10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 12, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
For the Quarterly Period Ended September 30, 2024
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
(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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The
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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, 2024 was 31,568,457 .
OPUS GENETICS, INC.
FORM 10-Q
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Page
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PART 1 – FINANCIAL INFORMATION
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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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PART II – OTHER INFORMATION
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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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PART I –
FINANCIAL INFORMATION
| 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,
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December 31,
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| 2024 | 2023 | |||||||
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Assets
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(unaudited) | |||||||
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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 |
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| Contract assets and unbilled receivables |
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Prepaids and other 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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(
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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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2024
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2023
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2024 | 2023 | |||||||||||||
| 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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| (Loss) income from operations |
(
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| Financing costs (Note 6) |
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| Fair value change in derivative liability |
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Other income, net
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(Loss) income before income taxes
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(
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Provision for income taxes
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(
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| Net (loss) income |
(
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| Other comprehensive (loss) income, net of tax |
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| Comprehensive (loss) income |
$
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(
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)
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$
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$ | ( |
) | $ | ( |
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| Net (loss) income 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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| Diluted |
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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, 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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(
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Balance at March 31, 2023
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(
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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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(
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(
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Balance at June 30, 2023
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(
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| Issuance of common stock in connection with the at-the-market program and purchase agreement | ||||||||||||||||||||
| Issuance costs |
— | ( |
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| Stock–based compensation |
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| Net and comprehensive income |
— | |||||||||||||||||||
| Balance at September 30, 2023 |
$ |
$ |
$ |
( |
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Balance at December 31, 2023
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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 and purchase agreement
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| Issuance costs | — | ( |
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Stock–based compensation
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| Share repurchases for the payment of employee taxes |
( |
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Net and comprehensive loss
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—
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(
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(
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Balance at March 31, 2024
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(
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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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— |
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(
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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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(
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(
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Balance at June 30, 2024
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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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| Balance at September 30, 2024 |
$ |
$ |
$ |
( |
) | $ |
See accompanying notes.
Ocuphire Pharma, Inc.
(in thousands)
(Unaudited)
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For the Nine Months
Ended
September 30,
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2024
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2023
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Operating activities
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Net loss
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$
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(
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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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( |
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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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(
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Accrued and other liabilities
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Net cash used in operating activities
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(
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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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| Share repurchases for the payment of employee taxes |
( |
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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
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$ | $ | ||||||
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Value of derivative established in connection with the equity purchase agreement
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$ | $ | ||||||
See accompanying notes.
| 1. |
Company Description and Summary of Significant Accounting Policies
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Nature of Business
On October 22, 2024, Opus Genetics, Inc., a Delaware corporation formerly known as Ocuphire Pharma, Inc. (the “Company” or “Opus”),
acquired a private corporation then operating under the name of “Opus Genetics, Inc.” (“Former Opus”) pursuant to the terms of an Agreement and Plan of Merger, dated as of October 22, 2024 (such agreement, the “Merger Agreement”
and the transaction consummated via the Merger Agreement, the “Opus Acquisition”), by and among the Company, Former Opus, and certain merger subsidiaries party thereto.
The accompanying unaudited condensed financial statements do not give effect to the Opus Acquisition. The
historical financial statements have been labeled under the name “Ocuphire Pharma, Inc.” solely for purposes of this filing, as this was the name of the Company for the entirety of the historical periods presented.
Following the Opus Acquisition, the Company is a clinical-stage ophthalmic biotechnology company developing gene therapies for the
treatment of inherited retinal diseases (IRDs) and other ophthalmologic disorders. The pipeline includes adeno-associated virus (AAV)-based gene therapies that address mutations in genes that cause different forms of
bestrophinopathy, Leber congenital amaurosis (LCA) and retinitis pigmentosa. The Company’s most advanced gene therapy program is designed to address mutations in the LCA5 gene, which encodes the lebercilin protein and is currently
being evaluated in a Phase 1/2 open-label, dose-escalation trial. The pipeline also includes Phentolamine Ophthalmic Solution 0.75%, a non-selective alpha-1 and alpha-2 adrenergic antagonist to reduce pupil size, and APX3330, a
novel small-molecule inhibitor of Ref-1 to slow the progression of non-proliferative diabetic retinopathy. Phentolamine Ophthalmic Solution 0.75% is currently being evaluated in Phase 3 trials for presbyopia and dim (mesopic)
light vision disturbances.
In November 2022, the Company entered into a license and collaboration agreement (the
“Viatris License Agreement”) with FamyGen Life Sciences, Inc. (acquired by and now known as Viatris, Inc. (“Viatris”)), 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% (initially known as Nyxol) (“PS”). PS is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and
improve visual acuity. PS was approved by the FDA for the treatment for pharmacologically induced mydriasis produced by adrenergic agonists (e.g., phenylephrine) or parasympatholytic (e.g., tropicamide) agents, or a combination
thereof under the brand name RYZUMVITM in September 2023 and was launched commercially in April 2024. The Company reported positive top-line data from multiple late-stage clinical trials for PS in reversal of
pharmacologically induced mydriasis, presbyopia and dim light disturbances. The VEGA-2 Phase 3 study in presbyopia achieved its primary endpoint. The VEGA-3 Phase 3 clinical trial evaluating PS for presbyopia (age-related blurry
near vision) is underway. For decreased vision under mesopic (low) light conditions following keratorefractive surgery, we received FDA agreement under Special Protocol Assessment (“SPA”) for LYNX-2, a Phase 3 Trial of PS. LYNX-2
continues enrollment. LYNX-3, an additional Phase 3 study for decreased vision under mesopic (low) light conditions following keratorefractive surgery, has commenced.
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, 2023 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, 2023.
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.
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 its efforts to drug development and conducting clinical trials.
As of September 30, 2024, the Company had $36.6 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 twelve months from the date of issuance of these financial statements.
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 pursue additional 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 taken to generate the liquidity ultimately required.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
amounts reported in the 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
financial statements and accompanying notes contained herein include the measure of profit or loss, categories of expenses and other financial information that is evaluated
by the Company’s Chief Executive Officer.
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 the Company’s Board of Directors (the “Board”) 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, 2024, the Company had cash equivalents of $36.1 million that were not eligible for coverage by Federal
Deposit Insurance Corporation. 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, net on the statements of comprehensive (loss) income. 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, 2024.
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 will 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 (See Note 9 – License and Collaboration Agreements).
Accounts Receivable and Allowances for Credit Losses
The Company records a provision for credit losses, when appropriate,
based on historical experience, current conditions and reasonable supportable forecasts. The Company estimates credit losses over the remaining expected life of an asset by, among other things, primarily using historical
experience and current 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, benefits and stock-based
compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include insurance coverage for directors and officers and other property and liability exposures,
legal fees relating to intellectual property and corporate matters, business development costs, professional fees for accounting and tax services, other services provided by business consultants, and legal settlements.
Research and Development
Research and development expenses consist of costs incurred in performing research and development activities, including
compensation, benefits and stock-based compensation costs for research and development employees and costs for consultants, costs associated with nonclinical studies and clinical trials, regulatory activities, manufacturing activities
to support clinical activities, license fees, nonlegal patent costs, fees paid to external service providers that conduct certain research and development, and an allocation of overhead expenses. Research
and development expenses include costs that are reimbursed under the Viatris License Agreement (See Note 9 – License and Collaboration Agreements).
Other Income, net
Other income, 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. In addition, this line item includes payments made by the Company in connection
with the Contingent Value Rights Agreement (the “CVR Agreement”) discussed further below with former shareholders of Rexahn Pharmaceuticals, Inc.
(“Rexahn”).
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 change of a separated embedded derivative at each
reporting period in the statements of comprehensive (loss) income 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 in which there is little or no market data available, which
requires management to develop its own assumptions in pricing the asset or liability.
|
As of September 30, 2024 and December 31, 2023, the fair values of cash and cash equivalents, accounts receivable, contract
assets and unbilled receivables, prepaid and other assets, accounts payable, and 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 as well the Company’s underlying stock price and associated volatility,
expected term of the financing and market interest rates. There were no
|
|
As of September 30, 2024
|
|||||||||||||||
|
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, 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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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, 2024 and 2023 (in thousands):
|
|
2024
|
2023
|
||||||
|
Short-term investments
|
||||||||
|
Balance as of beginning of period
|
$
|
|
$
|
|
||||
|
Unrealized loss
|
(
|
)
|
(
|
)
|
||||
|
Balance as of end of period
|
$
|
|
$
|
|
||||
|
2024
|
2023
|
|||||||
|
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 November 2023, the FASB issued ASU 2023-07 - Segment Reporting
(Topic 280): Improvements to Reportable Segment Disclosures, which enhances reportable segment disclosure requirements, primarily through disclosures of significant segment expenses. This ASU is effective for fiscal years
beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance must be applied retrospectively to all prior periods presented. The Company
adopted the guidance on January 1, 2024. The adoption of this ASU did not have a material impact on the Company’s financial statements.
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income
Tax Disclosures, which enhances income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance also includes certain other amendments to improve the effectiveness of
income tax disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years and should be applied on a prospective basis, with retrospective application
permitted. The Company is currently evaluating the impact of adoption of this guidance on its financial statements.
| 2. |
Rexahn Merger
|
On November 5, 2020, the Company completed a merger transaction with Rexahn (the “Rexahn Merger”). In connection with the Rexahn Merger, the
Company, Shareholder Representatives Services LLC, as representative of the Rexahn stockholders prior to the Rexahn Merger, and Olde Monmouth Stock Transfer Co., Inc., as the rights agent, entered into the CVR Agreement.
Pursuant to the terms of the Rexahn Merger and the CVR Agreement, Rexahn stockholders of record as of immediately prior to the effective time of the Rexahn 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, 2024, no payments subject to the CVR Agreement 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
As of September 30, 2024, none of the Rexahn warrants classified as equity remained outstanding. The remaining warrants in the amount of 58,597 with an exercise price of $38.40
per share expired unexercised in January 2024.
|
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, 2024, 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 for the HQ Lease is approximately $3,000 . The rent expense associated with the HQ Lease amounted to $9,000 27,000 9,000
through its current expiration date of December 31, 2024.
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 and patent infringement, employment 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 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
the dates provided (in thousands):
|
September 30,
|
December 31,
|
|||||||
| 2024 | 2023 | |||||||
|
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,
|
December 31,
|
|||||||
| 2024 | 2023 | |||||||
|
Equipment
|
|
$
|
|
|||||
|
Furniture
|
|
|
||||||
|
Total property and equipment
|
|
|
||||||
|
Less accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Property and equipment, net
|
$
|
|
$
|
|
||||
Depreciation
expense was $1 ,000 during the three months ended September 30, 2023 and $3 ,000 during the nine months ended September 30, 2023. There was no
Accrued Expenses
Accrued expenses consist of the following as of the dates provided (in thousands):
|
September 30,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
Payroll
|
$
|
|
$
|
|
||||
|
Professional services
|
|
|
||||||
|
Research and development services and supplies
|
||||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| 5. |
Related Party Transactions
|
Rodgers Letter Agreement
On April 19, 2023, the Company appointed Richard Rodgers, a director of the Company, as interim President
and Chief Executive Officer. In connection with his appointment, the Company and Mr. Rodgers entered into a letter agreement, dated as of April 20, 2023, concerning Mr. Rodgers’s services (the “Letter Agreement”). The Letter
Agreement provided that Mr. Rodgers (i) was to receive a $40,000 monthly salary, and (ii) was eligible for a potential
prorated bonus at the discretion of the Board, at the end of his term as interim President and Chief Executive Officer. Pursuant to the bonus clause, a $100,000 bonus was expensed in December 2023 and paid on March 4, 2024. Mr.
Rodgers also received 50,000 restricted stock units under the Company’s 2020 Equity Incentive Plan which vested 12 months following the grant date. Mr. Rogers’s services as interim President and Chief Executive Officer concluded on October 31, 2023 with the
appointment of George Magrath to the role, the Letter Agreement has expired, and the Company does not expect to incur further expenses related thereto. 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 December 31, 2023, $100,000 of the related
expenses were unpaid related to a prorated bonus and were paid in full on March 4, 2024.
Dr. Pepose Consulting Agreement
On April 8, 2022, the Company entered into a consulting agreement (as amended, the “2022 Consulting Agreement”) with Jay Pepose, M.D., a director of the Company. The consulting agreement originally provided for $10,000
a month in cash payments and 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 and amended effective January 1, 2024 to extend the expiration to March 31, 2024 and to increase the retainer for March
2024 to $49,000 .
On April 11, 2024, the Company entered into another consulting agreement (the “2024 Consulting Agreement”) with Dr. Pepose following the expiration of the 2022 Consulting Agreement. Pursuant to the 2024
Consulting Agreement, Dr. Pepose is paid a monthly consulting fee of $39,583 . Additionally, Dr. Pepose received an award of 32,000 RSUs, as well as stock options to purchase 48,000 shares of the Company’s common stock. The RSUs will vest on April 11, 2025, subject to Dr. Pepose’s continued service over that period. The options vest in 12 equal monthly installments that began on May 11, 2024, subject to Dr. Pepose’s continued service over such period. The 2024 Consulting
Agreement is scheduled to terminate on April 11, 2025.
For the agreements with Dr. Pepose above, the Company
incurred related consulting expenses of $119,000 and $337,000 during the three and nine months ended September 30, 2024, respectively; the Company incurred related consulting expenses of $75,000 and $225,000 during the three and nine
months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, $40,000 and $25,000 of the related consulting expenses were unpaid, respectively.
| 6. |
Stockholders’ Equity
|
Amendment to
Articles of Incorporation
At the Company’s 2024 annual meeting of stockholders held on
June 11, 2024, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that resulted in an increase in the number of authorized shares of the Company’s common stock
from 75 million to 125
million shares. The increase in authorized shares became effective on June 12, 2024.
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. 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.
A total of 400,000 shares were issued under the Purchase Agreement during the nine months ended
September 30, 2024 for net proceeds of $0.7 million. The Company incurred de minimis issuance costs during the nine months ended
September 30, 2024. There was no activity under the Purchase agreement during the three months ended September 30, 2024.
A total of 800,000 3.1 0.2
In addition to the initial commitment shares issued upon the execution of the Purchase Agreement of 246,792 , a total of 1,700,000 shares of common
stock were sold under the Purchase Agreement for gross proceeds through September 30, 2024 in the amount of $5.2 million
and with issuance costs in the aggregate of $1.4 million.
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 70,000 shares based on the share price on the applicable purchase date. The Company may direct Lincoln Park to purchase shares in Regular Purchases as often as
every business day.
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”) based on certain
market and trading conditions.
The pricing and settlement provisions in the Purchase Agreement
result in the recognition of a derivative liability accounted for 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 September 30, 2024, the change in the derivative liability from December 31, 2023 was de minimis. The fair value change in the derivative liability is recorded in the fair value change in derivative liabilities line item in the accompanying condensed statements of comprehensive (loss) income during
periods with valuation changes.
At-The-Market Program
On February 4, 2021, the Company 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, the Company 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, 2024,
219,406 and 1,608,522
shares of common stock were sold under the ATM, respectively, for aggregate gross proceeds in the amount of $0.5 million and
$3.8 million, respectively,
before deducting issuance expenses, including the placement agent’s fees, legal and accounting expenses, in the amount of $42,000
and $232,000 , respectively.
During the three and nine months ended September 30, 2023, 577,555 2.4 69,000
As
of September 30, 2024. 7,653,838 shares of common stock were sold under the ATM since its inception for gross proceeds in
the amount of $26.4 million and with issuance costs in the aggregate of $0.9 million.
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 per of each RDO
Warrant. The RDO was made pursuant to the Company’s 2021 shelf registration.
The RDO Warrants 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, 2024, 1,538,461 RDO Warrants were outstanding and none have been exercised since issuance.
Subject to limited exceptions, a holder of a RDO Warrant will not have the right to exercise any portion of its RDO Warrants if the holder, together with its affiliates,
would beneficially own in excess of 4.99 % (or, at the election of a holder prior to the date of issuance, 9.99 %) of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise; provided that upon
prior notice to the Company, the holder may increase or decrease the beneficial ownership limitation, provided further that in no event shall the beneficial ownership limitation exceed 9.99 %.
Pre-Merger Financing
On June 17,
2020, the Company, 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 the Company prior to the Rexahn Merger and one director of Rexahn upon closing of the Rexahn 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, 2024. The Series A Warrants were accounted for and classified as equity on the accompanying 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
| 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 (loss) income for the three and nine-month periods indicated below (in thousands):
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
||||||||||||||
|
|
2024
|
2023
|
2024
|
2023
|
||||||||||||
|
General and administrative
|
$ |
$
|
|
$
|
|
$
|
|
|||||||||
|
Research and development
|
|
|
|
|
||||||||||||
|
Total stock-based compensation
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Stock Options
Inducement Plan
On February 22, 2021, the Company adopted the
Company’s 2021 Inducement Plan (as amended, the “Inducement Plan”), pursuant to which the Company originally 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 non-statutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock, and other stock-based
awards.
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 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior
to January 1st 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, 2024, 1,198,875 shares were added to the 2020
Plan as a result of its evergreen provision.
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.
Stock Options
During the three and nine months ended September 30, 2024, zero and 1,021,166 stock
options were granted to directors, officers, employees and consultants, respectively, generally vesting over a -
to four-year period with monthly, quarterly and annual vesting tranches. During the three and nine months ended September 30, 2023, 30,000 and 793,578 stock
options were granted to directors, officers, employees and consultants, respectively, generally vesting over a five (5 ) to forty-eight (48 ) month period.
The Company recognized $474 ,000 and $400 ,000 in
stock-based compensation expense related to stock options during the three months ended September 30, 2024 and 2023, respectively, and $1,431 ,000