ocuphire Pharma, Inc. and changed its ticker
symbol on the Nasdaq Capital Market (“Nasdaq”) to “OCUP”.
Global Economic
Conditions
Generally, worldwide economic conditions remain
uncertain, particularly due to the effects of the conflict between Russia and Ukraine and potentially between Israel and Hamas, disruptions in the banking system
and financial markets, lingering COVID-19 pandemic, increased inflation and rising interest rates. 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.
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, conflicts in Ukraine and the Middle East, disruptions
in the banking system and financial markets, 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 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, 2022 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, 2022.
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 closing 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 financial statements prior to the December 31, 2021 merger with OcuSub Inc.
Liquidity
The accompanying condensed financial statements have been prepared on the basis that the Company will continue as a going concern.
From its inception, the Company has devoted substantially all of its efforts to drug development and conducting clinical trials.
As of September 30, 2023, the Company had $42.4 million in cash and cash equivalents. The Company believes its current available cash and cash equivalents will be sufficient to fund the Company’s planned expenditures and meet its obligations
for at least 12 months following November 13, 2023, which is the date that these condensed financial statements are available to be issued.
In the future, the Company may need to raise additional funds until it is able to generate sufficient revenues to fund its
development activities. The Company’s future operating activities, coupled with its plans to raise capital or issue debt financing, may provide additional liquidity in the future, however these actions are not solely within the control
of the Company and the Company is unable to predict the outcome of these actions to generate the liquidity ultimately required.
Use of Estimates
The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the condensed 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 or such
person functioning in such role. 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 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. Management follows approved policies established by its Board of Directors to reduce credit risk associated with
the Company’s cash deposit and investment accounts. Pursuant to these policies, the Company limits its exposure through the kind, quality and concentration of its investments. The Company’s cash and cash equivalents are held or managed by two financial institutions in the United States. As of September 30, 2023, the Company
had cash equivalents of $42.0 million that were not eligible for coverage by Federal Deposit Insurance Corporation (“FDIC”). These balances are invested in funds whose assets consist almost entirely of securities issued by the U.S. Treasury or
guaranteed by the U.S. government.
Short-term Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and
records them 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 statements of comprehensive income (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,
2023.
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 9 – License and Collaboration 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
and other services. 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 relative standalone selling
prices of the promised goods or service underlying each performance obligation.
Licenses of intellectual property and research and development services: 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 obligations, such as research
and development services, 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. For research and development services
that are distinct from a license transfer obligation, the Company determines whether the services are 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 such services. 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).
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).
Contract Assets and Unbilled Receivables
The Company recognizes contract assets and unbilled receivables when goods or services are
transferred to the customer before the customer pays or before reimbursement for payment is billed or due, excluding any amounts presented as an account receivable. The Company recorded contract assets and unbilled receivables in
connection with a license and collaboration agreement in the amount of $1.2 million as of September 30, 2023. See Note 9-
License and Collaboration Agreements.
Accounts Receivable and Allowances for Doubtful Accounts
The Company records a provision for doubtful accounts, when appropriate,
based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts
receivable, its historical write-offs, the credit worthiness of each customer, and economic conditions that could affect the collectability of the balances in the future. Account balances are charged off against the allowance when
the Company believes that it is probable that the receivable will not be recovered. Actual write-offs may be in excess of the Company’s estimated allowance. The Company has no t incurred any bad debt expense to date and no
General and Administrative Expenses
General and administrative expenses 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
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 nonclinical 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. R&D costs include costs that are reimbursed under the Nyxol License
Agreement.
Financing costs
Financing costs consist of issuance costs attributed to an equity line financing facility with Lincoln Park (See Note 6 –
Stockholders’ Equity).
Interest Expense
Interest expense is attributed to interest on principal related to a short-term loan during the period it was outstanding. The
short-term loan was fully repaid in May 2022.
Other Income (Expense), net
Other income (expense), net reflected in
this line item includes payments made by the Company in connection with the Contingent Value Rights Agreement discussed further below with former Rexahn shareholders. In addition, other income (expense), net includes interest earned
from cash and cash equivalent investments, realized and unrealized gains (losses) from equity investments and reimbursements in connection with grants and other sources when they occur.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of the Financial Accounting Standards Board
(“FASB”) 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.
Derivative Liability
The Company evaluates all features contained in financing agreements to determine if there are any embedded derivatives that require
separation from the underlying agreement under ASC 815 – Derivatives and Hedging. An embedded derivative that requires separation is accounted for as a separate liability from the host
agreement. The separated embedded derivative is accounted for separately on a fair market value basis. The Company records the fair value changes of a separated embedded derivative at each reporting period in the condensed statements
of comprehensive income (loss) under the fair value change in derivative liability line item. The Company determined that certain features under an equity line financing (See Note 6 — Stockholders’
Equity) collectively qualified as an embedded derivative. The derivative was accounted for separately from the underlying equity line financing agreement.
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, 2023 and December 31, 2022, the fair values of cash and cash equivalents, accounts receivable, contract assets,
unbilled receivables, prepaid and other assets, accounts payable, accrued expenses 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 derivative liability associated with the equity line financing facility (See Note 6 – Stockholders’ Equity) was based on cash flow models discounted at
current implied market rates representing expected returns by market participants for similar instruments and are based on Level 3 inputs. The fair value of the warrant liabilities, while outstanding, were based on a Black-Scholes option model using 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, 2023
|
||||||||||||||||
|
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Short-term investments |
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total assets at fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ |
$ |
$ |
$ |
||||||||||||
| Total liabilities at fair value | $ |
$ |
$ |
$ |
||||||||||||
|
As of December 31, 2022
|
||||||||||||||||
|
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 and derivative
liabilities measured at fair value on a recurring basis using observable Level 1 and Level 3 inputs, as applicable, for the nine months ended September 30, 2023 and 2022 (in thousands):
|
2023
|
2022
|
|||||||
|
Short-term investments
|
||||||||
|
Balance as of beginning of period
|
$
|
|
$
|
|
||||
|
Unrealized loss
|
(
|
)
|
(
|
)
|
||||
|
Balance as of end of period
|
$
|
|
$
|
|
||||
|
2023
|
2022
|
|||||||
|
Derivative liability
|
||||||||
|
Balance as of beginning of period
|
$
|
|
$
|
|
||||
|
Purchase agreement execution
|
|
|
||||||
|
Unrealized gain
|
( |
) |
|
|||||
|
Balance as of end of period
|
$ |
$
|
|
|||||
Rexahn Warrants
The fair value of the warrant liabilities associated with the Rexahn warrants was de minimis during the periods presented. The last
of the Rexahn warrants classified as liabilities expired in April 2023 unexercised. See Note 2 – Merger for additional background.
There were no
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
adopted this ASU on January 1, 2023 and it did not have a significant impact on its condensed 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 earnings per share computation. The amendments in this ASU are effective for public business entities that meet the definition of an 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 adopted this ASU on January 1, 2023 and the adoption did not have a material impact on its condensed 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 the condensed financial statements.
| 2. |
Merger
|
On November 5, 2020, the Company completed the Merger transaction 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, 2023, no payments subject to the CVR had been received
beyond those previously reported in the second and third quarters of calendar year 2021. In addition, 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, 2023, 58,597 of the
Rexahn warrants remained outstanding with an exercise price of $38.40 per share with an average remaining contractual life of 0.3 years and were accounted for and classified as equity.
|
3.
|
Commitments and Contingencies
|
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 8 — Apexian Sublicense
Agreement). As of September 30, 2023, there was sufficient uncertainty with regard to any future cash milestone payments under the sublicense agreement that no liabilities were recorded related to the sublicense agreement.
Facility Leases
The Company has a short-term, non-cancellable facility lease (the “HQ Lease”) for its headquarters. The HQ 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 rent expense associated with the HQ Lease amounted to $9,000 27,000 and $30,000 during the nine months ended September 30, 2023 and 2022, respectively. The total remaining expected rental payments under the HQ
Lease amount to $9,000 through its current expiration date of December 31, 2023.
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.
| 4. |
Supplemental Balance Sheet Information
|
Prepaid and Other Assets
Prepaid and other assets consist of the following as of
(in thousands):
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
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 as of (in thousands):
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
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 as of (in thousands):
|
September 30,
|
December 31,
|
|||||||
|
2023
|
2022
|
|||||||
|
Income taxes
|
$ |
|
$
|
|
||||
|
Payroll
|
|
|
||||||
|
Professional services
|
|
|
||||||
|
R&D services and supplies
|
||||||||
|
Severance
|
||||||||
|
Other
|
|
|
||||||
|
Total
|
$ |
|
$
|
|
||||
On April
19, 2023, the Company terminated the employment of Mina Sooch, the President and Chief Executive Officer of the Company.
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. No
| 5. |
Related Party Transactions
|
On April 8, 2022, Ocuphire entered into a consulting agreement with Jay Pepose, a director of the Company. The consulting agreement provided 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, Dr. Pepose received a stock option grant for 50,000 options, of which 25 %
vested 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 consulting agreement was also amended effective December 1, 2022 to increase the cash payment to $25,000
per month.
The Company incurred related consulting expenses of $75,000 and $225,000 during the three and nine months
ended September 30, 2023, respectively. The Company incurred related consulting expenses of $30,000 and $60,000 during the three and nine months ended September 30, 2022, respectively. As of September 30, 2023 and December 31, 2022, $25,000
On April 19, 2023, Ocuphire appointed Richard Rodgers, a director of the Company, as interim
President and Chief Executive Officer. In connection with his appointment, Ocuphire and Mr. Rodgers entered into a letter agreement concerning Mr. Rodgers’s services (the “Letter Agreement”). The Letter Agreement provides that Mr.
Rodgers will receive (i) a $40,000 monthly salary, and (ii) is eligible for a potential prorated bonus at the discretion of
Ocuphire’s Board of Directors, at the end of his term as interim President and Chief Executive Officer. Mr. Rodgers also received 50,000
restricted stock units under the Company’s 2020 Equity Incentive Plan which will vest 12 months following the grant date.
The Company incurred related consulting expenses of $120,000 and $215,000 during the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, $80,000 of the related consulting expenses were unpaid.
| 6. |
Stockholders’ Equity
|
Lincoln Park
Purchase Agreement
On
August 10, 2023, the Company entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) for an equity line financing (the “Purchase Agreement”). The Purchase Agreement provides that, subject to
the terms and conditions set forth therein, the Company has the sole right, but not the obligation, to direct Lincoln Park to purchase up to $50
million of shares of the Company’s common stock from time to time over the 30-month term of the Purchase Agreement.
Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park (the “Registration Rights Agreement”), pursuant to which the Company agreed to register the resale
of the shares of the Company’s common stock that have been and may be issued to Lincoln Park under the Purchase Agreement pursuant to a registration statement. Upon the execution of the Purchase Agreement, the Company issued 246,792 shares of the Company’s common stock to Lincoln Park with a fair value of $1.0 million as consideration for its commitment to purchase shares of the Company’s common stock under the Purchase Agreement which was recorded as a component of
financing costs in the accompanying statements of comprehensive income (loss) during the three and nine month periods ended September 30, 2023. Lincoln Park has agreed not to cause or engage in any manner whatsoever in any direct or
indirect short selling or hedging of the Company’s common stock.
In addition to the commitment shares referenced above, a total of 800,000 shares of the Company’s common stock were sold under the Purchase Agreement for net proceeds through September 30, 2023 in the amount
of $3.1 million. Lastly, the Company incurred issuance costs of $0.2 No shares of the Company’s common stock were sold under the Purchase Agreement prior to the third quarter of 2023.
Under
the Purchase Agreement on any business day selected by the Company, the Company may direct Lincoln Park to purchase up to 50,000
shares of its common stock on such business day (or the purchase date) (a “Regular Purchase”), provided that the closing sale price of the Company’s common stock on Nasdaq on the applicable purchase date is not below $0.25 and subject to other adjustments. A Regular Purchase may be increased to up to (i) 60,000 shares if the closing sale price of the Company’s common stock on Nasdaq is not below $5.00 on the applicable purchase date and (ii) 70,000
shares if the closing sale price of the Company’s common stock on Nasdaq is not below $7.50 on the applicable purchase
date. The Company may direct Lincoln Park to purchase shares in Regular Purchases as often as every business day. The purchase price per share for each such Regular Purchase will be equal to the lesser of:
|
|
• |
the lowest sale price for the Company’s common stock on Nasdaq
on the purchase date of such shares; and
|
|
|
• |
the average of the three (3) lowest closing sale prices for
the Company’s common stock on Nasdaq during the ten (
|
In addition, the Company may also direct Lincoln Park, on any business
day on which the Company has submitted a Regular Purchase notice for the maximum amount allowed for such Regular Purchase, to purchase an additional amount of the Company’s common stock (an “Accelerated Purchase”) of up to the lesser
of:
|
|
• |
three (
|
|
|
• |
|
The purchase price per share for each such Accelerated Purchase will
be equal to 96.5 % of the lower of:
|
|
• |
the closing sale price of the Company’s common stock on Nasdaq
on the applicable Accelerated Purchase date; and
|
|
|
• |
the volume-weighted average price of the Company’s common
stock on Nasdaq during the applicable Accelerated Purchase Measurement Period on the applicable Accelerated Purchase date.
|
The Company may also direct Lincoln Park, on any business day on which
an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been delivered to Lincoln Park in accordance with the Purchase Agreement, to purchase an additional amount of the Company’s common stock
(an “Additional Accelerated Purchase”) as described in the Purchase Agreement.
The pricing and settlement provisions in the Purchase Agreement result in the recognition of a derivative liability
under the Purchase Agreement were accounted for as a derivative liability on a fair value basis under the provisions of ASC 815 - Derivatives and Hedging. A Monte Carlo simulation model was used to estimate future stock pricing and
purchase activity to determine the fair value of the derivative liability as of the August 10, 2023 commencement date and again as of September 30, 2023. As of August 10, 2023 and September 30, 2023, the inputs used to determine
fair value of the derivative liability included the Company’s Nasdaq closing stock price of $4.14 and $3.35 per share, respectively, a stock volatility rate of 82.5 % and 87.5 %., respectively, an expected term of 2.5 years and 2.4 years,
respectively, and a risk-free interest rate of 4.6 % and 4.9 %, respectively. Lastly, the fair value of
the derivative liability took into account future purchase decisions based on economic considerations and relevant stock issuance rules/limitations. The fair value change in the derivative liability was recorded in the fair value
change in derivative liability line item in the accompanying statements of comprehensive income (loss) during the three- and nine-month periods ended September 30, 2023.
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, 2023, 577,555 2.4 69,000
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, respectively, 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.
Registered Direct Offering
On June 4, 2021, the Company entered into a placement agency agreement 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”). The RDO Warrants are equity classified, have an exercise price of $6.09 per share, are exercisable from the initial issuance date of June 8, 2021, and will expire five years following the initial issuance date. As of September 30, 2023, 1,538,461
RDO Warrants were outstanding.
Pre-Merger Financing
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.
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, 2023. The Series A Warrants were accounted for and classified as equity on the accompanying condensed balance sheets.
Series B Warrants
The Series B
Warrants had an exercise price of $0.0001 , were exercisable upon issuance and would have expired on the day following the later
to occur of (i) the Reservation Date (as defined therein) or (ii) the date on which the investor’s Series B Warrants would have been exercised in full (without giving effect to any limitation on exercise contained therein). None of the Series B Warrants were outstanding as of September 30, 2023. During the nine months ended September 30, 2023, 17,869 warrants were exercised for shares of common stock. The Series B Warrants were accounted for and classified as equity on the
accompanying condensed balance sheets while outstanding.
| 7. |
Stock-based Compensation
|
Stock-based
compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed statements of comprehensive income (loss) for the three and nine-month periods indicated below (in thousands):
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
||||||||||||||
|
|
||||||||||||||||