ovid-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 001-38085

 

Ovid Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-5270895

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

1460 Broadway, Suite 15044

New York, New York

10036

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (646) 661-7661

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

OVID

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 30, 2020, the registrant had 54,754,065 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4.

 

Controls and Procedures

 

27

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

28

Item 1A.

 

Risk Factors

 

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

66

Item 5.

 

Other Information

 

66

Item 6.

 

Exhibits

 

67

Signatures

 

 

 

i


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this report, regarding, among other things:

 

statements regarding the impact of the COVID-19 pandemic and its effects on our operations, access to capital, research and development and clinical trials and potential disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business;

 

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

our ability to identify additional novel compounds with significant commercial potential to acquire or in-license;

 

our ability to successfully acquire or in-license additional drug candidates on reasonable terms;

 

our ability to obtain regulatory approval of our current and future drug candidates;

 

our expectations regarding the potential market size and the rate and degree of market acceptance of such drug candidates;

 

our ability to fund our working capital requirements;

 

the implementation of our business model and strategic plans for our business and drug candidates;

 

developments or disputes concerning our intellectual property or other proprietary rights;

 

our ability to maintain and establish collaborations or obtain additional funding;

 

our expectations regarding government and third-party payor coverage and reimbursement;

 

our ability to compete in the markets we serve;

 

the impact of government laws and regulations;

 

developments relating to our competitors and our industry; and

 

the factors that may impact our financial results.

You should not rely upon forward-looking statements as predictions of future events.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether because of new information, future events or otherwise, after the date of this report.

 

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

OVID THERAPEUTICS INC.

Condensed Consolidated Balance Sheets

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,336,877

 

 

$

41,897,144

 

Short-term investments

 

 

30,996,624

 

 

 

34,841,969

 

Related party receivable

 

 

374,252

 

 

 

1,131,146

 

Prepaid expenses and other current assets

 

 

2,029,742

 

 

 

1,942,933

 

Total current assets

 

 

60,737,495

 

 

 

79,813,192

 

 

 

 

 

 

 

 

 

 

Long-term prepaid expenses

 

 

286,570

 

 

 

359,539

 

Security deposit

 

 

153,836

 

 

 

135,390

 

Property and equipment, net

 

 

109,038

 

 

 

68,363

 

Other assets

 

 

436,285

 

 

 

467,247

 

Total assets

 

$

61,723,224

 

 

$

80,843,731

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,992,086

 

 

$

3,256,098

 

Accrued expenses

 

 

5,988,972

 

 

 

7,266,706

 

Related party payable

 

 

10,804

 

 

 

10,804

 

Total current liabilities

 

 

9,991,862

 

 

 

10,533,608

 

Related party payable - noncurrent

 

 

286,562

 

 

 

286,562

 

Total liabilities

 

 

10,278,424

 

 

 

10,820,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized; Series A convertible preferred stock, 10,000 shares designated, 7,762 shares issued and outstanding at March 31, 2020 and December 31, 2019

 

 

8

 

 

 

8

 

Common stock, $0.001 par value; 125,000,000 shares authorized; 54,754,065 and 54,710,322 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

54,754

 

 

 

54,711

 

Additional paid-in-capital

 

 

284,510,945

 

 

 

283,122,894

 

Accumulated other comprehensive gain

 

 

65,704

 

 

 

2,469

 

Accumulated deficit

 

 

(233,186,611

)

 

 

(213,156,521

)

Total stockholders' equity

 

 

51,444,800

 

 

 

70,023,561

 

Total liabilities and stockholders' equity

 

$

61,723,224

 

 

$

80,843,731

 

 

See accompanying notes to these unaudited condensed consolidated financial statements

 

3


 

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

For the Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

14,625,367

 

 

$

9,337,304

 

General and administrative

 

 

5,669,019

 

 

 

4,716,231

 

Total operating expenses

 

 

20,294,386

 

 

 

14,053,535

 

Loss from operations

 

 

(20,294,386

)

 

 

(14,053,535

)

Interest income

 

 

264,296

 

 

 

253,340

 

Net loss

 

$

(20,030,090

)

 

$

(13,800,195

)

Net loss attributable to common stockholders

 

$

(20,030,090

)

 

$

(13,800,195

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.37

)

 

$

(0.46

)

Weighted-average common shares outstanding basic and diluted

 

 

54,715,610

 

 

 

30,329,640

 

 

See accompanying notes to these unaudited condensed consolidated financial statements

4


 

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

For the Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(20,030,090

)

 

$

(13,800,195

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

63,235

 

 

 

3,179

 

Comprehensive loss

 

$

(19,966,855

)

 

$

(13,797,016

)

 

See accompanying notes to these unaudited condensed consolidated financial statements


5


 

 

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

7,762

 

 

$

8

 

 

 

54,710,322

 

 

$

54,711

 

 

$

283,122,894

 

 

$

2,469

 

 

$

(213,156,521

)

 

$

70,023,561

 

ATM offering costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,053

 

 

 

-

 

 

 

-

 

 

 

2,053

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,302,931

 

 

 

-

 

 

 

-

 

 

 

1,302,931

 

Issuance of common stock from employee stock purchase plan

 

 

-

 

 

 

-

 

 

 

43,743

 

 

 

43

 

 

 

83,067

 

 

 

-

 

 

 

-

 

 

 

83,110

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

63,235

 

 

 

-

 

 

 

63,235

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,030,090

)

 

 

(20,030,090

)

Balance, March 31, 2020

 

 

7,762

 

 

$

8

 

 

 

54,754,065

 

 

$

54,754

 

 

$

284,510,945

 

 

$

65,704

 

 

$

(233,186,611

)

 

$

51,444,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balance, December 31, 2018

 

 

-

 

 

$

-

 

 

 

24,654,114

 

 

$

24,654

 

 

$

191,477,598

 

 

$

(1,829

)

 

$

(152,695,278

)

 

$

38,805,145

 

Proceeds from February Offering, net of underwriting costs and commissions

 

 

2,500

 

 

 

3

 

 

 

13,993,778

 

 

 

13,994

 

 

 

30,508,031

 

 

 

-

 

 

 

-

 

 

 

30,522,028

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,642,540

 

 

 

-

 

 

 

-

 

 

 

1,642,540

 

Issuance of common stock from employee stock purchase plan

 

 

-

 

 

 

-

 

 

 

45,126

 

 

 

45

 

 

 

73,059

 

 

 

-

 

 

 

-

 

 

 

73,104

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,179

 

 

 

-

 

 

 

3,179

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,800,195

)

 

 

(13,800,195

)

Balance, March 31, 2019

 

 

2,500

 

 

$

3

 

 

 

38,693,018

 

 

$

38,693

 

 

$

223,701,228

 

 

$

1,350

 

 

$

(166,495,473

)

 

$

57,245,801

 

 

See accompanying notes to these unaudited condensed consolidated financial statements

6


 

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(20,030,090

)

 

$

(13,800,195

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,302,931

 

 

 

1,642,540

 

Depreciation and amortization expense

 

 

66,879

 

 

 

76,535

 

Change in accrued interest and accretion of discount on short-term investments

 

 

(130,328

)

 

 

(26,487

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(86,809

)

 

 

242,311

 

Security deposit

 

 

(18,446

)

 

 

(1,140

)

Related party receivable

 

 

756,894

 

 

 

(657,545

)

Long-term prepaid expenses

 

 

72,969

 

 

 

(513,966

)

Accounts payable

 

 

932,005

 

 

 

264,059

 

Accrued expenses

 

 

(1,277,734

)

 

 

(1,430,738

)

Related party payable

 

 

-

 

 

 

1,338,239

 

Net cash used in operating activities

 

 

(18,411,729

)

 

 

(12,866,387

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(9,961,092

)

 

 

-

 

Proceeds from maturities of short-term investments

 

 

14,000,000

 

 

 

-

 

Purchase of property and equipment

 

 

(14,139

)

 

 

(4,324

)

Software development and other assets

 

 

(188,842

)

 

 

(4,650

)

Net cash provided by (used in) investing activities

 

 

3,835,927

 

 

 

(8,974

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from February Offering, net of offering expenses

 

 

-

 

 

 

30,912,720

 

ATM offering costs

 

 

(67,575

)

 

 

-

 

Proceeds from employee stock purchase plan

 

 

83,110

 

 

 

73,104

 

Net cash provided by financing activities

 

 

15,535

 

 

 

30,985,824

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(14,560,267

)

 

 

18,110,463

 

Cash and cash equivalents, at beginning of period

 

 

41,897,144

 

 

 

36,489,618

 

Cash and cash equivalents, at end of period

 

$

27,336,877

 

 

$

54,600,081

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Offering costs in accrued expenses and accounts payable

 

$

 

 

$

390,692

 

Software development and other costs in accrued expenses and accounts payable

 

$

 

 

$

1,428

 

Purchase of property and equipment in accounts payable

 

$

38,534

 

 

$

1,654

 

 

See accompanying notes to these unaudited condensed consolidated financial statements

7


 

OVID THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 – NATURE OF OPERATIONS

Ovid Therapeutics Inc. (the “Company”) was incorporated under the laws of the state of Delaware on April 1, 2014 and maintains its principal executive office in New York, New York. The Company commenced operations on April 1, 2014 (date of inception). The Company is a biopharmaceutical company focused exclusively on developing impactful medicines for patients and families living with rare neurological disorders.

Since its inception, the Company has devoted substantially all of its efforts to business development, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through issuance of convertible preferred stock (“Preferred Stock”), common stock and other equity instruments. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund operations.

 

Historically, the Company’s major sources of cash have comprised of proceeds from various public and private offerings of its capital stock and interest income. As of March 31, 2020, the Company had approximately $58.3 million in cash, cash equivalents and short-term investments. The Company has not generated any revenue since inception. As a result, the Company has incurred recurring losses and requires significant cash resources to execute its business plans. The Company has an accumulated deficit of $233.2 million as of March 31, 2020 and had cash outflows from operating activities of $18.4 million for the three months ended March 31, 2020.

 

The Company has incurred operating losses since inception and expects to continue to incur net losses for at least the next several years and is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions. Management’s plans to mitigate an expected shortfall of capital to support future operations include raising additional funds. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether the Company will become profitable and generate positive operating cash flow.  If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to the Company or identify commercial partners to support development of the Company’s product candidates, the Company may have to significantly delay, scale back or discontinue the Company research and development programs or future commercialization efforts. The actual amount of cash that the Company will need to operate is subject to many factors.

 

The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern 12 months from the filing date of this quarterly report on Form 10-Q. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business.  The extent to which the COVID-19 pandemic impacts our business, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.  The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

 

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of our late-stage product candidates; delays or problems in the supply of our products, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements.  In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

8


 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 11, 2020. There have been no material changes to the significant accounting policies during the period ended March 31, 2020, except for items mentioned below.

(A) Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated balance sheet at March 31, 2020, the condensed consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for the three months ended March 31, 2020 and 2019 are unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP are condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the three months ended March 31, 2020 and 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

(B) Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements have been prepared in conformity with GAAP and include the accounts of Ovid Therapeutics Inc. and its wholly owned subsidiary, Ovid Therapeutics Hong Kong Limited.  All intercompany transactions and balances have been eliminated in consolidation.

(C) Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ materially from those estimates.

(D) Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

 

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

 

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies.

 

Level 3—Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

9


 

The carrying amounts reported in the balance sheets for cash and cash equivalents, related party receivable, other current assets, accounts payable, accrued expenses, and current related party payable approximate their fair value based on the short-term maturity of these instruments.

(E) Recent Accounting Pronouncements

Recent accounting standards which have been adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This new standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including loans and trade and other receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The standard also amends the impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Under the new guidance, an entity recognizes an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as was previously required. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. As of March 31, 2020, the Company does not hold any debt securities with credit losses, nor does it have any trade receivables. As such, the adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements.

On August 29, 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40) - which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU No. 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. According to the standard the balance sheet line item for the presentation of capitalized implementation costs should be the same as that for the prepayment of fees related to the hosting arrangement and the manner in which an entity classifies the cash flows related to capitalized implementation costs should be the same as that in which it classifies the cash flows for the fees related to the hosting arrangement. ASU 2018-15 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods therein. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements and was adopted prospectively.

On November 5, 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), - which amends ASC 808 to clarify when transactions between participants in a collaborative arrangement under ASC 808 are within the scope of the FASB’s new revenue standard, ASU 2014-09 (codified in ASC 606). The amendments require the application of ASC 606 existing guidance to determine the units of account that are distinct in a collaborative arrangement for purposes of identifying transactions with customers. If a unit of account within the collaborative arrangement is distinct and is with a customer, an entity shall apply the guidance in Topic 606 to that unit of account. In a transaction between collaborative participants, an entity is precluded by ASU 2018-18 from presenting a transaction together with “revenue from contracts with customers” unless the unit of account is within the scope of ASC 606 and the entity applies the guidance in ASC 606 to such unit of account. The amended guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements.

10


 

NOTE 3 – CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

All short-term investments are classified as available-for-sale. The following tables summarize the fair value of cash, cash equivalents and short-term investments, as well as gross unrealized holding gains and losses as of March 31, 2020 and December 31, 2019:

 

 

 

March 31, 2020

 

 

 

Amortized

 

 

Gross unrealized

 

 

Gross unrealized

 

 

Fair

 

 

 

cost

 

 

holding gains

 

 

holding losses

 

 

value

 

  Cash

 

$

1,287,428

 

 

$

-

 

 

$

-

 

 

$

1,287,428

 

  Money market funds (a)

 

 

26,049,449

 

 

 

-

 

 

 

-

 

 

 

26,049,449

 

Total cash and cash equivalents

 

$

27,336,877

 

 

$

-

 

 

$

-

 

 

$

27,336,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  U.S. treasury notes (a)

 

$

30,930,920

 

 

$

65,704

 

 

$

-

 

 

$

30,996,624

 

Total short-term investments

 

$

30,930,920

 

 

$

65,704

 

 

$

-

 

 

$

30,996,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)  As of March 31, 2020, the Company's Level 1 assets consisted of money market funds and U.S. treasury notes totaling $57 million. The Company had no level 2 or level 3 assets or liabilities as of March 31, 2020.

 

 

 

 

December 31, 2019

 

 

 

Amortized

 

 

Gross unrealized

 

 

Gross unrealized

 

 

Fair

 

 

 

cost

 

 

holding gains

 

 

holding losses

 

 

value

 

  Cash

 

$

501,537

 

 

$

-

 

 

$

-

 

 

$

501,537

 

  Money market funds (a)

 

 

41,395,607

 

 

 

-

 

 

 

-

 

 

 

41,395,607

 

Total cash and cash equivalents

 

$

41,897,144

 

 

$

-

 

 

$

-

 

 

$

41,897,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  U.S. treasury notes (a)

 

$

34,839,500

 

 

$

2,469

 

 

$

-

 

 

 

34,841,969

 

Total short-term investments

 

$

34,839,500

 

 

$

2,469

 

 

$

-

 

 

$

34,841,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)  As of December 31, 2019, the Company's Level 1 assets consisted of money market funds and U.S. treasury notes totaling $76.2 million. The Company had no level 2 or level 3 assets or liabilities as of December 31, 2019.

 

 

As of March 31, 2020, the aggregate fair value of securities that were in an unrealized gain position for less than 12 months was $31.0 million.  As of December 31, 2019, the aggregate fair value of securities that were in an unrealized gain position for less than 12 months was $34.8 million. The Company did not hold any securities in an unrealized gain or loss position for more than 12 months as of March 31, 2020.

 

There were no realized gains or losses on available-for-sale securities during the three months ended March 31, 2020 and the year ended December 31, 2019.

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

Property and equipment is summarized as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Furniture and equipment

 

$

246,389

 

 

$

193,717

 

Less accumulated depreciation

 

 

(137,351

)

 

 

(125,354

)

Total property and equipment, net

 

$

109,038

 

 

$

68,363

 

 

Depreciation expense was $12,000 and $10,000 for the three months ended March 31, 2020 and 2019, respectively.

Intangible assets, net of accumulated amortization, were $436,000 and $467,000 as of March 31, 2020 and December 31, 2019, respectively, and are included in other assets.  Amortization expense was $55,000 and $67,000 for the three months ended March 31, 2020 and 2019, respectively.

11


 

NOTE 5 – ACCRUED EXPENSES

Accrued expenses consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Clinical trials accrual

 

$

3,018,653

 

 

$

3,235,527

 

Payroll and bonus accrual

 

 

1,016,151

 

 

 

2,728,495

 

Professional fees accrual

 

 

1,705,355

 

 

 

1,070,589

 

Other

 

 

248,813

 

 

 

232,095

 

Total

 

$

5,988,972

 

 

$

7,266,706

 

 

NOTE 6 – STOCKHOLDERS’ EQUITY AND PREFERRED STOCK

The Company’s capital structure consists of common stock and Preferred Stock. Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to issue up to 125,000,000 shares of common stock and 10,000,000 shares of Preferred Stock. The Company has designated 10,000 of the 10,000,000 authorized shares of Preferred Stock as non-voting Series A Convertible Preferred Stock (“Series A Preferred Stock”).

 

The holders of common stock are entitled to one vote for each share held. The holders of common stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Subject to preferences that may apply to any outstanding series of Preferred Stock, holders of the common stock are entitled to receive ratably any dividends declared on a non-cumulative basis. Shares of Series A Preferred Stock will be entitled to receive dividends at a rate equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends actually paid on shares of common stock. The common stock is subordinate to all series of Preferred Stock with respect to rights upon liquidation, winding up and dissolution of the Company. The holders of common stock are entitled to liquidation proceeds after all liquidation preferences for the Preferred Stock are satisfied.

 

In June 2018, the Company entered into a sales agreement (the “ATM agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company may offer and sell in “at the market offerings,” from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Cowen acting as sales agent. In 2019, the Company sold 6,893,888 shares of its common stock under the ATM agreement for net proceeds of $22.3 million after deducting sales agent commissions and other offering expenses payable by the Company. The Company did not sell any shares of its common stock under the ATM agreement during the three months ended March 31, 2020.

 

There were 7,762 shares of Series A Preferred Stock outstanding as of March 31, 2020 and December 31, 2019. Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any time at the holder’s option. However, the holder will be prohibited, subject to certain exceptions, from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than, at the written election of the holder, either 9.99% or 14.99% of the total number of shares of common stock then issued and outstanding, which percentage may be changed at the holder’s election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company; provided, however, that effective 61 days after delivery of such notice, such beneficial ownership limitations shall not be applicable to any holder that beneficially owns either 10.0% or 15.0%, as applicable based on the holder’s initial written election noted above, of the total number of shares of common stock issued and outstanding immediately prior to delivery of such notice. In the event of a liquidation, dissolution, or winding up of the Company, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of common stock.

 

In October and November 2019, the Company sold 10,350,000 shares of its common stock, which included the full exercise of the underwriters’ option to purchase additional shares, and 4,000 shares of Series A Preferred Stock at a public offering price of $2.50 and $2,500 per share, respectively, for net proceeds of $33.5 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

 

In February 2019, the Company sold 13,993,778 shares of its common stock and 2,500 shares of Series A Preferred Stock at a public offering price of $2.00 and $2,000 per share, respectively, for net proceeds of $30.5 million after deducting underwriting discounts and commission and other offering expenses payable by the Company (the “February Offering”).

In September 2019, the Company entered into an exchange agreement with entities affiliated with Biotechnology Value Fund, L.P. (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,262,000 shares of the Company’s common stock owned by the Exchanging Stockholders for an aggregate of 1,262 shares of the Company’s Series A Preferred Stock

12


 

(the “Exchange Shares”). The Exchange Shares were issued without registration under the Securities Act of 1933, as amended, in reliance on the exemption from registration contained in Section 3(a)(9) of the Securities Act. 

 

Dividends

 

No dividends on the common stock shall be declared and paid unless dividends on the Preferred Stock have been declared and paid. Through March 31, 2020, the Company has not declared any dividends.

 

NOTE 7 – STOCK-BASED COMPENSATION

On August 29, 2014, the Company’s Board of Directors adopted and approved the 2014 Equity Incentive Plan (the “2014 Plan”), which authorized the Company to grant shares of common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units.

The Company's Board of Directors adopted and the Company's stockholders approved the 2017 equity incentive plan (“2017 Plan”), which became effective immediately on May 4, 2017. The initial reserve of shares of common stock under the 2017 Plan was 3,052,059 shares.  The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of stock-based awards.  Additionally, the 2017 Plan provides for the grant of performance cash awards. The Company's employees, officers, directors and consultants and advisors are eligible to receive awards under the 2017 Plan.  Upon the adoption of the 2017 Plan, no further awards will be granted under the 2014 Plan. Pursuant to the terms of the 2017 Plan, on each January 1st, the plan limit shall be increased by the lesser of (x) 5% of the number of shares of common stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine in its discretion. On January 1, 2020 and January 1, 2019, respectively, an additional 2,735,516 and 1,232,705 shares were reserved for issuance under the 2017 Plan. As of March 31, 2020, there were 4,461,008 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan. 

The Company's Board of Directors adopted, and the Company's stockholders approved the 2017 employee stock purchase plan (the “2017 ESPP”), which became effective immediately prior to the execution of the underwriting agreement related to the Company’s initial public offering on May 4, 2017. The initial reserve of shares of common stock that may be issued under the 2017 ESPP was 279,069 shares. On March 20, 2017, the Company’s Compensation Committee approved an offering period under the 2017 ESPP, which began on October 20, 2017. The ESPP allows employees to purchase common stock of the Company at a 15% discount to the market price on designated purchase dates. During the three months ended March 31, 2020 and 2019, 43,743 and 45,126 shares were purchased under the ESPP and the Company recorded expense of $19,760 and $29,722, respectively. The number of shares of common stock reserved for issuance under the 2017 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by our Board.  On January 1, 2019, an additional 246,541 shares were reserved for issuance under the 2017 ESPP. The Board acted prior to January 1, 2020 to provide that there be no increase in the number of shares reserved for issuance under the 2017 ESPP. As of March 31, 2020, there were 615,273 shares of the Company’s common stock reserved for issuance under the 2017 ESPP.

Unless specified otherwise in an individual option agreement, stock options granted under the 2014 Plan and 2017 Plan generally have a ten-year term and a four-year graded vesting period. The vesting requirement is generally conditioned upon the grantee’s continued service with the Company during the vesting period. Once vested, all awards are exercisable from the date of grant until they expire. The option grants are non-transferable. Vested options generally remain exercisable for 90 days subsequent to the termination of the option holder’s service with the Company. In the event of option holder’s death or disability while employed by or providing service to the Company, the exercisable period extends to 12 months.

Performance-based option awards generally have similar terms, with vesting commencing on the date the performance condition is achieved and expire in accordance with the specific terms of the agreement. At March 31, 2020, there were 596,375 performance-based options outstanding and unvested that include options to be granted upon the achievement of certain research and development milestones.  

The fair value of options granted during the three months ended March 31, 2020 and 2019 was estimated using the Black-Scholes option valuation model. The inputs for the Black-Scholes option valuation model require management’s significant assumptions and are detailed in the table below. The risk-free interest rates were based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life was based on the simplified method in

13


 

accordance with the SEC Staff Accounting Bulletin No. Topic 14D. The expected volatility was estimated based on historical volatility information of peer companies that are publicly available.

All assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options underlying the agreements would also be cancelled.

The Company granted 10,000 and zero stock options to nonemployee consultants for services rendered during the three months ended March 31, 2020 and 2019, respectively. There were 133,946 and 7,995 unvested nonemployee options outstanding as of March 31, 2020, and 2019, respectively. Total expense recognized related to the nonemployee stock options for the three months ended March 31, 2020 and 2019 was $36,000 and $1,000, respectively. Total unrecognized compensation expenses related to the nonemployee stock options was $293,000 as of March 31, 2020. During the three months ended March 31, 2020 and 2019, the Company recognized no expense for nonemployee performance-based option awards.

The Company granted 520,300 and 1,458,963 stock options to employees during the three months ended March 31, 2020 and 2019 respectively. There were 4,112,758 and 3,133,583 unvested employee options outstanding as of March 31, 2020, and 2019, respectively. Total expense recognized related to the employee stock options for the three months ended March 31, 2020 and 2019 was $1.2 million and $1.6 million, respectively. Total unrecognized compensation expense related to employee stock options was $9.6 million as of March 31, 2020. During the three months ended March 31, 2020 and 2019, the Company recognized $38,000 and 9,000, respectively, in expenses for employee performance-based option awards.

The Company’s stock-based compensation expense was recognized in operating expense as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

564,136

 

 

$

817,763

 

General and administrative

 

 

738,795

 

 

 

824,777

 

Total

 

$

1,302,931

 

 

$

1,642,540

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Stock options

 

$

1,283,171

 

 

$

1,612,818

 

Employee Stock Purchase Plan

 

 

19,760

 

 

 

29,722

 

Total

 

$

1,302,931

 

 

$

1,642,540

 

 

The fair value of employee options granted during the three months ended March 31, 2020 and 2019 was estimated by utilizing the following assumptions:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Weighted

Average

 

 

Weighted

Average

 

Volatility

 

 

77.43

%

 

 

87.77

%

Expected term in years

 

 

6.08

 

 

 

6.08

 

Dividend rate

 

 

0.00

%

 

 

0.00

%

Risk-free interest rate

 

 

1.42

%

 

 

2.52

%

Fair value of option on grant date

 

$

2.49

 

 

$

1.62

 

 

14


 

The fair value of nonemployee options granted during the three months ended March 31, 2020 and 2019 was estimated by utilizing the following assumptions:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Weighted

Average

 

 

Weighted

Average

 

Volatility

 

 

77.40

%

 

 

79.40

%

Expected term in years

 

 

6.08

 

 

 

3.23

 

Dividend rate

 

 

0.00

%

 

 

0.00

%

Risk-free interest rate

 

 

1.40

%

 

 

2.46

%

Fair value of option on measurement date

 

$

2.45

 

 

$

0.62

 

 

The following table summarizes the number of options outstanding and the weighted average exercise price:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

Life in Years

 

 

Value

 

Options Outstanding December 31, 2019

 

 

7,405,295

 

 

$

5.82

 

 

 

8.01

 

 

$

4,488,930

 

Granted

 

 

530,300

 

 

 

3.69

 

 

 

9.84

 

 

 

 

 

Exercised

 

 

-