|
ITEM 1.
|
FINANCIAL STATEMENTS (UNAUDITED)
|
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,706,639
|
|
|
$
|
20,007,659
|
|
Marketable investment
securities
|
|
|
24,132,453
|
|
|
|
24,375,168
|
|
Accrued interest
income
|
|
|
115,205
|
|
|
|
144,536
|
|
Prepaid and other
current assets
|
|
|
457,430
|
|
|
|
350,160
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
29,411,727
|
|
|
|
44,877,523
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $1,084,474 and $1,060,750, respectively
|
|
|
111,676
|
|
|
|
75,750
|
|
Long-term marketable investment securities
|
|
|
-
|
|
|
|
400,252
|
|
Other assets
|
|
|
30,753
|
|
|
|
23,753
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
29,554,156
|
|
|
$
|
45,377,278
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
864,951
|
|
|
$
|
507,067
|
|
Accrued
expenses
|
|
|
707,299
|
|
|
|
2,884,794
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,572,250
|
|
|
|
3,391,861
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,572,250
|
|
|
|
3,391,861
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes
8 and 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock,
par value $0.0001 per share, 10,000,000 shares authorized; zero issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, par value $0.0001 per share, 100,000,000 shares authorized; 18,258,901 and 18,250,456 issued
and 18,253,191 and 18,244,746 outstanding
|
|
|
1,826
|
|
|
|
1,825
|
|
Additional paid-in
capital
|
|
|
130,471,165
|
|
|
|
128,502,659
|
|
Treasury stock
at cost, 5,710 shares
|
|
|
(40,712
|
)
|
|
|
(40,712
|
)
|
Accumulated other
comprehensive income (loss)
|
|
|
122
|
|
|
|
(32,900
|
)
|
Accumulated deficit
|
|
|
(102,450,495
|
)
|
|
|
(86,445,455
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
27,981,906
|
|
|
|
41,985,417
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
|
$
|
29,554,156
|
|
|
$
|
45,377,278
|
|
See accompanying notes to unaudited condensed consolidated financial
statements
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
and Comprehensive Loss
(Unaudited)
|
|
Three Months Ending September 30,
|
|
|
Nine Months Ending September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,506,581
|
|
|
$
|
4,733,889
|
|
|
$
|
6,747,673
|
|
|
$
|
9,814,492
|
|
General and administrative
|
|
|
1,394,406
|
|
|
|
1,700,099
|
|
|
|
9,038,837
|
|
|
|
3,871,478
|
|
Restructuring costs
|
|
|
385,233
|
|
|
|
-
|
|
|
|
385,233
|
|
|
|
-
|
|
Total operating expenses
|
|
|
3,286,220
|
|
|
|
6,433,988
|
|
|
|
16,171,743
|
|
|
|
13,685,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,286,220
|
)
|
|
|
(6,433,988
|
)
|
|
|
(16,171,743
|
)
|
|
|
(13,685,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
50,735
|
|
|
|
61,560
|
|
|
|
167,403
|
|
|
|
111,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(3,235,485
|
)
|
|
|
(6,372,428
|
)
|
|
|
(16,004,340
|
)
|
|
|
(13,574,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(700
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,235,485
|
)
|
|
$
|
(6,372,428
|
)
|
|
$
|
(16,005,040
|
)
|
|
$
|
(13,574,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.18
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
18,252,681
|
|
|
|
18,238,632
|
|
|
|
18,252,092
|
|
|
|
15,871,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.18
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
18,252,681
|
|
|
|
18,238,632
|
|
|
|
18,252,092
|
|
|
|
15,871,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,235,485
|
)
|
|
$
|
(6,372,428
|
)
|
|
$
|
(16,005,040
|
)
|
|
$
|
(13,574,680
|
)
|
Net unrealized gain (loss) on available-for-sale securities
|
|
|
(5,824
|
)
|
|
|
15,887
|
|
|
|
33,022
|
|
|
|
5,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(3,241,309
|
)
|
|
$
|
(6,356,541
|
)
|
|
$
|
(15,972,018
|
)
|
|
$
|
(13,568,878
|
)
|
See accompanying notes to unaudited condensed consolidated financial
statements
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ending September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,005,040
|
)
|
|
$
|
(13,574,680
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,724
|
|
|
|
19,566
|
|
Stock-based compensation expense
|
|
|
1,934,258
|
|
|
|
741,842
|
|
Accretion of premium on marketable investment securities
|
|
|
209,738
|
|
|
|
87,838
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest income
|
|
|
29,331
|
|
|
|
(146,844
|
)
|
Prepaid and other current assets
|
|
|
(107,270
|
)
|
|
|
(117,843
|
)
|
Accounts payable
|
|
|
357,884
|
|
|
|
150,554
|
|
Accrued expenses
|
|
|
(2,177,495
|
)
|
|
|
394,890
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(15,734,870
|
)
|
|
|
(12,444,677
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(59,650
|
)
|
|
|
(28,690
|
)
|
Purchases of marketable investment securities
|
|
|
(19,213,749
|
)
|
|
|
(23,983,464
|
)
|
Maturities of marketable investment securities
|
|
|
19,680,000
|
|
|
|
-
|
|
Payment of rental deposit
|
|
|
(7,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
399,601
|
|
|
|
(24,012,154
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
34,249
|
|
|
|
276,994
|
|
Net proceeds from common stock offering
|
|
|
-
|
|
|
|
32,439,313
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
34,249
|
|
|
|
32,716,307
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(15,301,020
|
)
|
|
|
(3,740,524
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
20,007,659
|
|
|
|
27,666,055
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,706,639
|
|
|
$
|
23,925,531
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Net unrealized gain on available-for-sale securities
|
|
$
|
33,022
|
|
|
$
|
5,802
|
|
Cash paid for income taxes
|
|
|
700
|
|
|
|
200
|
|
See accompanying notes to unaudited condensed consolidated financial
statements
LIPOCINE INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
(1)
|
Basis of Presentation
|
The accompanying unaudited condensed consolidated financial
statements included herein have been prepared by Lipocine Inc. (“Lipocine” or the “Company”) in accordance
with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed
consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries collectively referred
to as the Company. In management's opinion, the interim financial data presented includes all adjustments (consisting solely of
normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain
information required by U.S. generally accepted accounting principles has been condensed or omitted in accordance with rules and
regulations of the SEC. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative
of the results that may be expected for any future period or for the year ending December 31, 2016.
These unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the year ended
December 31, 2015.
The preparation of the unaudited condensed consolidated
financial statements requires management to make estimates and assumptions relating to reporting of the assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these unaudited condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period in conformity with U.S. generally accepted accounting
principles. Actual results could differ from these estimates.
|
(2)
|
Earnings (Loss) per Share
|
Basic earnings (loss) per share is calculated by dividing
net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period.
Net income (loss) available to common shareholders for the three and nine months ended September 30, 2016 and 2015 was calculated
using the two-class method, which is an earnings (loss) allocation method for computing earnings (loss) per share when an entity’s
capital structure includes common stock and participating securities. The two-class method determines earnings (losses) per share
based on dividends declared on common stock and participating securities (i.e., distributed earnings) and participation rights
of participating securities in any undistributed earnings (loss). The application of the two-class method was required since the
Company’s unvested restricted stock contains non-forfeitable rights to dividends or dividend equivalents. However, unvested
restricted stock grants are not included in computing basic earnings (loss) per share for periods where the Company has losses
as these securities are not contractually obligated to share in losses of the Company.
Diluted earnings (loss) per share is based on the weighted
average number of common shares outstanding plus, where applicable, the additional potential common shares that would have been
outstanding related to dilutive options, warrants, unvested restricted stock units and unvested restricted stock to the extent
such shares are dilutive.
The following table sets forth the computation of basic
and diluted earnings (loss) per share of common stock for the three and nine months ended September 30, 2016 and 2015:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic loss per share attributable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,235,485
|
)
|
|
$
|
(6,372,428
|
)
|
|
$
|
(16,005,040
|
)
|
|
$
|
(13,574,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted avg. common shares outstanding
|
|
|
18,252,681
|
|
|
|
18,238,632
|
|
|
|
18,252,092
|
|
|
|
15,871,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.18
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,235,485
|
)
|
|
$
|
(6,372,428
|
)
|
|
$
|
(16,005,040
|
)
|
|
$
|
(13,574,680
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted avg. common shares outstanding
|
|
|
18,252,681
|
|
|
|
18,238,632
|
|
|
|
18,252,092
|
|
|
|
15,871,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.18
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(0.86
|
)
|
The computation of diluted loss per share for the three
and nine months ended September 30, 2016 and 2015 does not include the following stock options, unvested restricted stock, and
warrants to purchase shares in the computation of diluted loss per share because these instruments were antidilutive:
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
2,132,094
|
|
|
|
1,701,107
|
|
Unvested restricted stock
|
|
|
-
|
|
|
|
4,000
|
|
Warrants
|
|
|
-
|
|
|
|
20,467
|
|
|
(3)
|
Marketable Investment Securities
|
The Company has classified its marketable investment
securities as available-for-sale securities. These securities are carried at fair value with unrealized holding gains and losses,
net of the related tax effect, included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains
and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized
on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains,
gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security
at September 30, 2016 and December 31, 2015 were as follows:
December 31, 2015 were as follows:
September 30, 2016
|
|
Amortized
Cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Aggregate
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government notes
|
|
$
|
7,313,575
|
|
|
$
|
1,815
|
|
|
$
|
(398
|
)
|
|
$
|
7,314,992
|
|
Corporate bonds and notes
|
|
|
16,818,756
|
|
|
|
1,003
|
|
|
|
(2,298
|
)
|
|
|
16,817,461
|
|
|
|
$
|
24,132,331
|
|
|
$
|
2,818
|
|
|
$
|
(2,696
|
)
|
|
$
|
24,132,453
|
|
December 31, 2015
|
|
Amortized
Cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Aggregate
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government notes
|
|
$
|
802,862
|
|
|
$
|
-
|
|
|
$
|
(750
|
)
|
|
$
|
802,112
|
|
Corporate bonds and notes
|
|
|
24,005,458
|
|
|
|
594
|
|
|
|
(32,744
|
)
|
|
|
23,973,308
|
|
|
|
$
|
24,808,320
|
|
|
$
|
594
|
|
|
$
|
(33,494
|
)
|
|
$
|
24,775,420
|
|
Maturities of debt securities classified as available-for-sale
securities at September 30, 2016 are as follows:
September 30, 2016
|
|
Amortized
Cost
|
|
|
Aggregate
fair value
|
|
Due within one year
|
|
$
|
24,132,331
|
|
|
$
|
24,132,453
|
|
There were no sales of marketable investment securities during
the three and nine months ended September 30, 2016 and 2015 and therefore no realized gains or losses. Additionally, $11.6 million
and zero of marketable investment securities matured during the three months ended September 30, 2016 and 2015, respectively. Also,
$19.7 million and zero of marketable investment securities matured during the nine months ended September 30, 2016 and 2015, respectively.
The Company determined there were no other-than-temporary impairments for the three and nine month periods ended September 30,
2016 and 2015.
The Company utilizes valuation techniques that maximize the
use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value
based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous
market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized in one of the following levels:
|
•
|
Level 1 Inputs: Quoted prices for identical instruments
in active markets.
|
|
•
|
Level 2 Inputs: Quoted prices for similar instruments
in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuation
in which all significant inputs and significant value drivers are observable in active markets.
|
|
•
|
Level 3 Inputs: Valuations derived from valuation
techniques in which one or more significant inputs or significant value drivers are unobservable.
|
All of the Company’s financial instruments are valued
using quoted prices in active markets or based on other observable inputs. For prepaid and other current assets, accounts payable,
and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The following
table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring
basis at September 30, 2016 and December 31, 2015:
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
|
September 30,
2016
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds and commercial paper
|
|
$
|
958,486
|
|
|
$
|
158,782
|
|
|
$
|
799,704
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government notes
|
|
|
7,314,992
|
|
|
|
7,314,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
16,817,461
|
|
|
|
-
|
|
|
|
16,817,461
|
|
|
|
-
|
|
|
|
$
|
25,090,939
|
|
|
$
|
7,473,774
|
|
|
$
|
17,617,165
|
|
|
$
|
-
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
|
December 31,
2015
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds
|
|
$
|
127,905
|
|
|
$
|
127,905
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government notes
|
|
|
802,112
|
|
|
|
802,112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
23,973,308
|
|
|
|
-
|
|
|
|
23,973,308
|
|
|
|
-
|
|
|
|
$
|
24,903,325
|
|
|
$
|
930,017
|
|
|
$
|
23,973,308
|
|
|
$
|
-
|
|
The following methods and assumptions were used to determine
the fair value of each class of assets and liabilities recorded at fair value in the balance sheets:
Cash equivalents: Cash equivalents primarily consist of highly
rated money market funds and commercial paper with original maturities to the Company of three months or less, and are purchased
daily at par value with specified yield rates. Cash equivalents related to money market funds are classified within Level 1 of
the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar assets.
Cash equivalents related to commercial paper are classified within Level 2 of the fair value hierarchy because they are valued
using broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable inputs.
Government notes: The Company uses a third-party
pricing service to value these investments. The pricing service utilizes quoted market prices in active markets for identical assets
and reportable trades.
Corporate bonds and notes: The Company uses a third-party
pricing service to value these investments. The pricing service utilizes broker/dealer quotes, bids and offers, benchmark yields
and credit spreads and other observable inputs.
The Company’s accounting policy is to recognize
transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
There were no transfers into or out of Level 1 or Level 2 for the nine months ended September 30, 2016.
|
(5)
|
Restructuring Charges
|
On July 13, 2016,
the board of directors of the Company approved a restructuring and reduction in force plan (the “2016 Restructuring
Plan”). Under the 2016 Restructuring Plan, the Company reduced its workforce by eight positions, constituting 33% of
the Company’s workforce. The reduction in workforce involved all functional disciplines including general and
administrative employees, sales and marketing and research and development personnel. Further, subsequent to the Post Action
meeting with the FDA for LPCN 1021 on October 28, 2016, the Company reduced its workforce by an additional
two positions.
The charge related to the
2016 Restructuring Plan during the three and nine months ended September 30, 2016 was $385,000 and was comprised of $385,000 in
severance related expenses, including $51,000 for extending the exercise period of certain options under an existing employee severance
agreement. Associated severance payments were all paid in the third quarter of 2016. The Company estimates it will incur approximately
$342,000 of cash expenditures, substantially all of which will be severance costs, related to the two additional positions that
were eliminated on October 28, 2016. The Company will recognize the restructuring charge during the three months ended December
31, 2016.
The tax provision for interim periods is determined
using an estimate of the Company’s effective tax rate for the full year adjusted for discrete items, if any, that are taken
into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the
estimated tax rate changes, the Company makes a cumulative adjustment.
At September 30, 2016 and
December 31, 2015, the Company had a full valuation allowance against its deferred tax assets, net of expected reversals of
existing deferred tax liabilities, as it believes it is more likely than not that these benefits will not be realized.
|
(7)
|
Contractual Agreements
|
|
(a)
|
Abbott Products, Inc.
|
On March 29, 2012, the Company terminated its collaborative
agreement with Solvay Pharmaceuticals, Inc. (later acquired by Abbott Products, Inc.) for LPCN 1021. As part of the termination,
the Company reacquired the rights to the intellectual property from Abbott. All obligations under the prior license agreement have
been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1.0 million
in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate
amount. If generic versions of any such product are introduced, then royalties are reduced by 50%. The Company did not incur any
royalties during the three and nine months ended September 30, 2016 and 2015.
|
(b)
|
Contract Research and Development
|
The Company has entered into agreements with various
contract organizations that conduct preclinical, clinical, analytical and manufacturing development work on behalf of the Company
as well as a number of independent contractors, primarily clinical researchers, who serve as advisors to the Company. The Company
incurred expenses of $938,000 and $4.1 million for the three months ended September 30, 2016 and 2015, and $4.7 million and $8.0
million for the nine months ended September 30, 2016 and 2015 under these agreements and has recorded these expenses in research
and development expenses.
On August 6, 2004, the Company assumed a non-cancelable
operating lease for office space and laboratory facilities in Salt Lake City, Utah. On May 6, 2014, the Company modified and extended
the lease through February 28, 2018. Additionally, on December 28, 2015, the Company entered into an operating lease for office
space in Lawrenceville, New Jersey through January 31, 2018. Future minimum lease payments under non-cancellable operating leases
(with initial or remaining lease terms in excess of one year) as of September 30, 2016 are:
|
|
|
Operating
|
|
|
|
|
leases
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
2016
|
|
|
|
95,138
|
|
|
2017
|
|
|
|
387,119
|
|
|
2018
|
|
|
|
58,903
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
$
|
541,160
|
|
The Company’s rent expense
was $95,000 and $74,000 for the three months ended September 30, 2016 and 2015 and $279,000 and $221,000 for the nine months ended
September 30, 2016 and 2015.
|
(a)
|
Issuance of Common Stock
|
On April 29, 2015, the Company sold 5,347,500 shares
of common stock in an underwritten offering. Net proceeds to the Company from the sale totaled approximately $32.4 million, after
deducting the direct and incremental expenses of the offering and the commissions in connection with the offering paid by the Company
of $2.3 million.
On November 13, 2015, the Company and American Stock
Transfer & Trust Company, LLC, as Rights Agent, entered into a Rights Agreement. Also on November 12, 2015, the board of directors
of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a “Right”
and collectively, the “Rights”) for each outstanding share of common stock of the Company. The dividend was payable
to stockholders of record as of the close of business on November 30, 2015 and entitles the registered holder to purchase from
the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company
at a price of $63.96 per one-thousandth share (the “Purchase Price”). The Rights will generally become exercisable
upon the earlier to occur of (i) 10 business days following a public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person (as defined below) or (ii) 10 business days (or such later date as may be determined by
action of the board of directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation
of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company.
Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person” upon
acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company.
In general, in the event a person becomes an Acquiring
Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right’s
then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with
a market value of twice the Purchase Price.
In addition, if after any person has become an Acquiring
Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more of the Company’s assets,
or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more
transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and
associates and certain transferees thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring
corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation which at the time of such
transaction would have a market value of twice the Purchase Price.
The Company will be entitled to redeem the Rights
at $0.001 per Right at any time prior to the time an Acquiring Person becomes such. The terms of the Rights are set forth in the
Rights Agreement, which is summarized in the Company's Current Report on Form 8-K dated November 13, 2015. The rights plan will
expire on November 12, 2018, unless the rights are earlier redeemed or exchanged by the Company.
The Company recognizes stock-based compensation
expense for grants of stock option awards, restricted stock units and restricted stock under the Company’s Incentive Plan
to employees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards.
The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service
period. In addition, the Company grants stock options to nonemployee consultants from time to time in exchange for services performed
for the Company. Equity instruments granted to nonemployees are subject to periodic revaluation over their vesting terms.
During August 2016 and in conjunction with the 2016
Restructuring Plan (see note 5), the Company modified 61,487 existing time-vested options of a terminated employee by extending
the exercise period to three years from the date of modification under the terms of the employee’s respective employment
and severance agreement. Compensation expense of $51,000 was recorded as a result of the modification and recorded as a restructuring
charge.
The Company uses the Black-Scholes
model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions
with respect to (i) expected volatility of the Company’s common stock price, (ii) the periods of time over which
employees and members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected
dividend yield on the Common Stock, and (iv) risk-free interest rates. Stock-based compensation expense also includes an estimate,
which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation cost that has been expensed in
the statements of operations amounted to $460,000 and $354,000 for the three months ended September 30, 2016 and 2015 and $1.9
million and $742,000 for the nine months ended September 30, 2016 and 2015, allocated as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
147,769
|
|
|
$
|
73,417
|
|
|
$
|
477,068
|
|
|
$
|
180,960
|
|
General and administrative
|
|
$
|
260,954
|
|
|
$
|
280,646
|
|
|
$
|
1,405,924
|
|
|
$
|
560,882
|
|
Restructuring costs
|
|
|
51,266
|
|
|
|
-
|
|
|
|
51,266
|
|
|
|
-
|
|
|
|
$
|
459,989
|
|
|
$
|
354,063
|
|
|
$
|
1,934,258
|
|
|
$
|
741,842
|
|
The Company issued zero and 83,000 stock options
during the three months ended September 30, 2016 and 2015 and 602,000 and 271,500 stock options during the nine months ended September
30, 2016 and 2015.
Key assumptions used in the determination of the
fair value of stock options granted are as follows:
Expected Term
: The expected term represents
the period that the stock-based awards are expected to be outstanding. Due to limited historical experience of similar awards,
the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (“SAB”)
No. 107,
Share-Based Payment,
for awards with stated or implied service periods. The simplified method defines the
expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions,
and that have the contractual term to satisfy the performance condition, the contractual term was used.
Risk-Free Interest Rate
: The risk-free interest
rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term.
Expected Dividend
: The expected dividend
assumption is based on management’s current expectation about the Company’s anticipated dividend policy. The Company
does not anticipate declaring dividends in the foreseeable future.
Expected Volatility
: Since the Company did
not have sufficient trading history, the volatility factor was based on the average of similar public companies through August
2014. When selecting similar companies, the Company considered the industry, stage of life cycle, size, and financial leverage.
Beginning in August 2014, the volatility factor was based on a combination of the Company's trading history since March 2014 and
the average of similar public companies.
For options granted during the nine months ended
September 30, 2016 and 2015, the Company calculated the fair value of each option grant on the respective dates of grant using
the following weighted average assumptions:
|
|
2016
|
|
|
2015
|
|
Expected term
|
|
|
5.83
|
|
|
|
years
|
|
|
|
5.70
|
|
|
|
years
|
|
Risk-free interest rate
|
|
|
1.68
|
%
|
|
|
|
|
|
|
1.66
|
%
|
|
|
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Expected volatility
|
|
|
82.33
|
%
|
|
|
|
|
|
|
80.95
|
%
|
|
|
|
|
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 718,
Stock Compensation
requires the Company to recognize compensation
expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were
derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management,
additional adjustments to compensation expense may be required in future periods.
As of September 30, 2016, there was $4.0 million
of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s
stock option plan. That cost is expected to be recognized over a weighted average period of 2.0 years and will be adjusted for
subsequent changes in estimated forfeitures. The weighted average fair value of share-based compensation awards granted during
the nine months ended September 30, 2016 and 2015 was approximately $8.29 per share and $6.32 per share, respectively.
In April 2014, the board of directors adopted the
2014 Stock and Incentive Plan ("2014 Plan") subject to shareholder approval which was received in June 2014. The 2014
Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units,
restricted stock and dividend equivalents. An aggregate of 1,000,000 shares are authorized for issuance under the 2014 Plan. Additionally,
271,906 remaining authorized shares under the 2011 Equity Incentive Plan ("2011 Plan") were issuable under the 2014 Plan
at the time of the 2014 Plan adoption. Upon receiving shareholder approval in June 2016, the 2014 Plan was amended and restated
to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan
from 1,271,906 to 2,471,906. In January 2011, the board of directors adopted the 2011 Plan that provides for the granting of nonqualified
and incentive stock options, restricted stock units and restricted stock. The 2011 Plan assumed all of the obligations, which existed
under the previous 2000 Stock Option Plan. Under the 2011 Plan, the Company has granted nonqualified and incentive stock options
for the purchase of common stock to directors, employees and nonemployees providing services to the Company. The board of directors,
on an option-by-option basis, determines the number of shares, exercise price, term, and vesting period. Options granted generally
have a ten-year contractual life. The Company issues shares of common stock upon the exercise of options with the source of those
shares of common stock being either newly issued shares or shares held in treasury. An aggregate of 2,471,906 shares are authorized
for issuance under the 2014 Plan, with 1,512,700 shares remaining available for grant as of September 30, 2016.
A summary of stock option
activity is as follows:
|
|
Outstanding stock options
|
|
|
|
Number of
shares
|
|
|
Weighted average
exercise price
|
|
Balance at December 31, 2015
|
|
|
1,722,552
|
|
|
$
|
5.21
|
|
Options granted
|
|
|
602,000
|
|
|
|
11.90
|
|
Options exercised
|
|
|
(5,445
|
)
|
|
|
6.29
|
|
Options forfeited
|
|
|
(187,013
|
)
|
|
|
11.74
|
|
Balance at September 30, 2016
|
|
|
2,132,094
|
|
|
|
6.52
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2016
|
|
|
1,466,249
|
|
|
|
4.39
|
|
The following table summarizes information about
stock options outstanding and exercisable at September 30, 2016:
Options outstanding
|
|
|
Options exercisable
|
|
Number
outstanding
|
|
|
Weighted
average
remaining
contractual
life
(Years)
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate intrinsic
value
|
|
|
Number
exerciseable
|
|
|
Weighted
average
remaining
contractual
life
(Years)
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,132,094
|
|
|
|
6.25
|
|
|
$
|
6.52
|
|
|
$
|
1,676,342
|
|
|
|
1,466,249
|
|
|
|
4.97
|
|
|
$
|
4.39
|
|
|
$
|
1,676,078
|
|
The intrinsic value for stock options is defined
as the difference between the current market value and the exercise price. The total intrinsic value of stock options exercised
during the nine months ended September 30, 2016 and 2015 was $22,000 and $658,000, respectively. There were 5,445 and 98,574 stock
options exercised during the nine months ended September 30, 2016 and 2015.
|
(e)
|
Restricted Common Stock
|
A summary of restricted common stock activity is
as follows:
|
|
Number of
unvested restricted
shares
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
3,000
|
|
Granted
|
|
|
-
|
|
Vested
|
|
|
(3,000
|
)
|
Cancelled
|
|
|
-
|
|
Balance at September 30, 2016
|
|
|
-
|
|
For charitable purposes, on December 23, 2003,
the Company granted warrants to a local university for 20,467 shares of common stock at a price of $12.21 per share with an original
expiration date of December 31, 2010. In January 2011, the Company extended the term to December 31, 2015 at the same
price. The warrants were not exercised by December 31, 2015 and were cancelled.
|
(10)
|
Commitments and Contingencies
|
Litigation
The Company is involved in various lawsuits, claims
and other legal matters from time to time that arise in the ordinary course of conducting business. The Company records a liability
when a particular contingency is probable and estimable. The Company has not accrued for any contingency at September 30, 2016
as the Company does not consider any contingency to be probable or estimable. The Company faces contingencies that are reasonably
possible to occur; however, they cannot currently be estimated. While complete assurance cannot be given to the outcome of these
proceedings, management does not currently believe that any of these matters, individually or in the aggregate, will have a material
adverse effect on our financial condition, liquidity or results of operations.
Guarantees and Indemnifications
In the ordinary course of business, the Company
enters into agreements, such as lease agreements, licensing agreements, clinical trial agreements, and certain services agreements,
containing standard guarantee and / or indemnifications provisions. Additionally, the Company has indemnified its directors and
officers to the maximum extent permitted under the laws of the State of Delaware.
On July 23, 2013,
the Company entered into an assignment/license and a services agreement with Spriaso, a related-party that is majority-owned by
certain current and former directors of Lipocine Inc. and their affiliates. Under the license agreement, the Company assigned and
transferred to Spriaso all of the Company’s rights, title and interest in its intellectual property to develop products for
the cough and cold field. In addition, Spriaso received all rights and obligations under the Company’s product development
agreement with a third-party. In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso,
up to a maximum of $10.0 million. Spriaso also granted back to the Company an exclusive license to such intellectual property to
develop products outside of the cough and cold field. Under the service agreement, the Company provided facilities and up to 10
percent of the services of certain employees to Spriaso for a period of 18 months which expired January 23, 2015. Effective January
23, 2015, the Company entered into an amended services agreement with Spriaso in which the Company agreed to continue providing
up to 10 percent of the services of certain employees to Spriaso at a rate of $230/hour for a period of six months. The agreement
was further amended on July 23, 2015, on January 23, 2016 and again on July 23, 2016 to extend the term of the agreement for an
additional six months. The agreement may be extended upon written agreement of Spriaso and the Company.
The
Company received reimbursements of zero and $38,000 for the three months ended September 30, 2016 and 2015, respectively, and received
reimbursements of $31,000 and $38,000 for the nine months ended September 30, 2016 and 2015. Spriaso filed its first NDA and as
an affiliated entity of the Company, it used up the one-time waiver for user fees for a small business submitting its first human
drug application to the FDA. Spriaso is considered a variable interest entity under the FASB ASC Topic 810-10,
Consolidations
,
however the Company is not the primary beneficiary and has therefore not consolidated Spriaso.
|
(12)
|
Accounting Pronouncements Not Yet Adopted
|
In August 2016, the FASB issued Accounting Standards
Update (“ASU”) 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
.
This update addresses how certain cash inflows and outflows are classified in the statement of cash flows to eliminate existing
diversity in practice. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early
adoption is permitted. The Company does not believe this pronouncement will have a material effect on the Company's financial position
or results of operations.
In June 2016, the FASB issued ASU 2016-13,
Financial
Instruments - Credit Losses
. The new standard amends guidance on reporting credit losses for assets held at amortized cost
basis and available-for-sale debt securities.
ASU 2016-13 is effective for interim and annual reporting periods beginning
after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018.
Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning
of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company does not
believe this pronouncement will have a material effect on the Company's financial position or results of operations.
In, March 2016, the FASB issued Accounting Standards
Update 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which amends ASC Topic 718,
Stock Compensation
.
The objective of this amendment is part of the FASB’s Simplification Initiative as it applies to several aspects of the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows.
The standard becomes
effective for the Company beginning in the first quarter of our fiscal year ended December 31, 2017
, and allows for prospective,
retrospective or modified retrospective adoption, depending on the area covered in the update, with early adoption permitted. The
Company is currently evaluating the impact that ASU 2016-09 will have on our consolidated financial statements and the timing of
adoption.
In
February 2016, FASB issued ASU 2016-02
,
Leases,
which provides new guidance for lease accounting including recognizing
most leases on-balance sheet. The standard becomes effective for annual and interim periods in fiscal years beginning after December
15, 2018. ASU 2016-02 mandates a modified retrospective transition method for all entities.
The Company is currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related
disclosures.
In
January 2016, FASB issued
ASU 2
016-01,
Financial Instruments,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which provides new guidance for the recognition,
measurement, presentation, and disclosure of financial assets and liabilities. The standard becomes effective for the Company beginning
in the first quarter of our fiscal year ended December 31, 2018 and early adoption is permitted.
The Company does not believe
this pronouncement will have a material effect on the Company's financial position or results of operations.
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires entities
to classify all deferred tax assets and liabilities as non-current on the balance sheet. The standard may be adopted on either
a prospective or retrospective basis. The standard is effective for fiscal years beginning after December 15, 2016, and early
adoption is permitted.
The Company does not believe this pronouncement will have a material effect on the Company's financial
position or results of operations.
In August 2014, FASB issued ASU No. 2014-15,
Presentation of Financial Statements – Going Concern
. ASU 2014-15 provides guidance regarding management’s responsibility
to evaluate whether there exists substantial doubt about an organization’s ability to continue as a going concern and to
provide related footnote disclosures in certain circumstances. The standard is effective for annual reporting periods ending after
December 15, 2016, and interim periods thereafter. The Company does not believe this pronouncement will have a material effect
on the Company's financial position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
with amendments in
2015 (ASU 2015-14) and 2016 (ASU 2016-10, ASU
2016-08, ASU 2016-12)
.
The updated standard is a new comprehensive revenue recognition model that requires revenue to be
recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration
expected to be received in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB voted to approve
the deferral of the effective date of ASU 2014-09 by one year. Therefore, ASU 2014-09 will become effective for the Company in
the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted, but not earlier than the first
quarter of the Company's fiscal year ending December 31, 2017. The Company does not believe this pronouncement will have a
material effect on the Company's financial position or results of operations.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
The following discussion of our financial
condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the
related notes thereto and other financial information included elsewhere in this report. For additional context with which to understand
our financial condition and results of operations, see the management’s discussion and analysis included in our Form 10-K,
filed with the SEC on March 10, 2016 as well as the financial statements and related notes contained therein.
As used in the discussion below, “we,” “our,”
and “us” refers to Lipocine.
Forward Looking Statements
This section and other parts of this report
contain 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, that involve risks and uncertainties. Forward-looking statements provide current
expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical
or current fact. Forward-looking statements may refer to such matters as products, expected product benefits, pre-clinical and
clinical development timelines, clinical and regulatory requirements, expectations and plans, manufacturing and commercialization
of our product candidates, anticipated financial performance, future revenues or earnings, business prospects, projected ventures,
new products and services, anticipated market performance, future expectations for liquidity and capital resources needs and similar
matters. Such words as “may”, “will”, “expect”, “continue”, “estimate”,
“project”, “intend”, “targeted”, “potential”, “proposed”, “designed”
and similar terms and expressions are intended to identify forward looking statements. Forward-looking statements are not guarantees
of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A (Risk Factors)
of this Form 10-Q, in Part II, Item 1A (Risk Factors) of our Form 10-Q for the quarter ended June 30, 2016 filed with the
SEC on August 9, 2016, Item 1A (Risk Factors) of our Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on
May 9, 2016, or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the SEC on March 10, 2016. Except as required
by applicable law, we assume no obligation to revise or update any forward-looking statements for any reason.
Overview of Our Business
We are a specialty pharmaceutical company
focused on applying our oral drug delivery technology for the development of pharmaceutical products in the area of men’s
and women’s health. Our proprietary delivery technologies are designed to improve patient compliance and safety through orally
available treatment options. Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs.
We have a portfolio of proprietary product candidates designed to produce favorable pharmacokinetic (“PK”) characteristics
and facilitate lower dosing requirements, bypass first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal
interactions that limit bioavailability. Our lead product candidate, LPCN 1021, is an oral testosterone replacement therapy (“TRT”)
designed for twice-a-day dosing, that received a Complete Response Letter (“CRL”) from the U.S. Food and Drug Administration
("FDA") on June 28, 2016, after filing an New Drug Application (“NDA”). We completed a Post Action meeting
with the FDA relating to the CRL for LPCN 1021. Additional pipeline candidates include LPCN 1111, a next generation oral testosterone
therapy product with the potential for once daily dosing, that is currently in Phase 2 testing, and LPCN 1107, which has the potential
to become the first oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth, and has
completed an End of Phase 2 meeting with the FDA.
Although we
have completed our pivotal Phase 3 trial of LPCN 1021, approval from the FDA was not granted. On June 28, 2016, LPCN 1021 received
a CRL from the FDA in which deficiencies were identified related to the dosing algorithm for the label. In response to the CRL,
we proposed a dosing regimen to the FDA based on analyses of existing data. The FDA noted that while the proposed dosing regimen
might be acceptable
,
validation in a clinical trial would be needed prior to resubmission
.
The
additional clinical study to validate our dosing regimen will require capital and will result in a delay in our market launch plans,
assuming the FDA approves LPCN 1021. If the FDA denies or further delays approval of LPCN 1021, our business would be materially
and adversely harmed. If the FDA does approve LPCN 1021, but we are unsuccessful in commercializing LPCN 1021, our business will
be materially and adversely harmed.
To date, we have funded our operations primarily
through the sale of equity securities and convertible debt and through up-front payments, research funding and milestone payments
from our license and collaboration arrangements. We have not generated any revenues from product sales and we do not expect to
generate revenue from product sales unless and until we obtain regulatory approval of LPCN 1021 or other products.
We have incurred losses in most years since
our inception. As of September 30, 2016, we had an accumulated deficit of $102.5 million. Income and losses fluctuate year to year,
primarily depending on the timing of recognition of revenues from our license and collaboration agreements. Our net loss was $16.0
million for the nine months ended September 30, 2016, compared to $13.6 million for the nine months ended September 30, 2015. Substantially
all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our
research activities and general and administrative costs associated with our operations.
We expect to continue to
incur significant expenses and operating losses for the foreseeable future as we:
|
•
|
work with the FDA to establish the design and scope of the clinical study to validate our dosing regimen;
|
|
•
|
prepare to initiate the dosing validation study for LPCN 1021;
|
|
•
|
restructure our cost structure;
|
|
•
|
conduct further development of our other product candidates, including LPCN 1111 and LPCN 1107;
|
|
•
|
continue our research efforts;
|
|
•
|
maintain, expand and protect our intellectual property
portfolio; and
|
|
•
|
provide general and administrative support for our
operations.
|
To fund future long-term operations we will need to raise additional
capital. The amount and timing of future funding requirements will depend on many factors, including capital market conditions,
regulatory requirements and outcomes related to LPCN 1021 including our clinical study to validate our dosing regimen, regulatory
requirements related to our other development programs, the timing and results of our ongoing development efforts, the potential
expansion of our current development programs, potential new development programs, the pursuit of various potential commercial
activities and strategies associated with our development programs and related general and administrative support. We anticipate
that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential
license, partnering and collaboration agreements. We cannot be certain that anticipated additional financing will be available
to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through public and private
equity securities offerings and our license and collaboration agreements, there can be no assurance that we will be able to do
so in the future.
Our Product Candidates
Our current portfolio, shown below, includes
our lead product candidate, LPCN 1021, a twice daily oral testosterone replacement therapy, that received a CRL from the FDA on
June 28, 2016 and had a Post Action meeting on October 6, 2016. Additionally, we are in the process of establishing our pipeline
of other clinical candidates including a next generation potential once daily oral testosterone replacement therapy, LPCN 1111,
and an oral therapy for the prevention of preterm birth, LPCN 1107.
Our Development Pipeline
Product
Candidate
|
|
Indication
|
|
Status
|
|
Next Expected Milestone(s)
|
Men’s Health
|
|
|
|
|
|
|
LPCN 1021
|
|
Testosterone Replacement
|
|
NDA submitted / Complete Response Letter received
|
|
Receive assessment feedback from FDA on dosing validation study protocol through Special Protocol Assessment (4Q 2016)
|
LPCN 1111
|
|
Testosterone Replacement
|
|
Phase 2
|
|
Meet with the FDA to define Phase 3 development path (4Q 2016)
|
Women’s Health
|
|
|
|
|
|
|
LPCN 1107
|
|
Prevention of Preterm Birth
|
|
Phase 2
|
|
Receive Phase 3 design feedback from FDA (1Q 2017)
|
These products are based on our proprietary
Lip’ral promicellar drug delivery technology platform. Lip’ral promicellar technology is a patented technology based
on lipidic compositions which form an optimal dispersed phase in the gastrointestinal environment for improved absorption of insoluble
drugs. The drug loaded dispersed phase presents the solubilized drug efficiently at the absorption site (gastrointestinal tract
membrane) thus improving the absorption process and making the drug less dependent on physiological variables such as dilution,
gastro-intestinal pH and food effects for absorption. Lip’ral based formulation enables improved solubilization and higher
drug-loading capacity, which can lead to improved bioavailability, reduced dose, faster and more consistent absorption, reduced
variability, reduced sensitivity to food effects, improved patient compliance, and targeted lymphatic delivery where appropriate.
LPCN 1021: An Oral Product Candidate for Testosterone
Replacement Therapy
Our lead product, LPCN 1021, is an oral
formulation of the chemical, testosterone undecanoate ("TU"), an eleven carbon side chain attached to testosterone. TU
is an ester prodrug of testosterone. An ester is chemically formed by bonding an acid and an alcohol. Upon the cleavage, or breaking,
of the ester bond, testosterone is formed. TU has been approved for use outside the United States for many years for delivery via
intra-muscular injection and in oral dosage form and TU has received regulatory approval in the United States for delivery via
intra-muscular injection. We are using our Lip’ral technology to facilitate steady gastrointestinal solubilization and absorption
of TU for twice daily oral dosing of TU. Proof of concept was initially established in 2006, and subsequently LPCN 1021 was licensed
in 2009 to Solvay Pharmaceuticals, Inc. which was then acquired by Abbott Products, Inc. ("Abbott"). Following a portfolio
review associated with the spin-off of AbbVie by Abbott in 2011, the rights to LPCN 1021 were reacquired by us. All obligations
under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales.
Such royalties are limited to $1 million in the first two calendar years following product launch, after which period there is
not a cap on royalties and no maximum aggregate amount. If generic versions of any such product are introduced, then royalties
are reduced by 50%.
Results from SOAR
We have completed our Study of Oral Androgen
Replacement ("SOAR") pivotal Phase 3 clinical study evaluating efficacy and safety of LPCN 1021 and have received efficacy
results and 52-week safety results. SOAR was a randomized, open-label, parallel-group, active-controlled, Phase 3 clinical study
of LPCN-1021 in hypogonadal males with low testosterone (< 300 ng/dL). In total, 315 subjects at 40 active sites were assigned,
such that 210 were randomized to LPCN 1021 and 105 were randomized to the active control, Androgel 1.62%®, for 52 weeks of
treatment. The active control is included for safety assessment. LPCN 1021 subjects were started at 225 mg TU (equivalent to ~
142 mg of T) twice daily (“BID”) with a standard meal and then dose titrated, if needed based on average T levels during
the day, Cavg, and peak serumT levels, Cmax, up to 300 mg TU BID or down to 150 mg TU BID based on serum testosterone measured
at weeks 3 and 7. The mean age of the subjects in the trial was ~53 yrs with ~91% of the patients < 65 yrs of age.
Primary statistical analysis was conducted
using the Efficacy Population Set ("EPS"). The EPS is defined as subjects randomized into the study with at least one
PK profile and no significant protocol deviations and includes imputed missing data by last observation carried forward, N=151.
Further analysis was performed using the full analysis set ("FAS") (any subject randomized into the study with at least
one post-baseline efficacy variable response, N=193) and the safety set (“SS”) (any subject that was randomized into
the study and took at least one dose, N=210).
Efficacy
The primary efficacy end point is the percentage
of subjects with an average 24-hour serum testosterone concentration (“Cavg”) within the normal range, which is defined
as 300-1140 ng/dL, after 13 weeks of treatment. The FDA guidelines for primary efficacy success is that at least 75% of the subjects
on active treatment achieve a testosterone Cavg within the normal range; and the lower bound of the 95% confidence interval (“CI”)
must be greater than or equal to 65%.
LPCN 1021 met the FDA primary efficacy guideline.
In the EPS analysis, 87% of the subjects on active treatment achieved testosterone Cavg within the normal range with lower bound
CI of 82%. Additionally, sensitivity analysis using the FAS and SS reaffirmed the finding that LPCN 1021 met the FDA primary efficacy
guideline as 87% and 80%, respectively, of the subjects on active treatment achieved testosterone Cavg within the normal range
with lower bound CI of 82% and 74%, respectively.
In the EPS analysis, Cmax ≤1500 ng/dL was 83%, Cmax between
1800 and 2500 ng/dL was 4.6% and Cmax > 2500 ng/dL was 2%. Three patients had a Cmax >2500 ng/dL which were transient, isolated
and sporadic. Moreover, none of these subjects reported any adverse events ("AEs") through the efficacy readout at week
13. Results were generally consistent with those of approved TRT products.
Safety
The safety component of the SOAR trial was
completed the last week of April 2015. The safety extension phase was designed to assess safety based on information such as metabolites,
biomarkers, laboratory values, serious adverse events ("SAEs") and AEs, with subjects on their stable dose regimen in
both the treatment arm and the active control arm. LPCN 1021 treatment was well tolerated in that there were no hepatic, cardiac
or drug related SAEs.
LPCN 1021 safety highlights include:
|
·
|
LPCN 1021 was well tolerated during 52 weeks of dosing;
|
|
·
|
Overall AE profile for LPCN 1021 was comparable to the active control;
|
|
·
|
Cardiac AE profiles were consistent between treatment groups and none of the observed cardiac AEs occurred in greater than
1.0% of the subjects in the LPCN 1021 arm and none were classified as severe; and
|
|
·
|
All observed adverse drug reactions (“ADRs”) were classified as mild or moderate in severity and no serious ADRs
occurred during the 52-week treatment period.
|
We also completed our labeling "food effect" study
in May 2015. Results from the labeling "food effect" study indicate that bioavailability of testosterone from LPCN 1021
is not affected by changes in meal fat content. The results demonstrate comparable testosterone levels between the standard fat
meal (similar to the meal instruction provided in the Phase 3 clinical study) and both the low and high fat meals. The labeling
“food effect” study was conducted per the FDA requirement and we submitted preliminary results from this study to the
FDA in the second quarter of 2015 prior to submitting the NDA. Based on our pre-NDA meeting with the FDA, we do not expect to be
required to conduct a heart attack and stroke risk study or any additional safety studies prior to the potential approval of our
NDA for LPCN 1021. We may, however, be required to conduct a heart attack and stroke risk study on our own or with a consortium
of sponsors that have an approved TRT product subsequent to the potential approval of LPCN 1021.
The FDA accepted our NDA in October 2015 and assigned a Prescription
Drug User Fee Act ("PDUFA") goal date of June 28, 2016 for completion of the review. On June 28, 2016, we received a
CRL from the FDA. A CRL is a communication from the FDA that informs companies that an application cannot be approved in its present
form. The CRL identified deficiencies related to the dosing algorithm for the label. Specifically, the proposed titration scheme
for clinical practice was significantly different from the titration scheme used in the Phase 3 trial leading to discordance in
titration decisions between the Phase 3 trial and real-world clinical practice. In response to the CRL, we met with the FDA in
a Post Action meeting, and proposed a dosing regimen to the FDA based on analyses of existing data. The FDA noted that while the
proposed dosing regimen might be acceptable, validation in a clinical trial would be needed prior to resubmission. Additionally,
the FDA agreed to review the study protocol through a Special Protocol Assessment (“SPA”) which Lipocine submitted
to the FDA in October 2016.
An
SPA is an advanced declaration from the FDA that a planned trial's design, clinical
endpoints, and statistical analyses could potentially result in data acceptable for FDA review towards approval for the proposed
indication. The next step will be to receive assessment feedback from the FDA on the dosing validation study protocol prior to
initiating the dosing regimen validation study. There is no guarantee of approval of LPCN 1021, even if these additional activities
are performed.
LPCN 1111: A Next-Generation Oral Product Candidate for
TRT
LPCN 1111 is a next-generation, novel ester prodrug of testosterone
which uses the Lip’ral technology to enhance solubility and improve systemic absorption. We successfully completed a Phase
2b dose finding study in hypogonadal men in the third quarter of 2016. The primary objectives of the Phase 2b clinical study were
to determine the starting Phase 3 dose of LPCN 1111 along with safety and tolerability of LPCN 1111 and its metabolites following
oral administration of single and multiple doses in hypogonadal men. The Phase 2b clinical trial was a randomized, open label,
two-period, multi-dose PK study that enrolled hypogonadal males into five treatment groups. Each of the 12 subjects in a group
received treatment for 14 days. Results of the Phase 2b study suggest that the primary objectives were met, including identifying
the dose expected to be tested in a Phase 3 study. Good dose-response relationship was observed over the tested dose range in the
Phase 2b study. Additionally, the target Phase 3 dose met primary and secondary end points. Overall, LPCN 1111 was well tolerated
with no drug-related severe or serious adverse events reported in the Phase 2b study.
In October 2014, we successfully completed
a Phase 2a proof-of-concept study in hypogonadal men. The Phase 2a open-label, dose-escalating single and multiple dose study enrolled
12 males. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with LPCN 1111 in hypogonadal
men and a good dose response. Additionally, the study confirmed that steady state is achieved by day 14 with consistent inter-day
performance observed on day 14, 21 and 28. No subjects exceeded Cmax of 1500 ng/dL at any time during the 28-day dosing period
on multi-dose exposure. Overall, LPCN 1111 was well tolerated with no serious AE’s reported.
The next step will be to meet with the FDA
during the fourth quarter of 2016 to define the Phase 3 development path for LPCN 1111.
LPCN 1107:
An Oral Product Candidate for the Prevention of Preterm Birth
We believe LPCN 1107 has the potential to
become the first oral hydroxyprogesterone caproate (“HPC”) product indicated for the reduction of risk of preterm birth
in women with a prior history of at least one preterm birth. We have successfully completed a multi-dose PK dose selection study
in pregnant women. The objective of the multi-dose PK selection study was to assess HPC blood levels in order to identify the appropriate
LPCN 1107 Phase 3 dose. The multi-dose PK dose selection study was an open-label, four-period, four-treatment, randomized, single
and multiple dose, PK study in pregnant women of three dose levels of LPCN 1107 and the injectable HPC (Makena®). The study
enrolled 12 healthy pregnant women (average age of 27 years) with a gestational age of approximately 16 to 19 weeks. Subjects received
three dose levels of LPCN 1107 (400 mg BID, 600 mg BID, or 800 mg BID) in a randomized, crossover manner during the first three
treatment periods and then received five weekly injections of HPC during the fourth treatment period. During each of the LPCN 1107
treatment periods, subjects received a single dose of LPCN 1107 on Day 1 followed by twice daily administration from Day 2 to Day
8. Following completion of the three LPCN 1107 treatment periods and a washout period, all subjects received five weekly injections
of HPC. Results from this study demonstrated that average steady state HPC levels (C
avg
0-24) were comparable or higher
for all three LPCN 1107 doses than for injectable HPC. Additionally, HPC levels as a function of daily dose were linear for the
three LPCN 1107 doses. Also unlike the injectable HPC, steady state exposure was achieved for all three LPCN 1107 doses within
seven days. We have also successfully completed a proof-of-concept Phase 1b clinical study of LPCN 1107 in healthy pregnant women
in January 2015 and a proof-of-concept Phase 1a clinical study of LPCN 1107 in healthy non-pregnant women in May 2014. These studies
were designed to determine the PK and bioavailability of LPCN 1107 relative to an intramuscular ("IM") HPC, as well as
safety and tolerability. A traditional pharmacokinetics/pharmacodynamics (“PK/PD”) based Phase 2 clinical study in
the intended patient population is not expected to be required prior to entering into Phase 3. Therefore; based on the results
of our multi-dose PK study we had an End-of-Phase 2 meeting with the FDA to define a Phase 3 development plan for LPCN 1107. The
FDA indicated that results from a single Phase 3 study could potentially be eligible for a Subpart H approval, if the application
could otherwise be approved. We expect to receive further Phase 3 design feedback from the FDA by the first quarter of 2017
The FDA has granted
orphan drug designation to LPCN 1107 based on a major contribution to patient care. Orphan designation qualifies Lipocine for various
development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user fee when
we file our NDA.
Financial Operations Overview
Revenue
To date, we have not generated any revenues
from product sales and do not expect to do so until one of our product candidates receives approval from the FDA. Revenues to date
have been generated substantially from license fees, milestone payments and research support from our licensees. Since our inception
through September 30, 2016, we have generated $27.5 million in revenue under our various license and collaboration arrangements
and from government grants. We may never generate revenues from LPCN 1021 or any of our other products, clinical or preclinical
development programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these
product candidates.
Research and Development Expenses
Research and development expenses consist
primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers
such as contract research organizations and contract manufacturing organizations, contractual obligations for clinical development,
clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug supplies, and expenses
associated with regulatory submissions. Research and development expenses also include an allocation of indirect costs, such as
those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct labor hours for research
and development personnel to total direct labor hours for all personnel. We expense research and development expenses as incurred.
Since our inception, we have spent approximately $84.7 million in research and development expenses through September 30, 2016.
We expect to incur approximately $5.0 million
in additional research and developments costs for LPCN 1021 as we conduct the new dosing validation study and as we complete on-going
manufacturing activities. However, these expenditures are subject to numerous uncertainties regarding timing and cost to completion.
Approval, if ever, of LPCN
1021 will require at least one additional clinical trial and will take longer and be more costly than originally estimated. The
cost of clinical trials may vary significantly over the life of a project as a result of uncertainties in clinical development,
including, among others:
|
•
|
the number of sites included in the trials;
|
|
•
|
the length of time required to enroll suitable subjects;
|
|
•
|
the duration of subject follow-ups;
|
|
•
|
the length of time required to collect, analyze and report
trial results;
|
|
•
|
the cost, timing and outcome of regulatory review; and
|
|
•
|
potential changes by the FDA in clinical trial and NDA
filing requirements for testosterone replacement therapies.
|
We also incurred significant
manufacturing costs to prepare launch supplies for LPCN 1021, and expect to incur additional manufacturing costs related to LPCN
1021. However, these expenditures are subject to numerous uncertainties regarding timing and cost to completion, including, among
others:
|
•
|
the timing and outcome of our new dosing regimen validation study, regulatory filings, and FDA reviews and actions for LPCN
1021;
|
|
•
|
our dependence on third-party manufacturers for the production of clinical trial materials and satisfactory finished product
for registration;
|
|
•
|
the potential for future license or co-promote arrangements
for LPCN 1021, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our future
plans and capital requirements; and
|
|
•
|
the effect on our product development activities of actions
taken by the FDA or other regulatory authorities.
|
A change of outcome for any of these variables
with respect to the development of LPCN 1021 could mean a substantial change in the costs and timing associated with these efforts.
Given the stage of clinical development
and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process,
we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1111, LPCN 1107 and other product
candidates. Clinical development timelines, the probability of success and development costs can differ materially from expectations
and results from our clinical trials may not be favorable. If we are successful in progressing LPCN 1111, LPCN 1107 or other
product candidates into later stage development, we will require additional capital. The amount and timing of our future research
and development expenses for these product candidates will depend on the preclinical and clinical success of both our current development
activities and potential development of new product candidates, as well as ongoing assessments of the commercial potential of such
activities.
Summary of Research and Development Expense
We are conducting on-going clinical and
regulatory activities with all three of our product candidates. Additionally, we incur costs for our other research programs. The
following table summarizes our research and development expenses:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
External service provider costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPCN 1021
|
|
$
|
829,165
|
|
|
$
|
3,861,598
|
|
|
$
|
2,837,552
|
|
|
$
|
7,605,572
|
|
LPCN 1111
|
|
|
44,461
|
|
|
|
162,240
|
|
|
|
1,559,123
|
|
|
|
288,167
|
|
LPCN 1107
|
|
|
56,637
|
|
|
|
69,312
|
|
|
|
256,255
|
|
|
|
104,462
|
|
Other product candidates
|
|
|
7,500
|
|
|
|
9,398
|
|
|
|
22,500
|
|
|
|
24,398
|
|
Total external service provider costs
|
|
|
937,763
|
|
|
|
4,102,548
|
|
|
|
4,675,430
|
|
|
|
8,022,599
|
|
Internal personnel costs
|
|
|
425,901
|
|
|
|
492,178
|
|
|
|
1,639,606
|
|
|
|
1,428,084
|
|
Other research and development costs
|
|
|
142,917
|
|
|
|
139,163
|
|
|
|
432,637
|
|
|
|
363,809
|
|
Total research and development
|
|
$
|
1,506,581
|
|
|
$
|
4,733,889
|
|
|
$
|
6,747,673
|
|
|
$
|
9,814,492
|
|
We expect research and development expenses
to continue to decrease in the future until we initiate additional clinical trials with any of our three product candidates.
General and Administrative Expenses
General and administrative expenses consist
primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development,
marketing, sales and support functions. Other general and administrative expenses include rent and utilities, travel expenses,
professional fees for auditing, tax and legal services, market research and market analytics.
They also include expenses for the cost
of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related
claims.
We expect that general and administrative
expenses will increase materially as we mature as a public company. These increases will likely include legal and consulting fees,
accounting and audit fees, director fees, increased directors’ and officers’ insurance premiums, fees for investor
relations services and enhanced business and accounting systems, litigation costs, professional fees and other costs. However,
these increases will be offset by decreases in general and administrative fees related to decreased marketing, sales and finance
salaries and related expenses associated with a restructuring and reduction in force plan implemented in July 2016 and October
2016. Additionally, outside spend on sales and marketing pre-commercialization activities will decrease until we receive clarity
on the regulatory path forward with LPCN 1021. Finally, legal fees associated with the Clarus litigation will decrease as the suit
was dismissed by the District Judge in New Jersey in October 2016.
Restructuring Charges
Restructuring charges
relate to our initiative to restructure operations which was approved by the board of directors on July 13, 2016, referred to as our 2016 Restructuring Plan. Under the 2016
Restructuring Plan, the Company reduced its workforce by 8 positions, constituting 33% of the Company’s workforce. The reduction
in workforce involved all functional disciplines including general and administrative employees, sales and marketing
and research and development personnel.
Other Income, Net
Other income, net consists primarily of interest earned on our
cash, cash equivalents and marketable investment securities.
Results of Operations
Comparison of the Three Months Ended
September 30, 2016 and 2015
The following table summarizes our results
of operations for the three months ended September 30, 2016 and 2015:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Variance
|
|
Research and development expenses
|
|
$
|
1,506,581
|
|
|
$
|
4,733,889
|
|
|
|
(3,227,308
|
)
|
General and administrative expenses
|
|
|
1,394,406
|
|
|
|
1,700,099
|
|
|
|
(305,693
|
)
|
Restructuring costs
|
|
|
385,233
|
|
|
|
-
|
|
|
|
385,233
|
|
Other income, net
|
|
|
50,735
|
|
|
|
61,560
|
|
|
|
(10,825
|
)
|
Research and Development Expenses
The decrease in research and development expenses in the three
months ended September 30, 2016 was primarily due to decreased contract research organization and consultant costs of $1.4 million.
In addition, during the three months ended September 30, 2015, we incurred a $2.3 million fee to file our NDA for LPCN 1021 with
the FDA. These decreases were offset by an increase in validation and commercial batch manufacturing costs for LPCN 1021 of $540,000
General and Administrative Expenses
The decrease in general and administrative expenses in the three
months ended September 30, 2016 was primarily due to a decrease of $564,000 for pre-commercialization marketing and sales activities
related to LPCN 1021 offset by an increase of $231,000 in personnel costs due to increased headcount and increased salaries.
Restructuring Charges
The increase in restructuring charges in
the three months ended September 30, 2016 was the result of our 2016 Restructuring Plan that was approved by the board of directors
on July 13, 2016. The charge related to the 2016 Restructuring Plan during the three months ended September 30, 2016 was $385,000
and was comprised of $385,000 in severance related expenses, including $51,000 for extending the exercise period of certain options
under an existing employee severance agreement.
Other Income, Net
The decrease in other income, net, primarily
reflects decreased interest income earned on lower average balances in cash, cash equivalents and marketable investment securities
in 2016 as compared to 2015.
Comparison of the Nine Months Ended
September 30, 2016 and 2015
The following table summarizes our results
of operations for the nine months ended September 30, 2016 and 2015:
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Variance
|
|
Research and development expenses
|
|
|
6,747,673
|
|
|
|
9,814,492
|
|
|
|
(3,066,819
|
)
|
General and administrative expenses
|
|
|
9,038,837
|
|
|
|
3,871,478
|
|
|
|
5,167,359
|
|
Restructuring costs
|
|
|
385,233
|
|
|
|
-
|
|
|
|
385,233
|
|
Other income, net
|
|
|
167,403
|
|
|
|
111,490
|
|
|
|
55,913
|
|
Income tax expense
|
|
|
700
|
|
|
|
200
|
|
|
|
500
|
|
Research and Development Expenses
The decrease in research and development
expenses in the nine months ended September 30, 2016 was primarily due to decreased contract research organization and consultant
costs of $3.4 million. In addition, during the nine months ended September 30, 2015, we incurred a $2.3 million fee to file our
NDA for LPCN 1021 with the FDA. These decreases were offset by an increase in validation and commercial batch manufacturing costs
for LPCN 1021 of $2.3 million and increased personnel costs of $212,000 due primarily to increased stock-based compensation related
to higher average headcount.
General and Administrative Expenses
The increase in general and administrative expenses in the nine
months ended September 30, 2016 was primarily due to an increase of $2.6 million for pre-commercialization marketing and sales
activities related to LPCN 1021 and an increase of $2.4 million in personnel costs due primarily to increased stock-based compensation
and salaries related to higher average headcount.
Restructuring Charges
The increase in restructuring charges in
the nine months ended September 30, 2016 was the result of our 2016 Restructuring Plan that was approved by the Board of Directors
on July 13, 2016. The charge related to the 2016 Restructuring Plan during the nine months ended September 30, 2016 was $385,000
and was comprised of $385,000 in severance related expenses, including $51,000 for extending the exercise period of certain options
under an existing employee severance agreement.
Other Income, Net
The increase in other income, net, primarily
reflects increased interest rates and higher average balances in cash, cash equivalents and marketable investment securities in
2016 as compared to 2015.
Income tax expense
The increase in income tax expense is for
minimum income tax in New Jersey related to the opening of an office in Lawrence, New Jersey in January 2016.
Liquidity and Capital Resources
Since our inception, our operations have
been primarily financed through sales of our equity and payments received under our license and collaboration arrangements. We
have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical
development activities. We have incurred operating losses in most years since our inception and we expect to continue to incur
operating losses into the foreseeable future as we seek to advance our lead product candidate, LPCN 1021, and further clinical
development of LPCN 1111, LPCN 1107 and our other programs and continued research efforts.
As of September 30, 2016,
we had $28.8 million of cash, cash equivalents and marketable investment securities compared to $44.8 million at December 31,
2015. We believe that our existing capital resources, together with interest thereon, will be sufficient to meet our projected
operating requirements for at least the next twelve months. While we believe we have sufficient liquidity and capital resources
to fund our projected operating requirements through September 30, 2017, we will need to raise additional capital at some point,
either before or after September 30, 2017, to support our operations, long-term research and development and commercialization
of our product candidates if they receive approval from the FDA. We have based this estimate on assumptions that may prove to be
wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change,
and we may need additional funds to meet operational needs and capital requirements for product development, regulatory compliance,
clinical trials and pre-commercialization sooner than planned based on our Post Action meeting with the FDA and the decision to
conduct a clinical study to validate our proposed dosing regimen for LPCN 1021. We may consume our capital resources more rapidly
if the costs of the additional clinical study for LPCN 1021 exceeds our expectations, FDA approval for LPCN 1021 is delayed or
denied, we elect to pursue the build out of an internal sales force as part of our commercialization launch plan if our product
candidates receive approval from the FDA. We currently have no credit facility or committed sources of capital. Because of the
numerous risks and uncertainties associated with the development and, if they receive approval by the FDA, commercialization of
our product candidates and our ability to enter into collaborations with third parties to participate in the development and potential
commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures
associated with our anticipated or unanticipated clinical studies and ongoing development and pre-commercialization efforts. To
fund future operations, we will need to raise additional capital and our requirements will depend on many factors, including the
following:
|
•
|
the timing, cost and outcome of our dosing regimen validation
clinical study discussed with the FDA in our Post Action meeting;
|
|
•
|
further, clinical development requirements, if any, or
other requirements of the FDA related to approval of LPCN 1021;
|
|
•
|
the scope, rate of progress, results and cost of our clinical
studies, preclinical testing and other related activities;
|
|
•
|
the scope of clinical and other work required to obtain
approval of LCPN 1021 and our other product candidates;
|
|
•
|
the cost of manufacturing clinical supplies, and establishing
commercial supplies, of our product candidates and any products that we may develop;
|
|
•
|
the cost and timing of establishing sales, marketing and distribution capabilities;
|
|
•
|
the terms and timing of any collaborative, licensing and
other arrangements that we may establish;
|
|
•
|
the number and characteristics of product candidates that
we pursue;
|
|
•
|
the cost, timing and outcomes of regulatory approvals;
|
|
•
|
the timing, receipt and amount of sales, profit sharing
or royalties, if any, from our potential products;
|
|
•
|
the cost of preparing, filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights;
|
|
•
|
the extent to which we acquire or invest in businesses,
products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions;
and
|
|
•
|
the extent to which we grow significantly in the number
of employees or the scope of our operations.
|
Funding may not be available to us on acceptable
terms, or at all. Also, market conditions may prevent us from accessing the debt and equity capital markets. If we are unable to
obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies,
research and development programs or, if any of our product candidates receive approval from the FDA, commercialization efforts.
We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings,
collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. These arrangements
may not be available to us or available on terms favorable to us. To the extent that we raise additional capital through marketing
and distribution arrangements, other collaborations, strategic alliances or licensing arrangements with third parties, we may have
to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or grant
licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings,
the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation
or other preferences, warrants or other terms that adversely affect our stockholders’ rights or further complicate raising
additional capital in the future. If we raise additional capital through debt financing, we may be subject to covenants limiting
or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring
dividends. If we are unable, for any reason, to raise needed capital, we will have to delay research and development programs,
liquidate assets, dispose of rights, commercialize products or product candidates earlier than planned or on less favorable terms
than desired or reduce or cease operations.
|
|
Nine months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash used in operating activities
|
|
$
|
(15,734,870
|
)
|
|
$
|
(12,444,677
|
)
|
Cash provided by (used in) investing activities
|
|
|
399,601
|
|
|
|
(24,012,154
|
)
|
Cash provided by financing activities
|
|
|
34,249
|
|
|
|
32,716,307
|
|
Operating Activities
Cash used in operating activities was $15.7
million for the nine months ended September 30, 2016, and $12.4 million for the nine months ended September 30, 2015, an increase
of $3.3 million. Included in the increase was a $2.4 million increase in net loss and a $2.6 million decrease in accrued expenses.
These changes were partially offset by a $207,000 increase in accounts payable, a $1.2 million increase in stock-based compensation,
a $122,000 increase in accretion of premium on marketable investment securities, and a $11,000 decrease in prepaid and other current
assets and a $176,000 decrease in accrued interest income.
Investing Activities
Investing activities consist primarily of purchases and maturities
of marketable investment securities and purchases of property and equipment. We purchased $19.2 million of marketable investment
securities in the nine months ended September 30, 2016 and $24.0 million during the nine months ended September 30, 2015. Additionally,
marketable investment securities of $19.7 million matured during the nine months ended September 30, 2016 compared to zero maturing
during the nine months ended September 30, 2015. We acquired $60,000 of property and equipment during the nine months ended September
30, 2016 compared to $29,000 during the nine months ended September 30, 2015.
Financing Activities
Financing activities consist primarily of the receipt of net
proceeds from the sale of common stock and proceeds from the exercise of stock options Cash provided by financing activities was
$34,000 and $32.7 million, respectively, during the nine months ended September 30, 2016 and 2015. During the nine months ended
September 30, 2016, we received $34,000 from the exercise of stock options. During the nine months ended September 30, 2015, we
received $32.5 million from the sale of common stock in an underwritten transaction in April 2015 and $277,000 from the exercise
of stock options.
Contractual Commitments and Contingencies
Operating Leases
In August 2004, we entered into an agreement
to lease our facility in Salt Lake City, Utah consisting of office and laboratory space which serves as our corporate headquarters.
On May 6, 2014, we modified and extended the lease through February 28, 2018. Our remaining commitment through 2018 under this
lease is $429,000. Additionally, on December 28, 2015, we entered into an agreement to lease office space in Lawrenceville, New
Jersey which has an occupancy date of February 1, 2016 and an end date of January 31, 2018. Our remaining commitment through 2018
under this lease is $112,000.
Other Contractual Obligations
We enter into contracts in the normal course of business with
clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research
studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination
on notice, and are cancellable obligations.
JOBS Act Accounting Election
We are an “emerging growth company,”
as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards
issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably
elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the
same new or revised accounting standards as other public companies that are not emerging growth companies.
Critical Accounting Policies and Significant
Judgments and Estimates
Our management’s discussion and analysis of our financial
condition and results of operations is based on our financial statements which we have prepared in accordance with U.S. generally
accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Our estimates are based on our historical
experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions. There have been no significant and material
changes in our critical accounting policies during the nine months ended September 30, 2016, as compared to those disclosed in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies
and Significant Judgments and Estimates” in our Form 10-K filed March 10, 2016.
New Accounting Standards
Refer to Note 12, in “Notes to Unaudited Condensed Consolidated
Financial Statements” for a discussion of accounting standards not yet adopted.
Off-Balance Sheet Arrangements
None.