|
ITEM 1.
|
FINANCIAL STATEMENTS
|
RXI PHARMACEUTICALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and
per share data)
(Unaudited)
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,240
|
|
|
$
|
3,581
|
|
|
Restricted cash
|
|
|
50
|
|
|
|
50
|
|
|
Prepaid expenses and other current assets
|
|
|
332
|
|
|
|
201
|
|
|
Total current assets
|
|
|
3,622
|
|
|
|
3,832
|
|
|
Property and equipment, net
|
|
|
187
|
|
|
|
248
|
|
|
Other assets
|
|
|
–
|
|
|
|
18
|
|
|
Total assets
|
|
$
|
3,809
|
|
|
$
|
4,098
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
491
|
|
|
$
|
511
|
|
|
Accrued expenses
|
|
|
1,568
|
|
|
|
1,754
|
|
|
Total current liabilities
|
|
|
2,059
|
|
|
|
2,265
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued or outstanding
|
|
|
–
|
|
|
|
–
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 4,449,909 and 2,429,993 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
|
|
|
–
|
|
|
|
–
|
|
|
Additional paid-in capital
|
|
|
85,934
|
|
|
|
80,384
|
|
|
Accumulated deficit
|
|
|
(84,184
|
)
|
|
|
(78,551
|
)
|
|
Total stockholders’ equity
|
|
|
1,750
|
|
|
|
1,833
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
3,809
|
|
|
$
|
4,098
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
RXI PHARMACEUTICALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in thousands, except share and
per share data)
(Unaudited)
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Revenues
|
|
$
|
57
|
|
|
$
|
–
|
|
|
$
|
138
|
|
|
$
|
–
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
838
|
|
|
|
1,490
|
|
|
|
3,382
|
|
|
|
4,166
|
|
|
Acquired in-process research and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,696
|
|
|
General and administrative
|
|
|
711
|
|
|
|
986
|
|
|
|
2,386
|
|
|
|
3,209
|
|
|
Total operating expenses
|
|
|
1,549
|
|
|
|
2,476
|
|
|
|
5,768
|
|
|
|
12,071
|
|
|
Operating loss
|
|
|
(1,492
|
)
|
|
|
(2,476
|
)
|
|
|
(5,630
|
)
|
|
|
(12,071
|
)
|
|
Total other expense, net
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
(3
|
)
|
|
|
–
|
|
|
Loss before income taxes
|
|
|
(1,493
|
)
|
|
|
(2,476
|
)
|
|
|
(5,633
|
)
|
|
|
(12,071
|
)
|
|
Income tax benefit
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,621
|
|
|
Net loss
|
|
$
|
(1,493
|
)
|
|
$
|
(2,476
|
)
|
|
$
|
(5,633
|
)
|
|
$
|
(10,450
|
)
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.34
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
(4.71
|
)
|
|
Weighted average shares used in calculating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
4,371,259
|
|
|
|
2,351,144
|
|
|
|
3,662,924
|
|
|
|
2,216,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
RXI PHARMACEUTICALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,633
|
)
|
|
$
|
(10,450
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
61
|
|
|
|
48
|
|
|
Non-cash stock-based compensation
|
|
|
117
|
|
|
|
276
|
|
|
Acquired in-process research and development
|
|
|
–
|
|
|
|
4,696
|
|
|
Deferred taxes
|
|
|
–
|
|
|
|
(1,621
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(113
|
)
|
|
|
(121
|
)
|
|
Accounts payable
|
|
|
(20
|
)
|
|
|
(417
|
)
|
|
Accrued expenses
|
|
|
(186
|
)
|
|
|
276
|
|
|
Net cash used in operating activities
|
|
|
(5,774
|
)
|
|
|
(7,313
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash acquired in MirImmune Inc. acquisition
|
|
|
–
|
|
|
|
100
|
|
|
Cash paid for purchase of property and equipment
|
|
|
–
|
|
|
|
(203
|
)
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(103
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock and warrants
|
|
|
5,433
|
|
|
|
(74
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
5,433
|
|
|
|
(74
|
)
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(341
|
)
|
|
|
(7,490
|
)
|
|
Cash, cash equivalents and restricted cash at the beginning of period
|
|
|
3,631
|
|
|
|
12,956
|
|
|
Cash, cash equivalents and restricted cash at the end of period
|
|
$
|
3,290
|
|
|
$
|
5,466
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Conversions of Series B convertible preferred stock into common stock
|
|
$
|
–
|
|
|
$
|
3,525
|
|
|
Conversion of Series C convertible preferred stock into common stock
|
|
$
|
–
|
|
|
$
|
816
|
|
|
MirImmune Inc. Acquisition:
|
|
|
|
|
|
|
|
|
|
Cancellation of notes receivable
|
|
$
|
–
|
|
|
$
|
150
|
|
|
Accounts payable assumed
|
|
$
|
–
|
|
|
$
|
5
|
|
|
Fair value of securities issued
|
|
$
|
–
|
|
|
$
|
2,824
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
RXI PHARMACEUTICALS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. Nature of Operations
RXi
Pharmaceuticals Corporation (“
RXi
,” “
we
,” “
our
” or the “
Company
”)
is a biotechnology company developing the next generation of immuno-oncology therapeutics based on its self-delivering RNAi (“
sd-rxRNA
®
”)
therapeutic platform. The Company’s sd-rxRNA compounds do not require a delivery vehicle to penetrate the cell and are designed
to “silence,” or down-regulate, the expression of a specific gene that may be over-expressed in a disease condition.
We believe that this provides RXi with a distinct advantage in adoptive cell transfer therapy, the Company’s initial focus
and approach to immuno-oncology.
Prior
to the Company’s acquisition of MirImmune Inc. in January 2017, our principal activities consisted of the preclinical and
clinical development of the Company’s sd-rxRNA compounds and topical immunotherapy agent in the areas of dermatology
and ophthalmology. In January 2018, after a thorough review of its business operations, development programs and financial resources,
the Company made a strategic decision to focus solely on immuno-oncology to accelerate growth and support a potential return on
investment for its stockholders. The Company’s current business strategy focuses on the development of immuno-oncology therapeutics
utilizing our proprietary sd-rxRNA technology.
The
Company intends to seek a partner and/or out-licensee for each of its dermatology and ophthalmology franchises, including
RXI-109 and Samcyprone
®
, to continue their development. The goal of any such transaction would be to allow the Company
to monetize these preclinical and clinical assets to further fund ongoing and future development work in our immuno-oncology programs
and extend our financial runway.
On January 3, 2018, the Board
of Directors of the Company approved a 1-for-10 reverse stock split of the Company’s outstanding common stock, which was
effected on January 8, 2018. All share and per share amounts in the financial statements have been retroactively adjusted
for all periods presented to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in
par value to additional paid-in capital.
2. Significant Accounting Policies
Basis of Presentation
The
accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“
GAAP
”). Certain information and footnote disclosures included
in the Company’s annual financial statements have been condensed or omitted. The year-end condensed balance sheet
data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management,
all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated
financial statements have been included. Interim results are not necessarily indicative of results for a full year.
Principles of Consolidation
The consolidated financial statements include
the accounts of RXi Pharmaceuticals Corporation and its wholly-owned subsidiary, MirImmune, LLC. All material intercompany accounts
have been eliminated in consolidation.
Uses of Estimates in Preparation of Financial Statements
The preparation of financial statements in
accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ materially from these estimates.
Cash Equivalents and Restricted Cash
The Company considers all highly liquid instruments
with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of amounts invested
in certificates of deposit.
Restricted cash consists of certificates
of deposit held by financial institutions as collateral for the Company’s corporate credit cards.
Fair Value of Financial Instruments
The carrying amounts reported in the balance
sheet for cash equivalents, restricted cash, accounts payable and accrued expenses approximate their fair values due to their short-term
nature.
Research and Development Expenses
Research
and development costs relate to salaries, employee benefits, facility-related expenses, supplies, stock-based compensation related
to employees and non-employees involved in the Company’s research and development, external services, other operating
costs and overhead related to its research and development departments, costs to acquire technology licenses and expenses associated
with preclinical activities and its clinical trials. Research and development expenses are charged to expense as incurred. Payments
made by the Company in advance for research and development services not yet provided and/or for materials not yet received are
recorded as prepaid expenses and expensed when the service has been performed or when the goods have been received. Accrued liabilities
are recorded related to those expenses for which vendors have not yet billed the Company with respect to services provided and/or
materials that it has received.
Preclinical
and clinical trial expenses relate to estimates of costs incurred and fees connected with clinical trial sites, third-party clinical
research organizations and other preclinical and clinical related activities and include such items as subject-related fees, laboratory
work, investigator fees and analysis costs. Costs associated with these expenses are generally payable on the passage of time or
when certain milestones are achieved. Expense is recorded during the period incurred or in the period in which a milestone is achieved.
In order to ensure that the Company has adequately provided for preclinical and clinical expenses during the proper period, the
Company maintains an accrual to cover these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions
as expected total cost, the length of the study, timing of certain milestones and other information available to us. Actual results
may differ from these estimates and could have a material impact on the Company’s reported results. The Company’s historical
accrual estimates have not been materially different from its actual costs.
Stock-based Compensation
The Company follows the provisions of the
Financial Accounting Standards Board (“
FASB
”) Accounting Standards Codification (“
ASC
”) Topic
718, “
Compensation — Stock Compensation
” (“
ASC 718
”), which requires the measurement
and recognition of compensation expense for all stock-based payment awards made to employees, officers, non-employee directors,
and non-employees, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance
with the provisions of ASC 718 is recognized as an expense over the requisite service period.
Income Taxes
The
Company recognizes assets or liabilities for the deferred tax consequences of temporary differences between the tax basis of assets
or liabilities and their reported amounts in the financial statements in accordance with the FASB ASC Topic 740,
“Accounting
for Income Taxes.”
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs
Act tax reform legislation. This legislation makes significant changes in U.S. tax law including a reduction in the corporate tax
rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The Company
is continuing to assess the impact of the Tax Cuts and Jobs Act and does not expect the provisions to have a material impact on
the Company’s consolidated financial statements.
Comprehensive Loss
The Company’s comprehensive loss is
equal to its net loss for all periods presented.
Net Loss per Share
The
Company accounts for and discloses net loss per share in accordance with the FASB ASC Topic 260, “
Earnings per Share.”
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing the Company’s net earnings by the weighted average number of common shares
outstanding and the impact of all dilutive potential common shares.
3. Recent Accounting Pronouncements
In
May 2014, the FASB issued Accounting Standards Update (“
ASU
”) 2014-09, “
Revenue from
Contracts with Customers (Topic 606)
.” ASU 2014-09 states that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB voted to delay the
effective date of the new revenue standard by one year but to permit entities to choose to adopt the standard as of the
original effective date. In March 2016, the FASB issued ASU 2016-08, “
Revenue from Contracts with Customers
(Topic 606) – Principal Versus Agent Considerations,”
which improves the operability and
understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued
ASU 2016-10, “
Revenue from Contracts with Customers (Topic 606) – Identifying
Performance Obligations and Licensing
,” which clarifies two aspects of the guidance on accounting for revenue
contracts with customers: identifying performance obligations and the licensing implementation guidance. In May 2016, the
FASB issued ASU 2016-12, “
Revenue from Contracts with Customers (Topic 606) – Narrow Scope
Improvements and Practical Expedient
s,” which addresses collectability assessment, presentation of sales taxes,
noncash consideration and completed contracts and contract modifications at transition. The amendments in these ASUs do not
change the core principles for those areas. This standard became effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. The Company
adopted this ASU in the first quarter of 2018. Since the Company has no significant revenue, this ASU had no immediate impact
on its consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, “
Leases (Topic 842)
,” which requires companies that
are lessees to recognize a right-of-use asset and lease liability for most leases that do not meet the definition
of a short-term lease. For income statement purposes, leases will continue to be classified as either operating or financing.
Classification will be based on criteria that are largely similar to those applied in current lease accounting. This standard
will result in extensive qualitative and quantitative disclosure changes. In July 2018, the FASB issued ASU 2018-10,
“
Codification Improvements to Topic 842, Leases
,” which affects narrow aspects of the guidance issued in
the amendments in ASU 2016-02, “
Leases
.” The FASB further issued ASU 2018-11, “
Leases (Topic
842): Targeted Improvements
”, in July 2018, which provides entities with an additional (and optional) transition
method to adopt the new leases standard.
Under this new transition method, an entity initially applies the new leases
standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in
the period of adoption consistent with preparers’ requests.
This standard will be
effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting
period. The Company is currently evaluating the impact of this ASU on its consolidated financial statements, but expects that
the adoption will result in the current operating lease being recorded on the consolidated balance sheet.
In June 2018, the FASB issued ASU
2018-07, “
Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment
Accounting
,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and
services from non-employees. The amendment specifies that ASC 718 applies to all share-based payment transactions in which a
grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.
This standard will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within
that reporting period. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company
early adopted this ASU in the second quarter of 2018. The ASU had no material impact on the Company’s consolidated financial
statements.
In August 2018, the Securities and Exchange
Commission issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change
to the Company’s financial reporting will be the inclusion of the annual disclosure requirement of changes in stockholders’
equity in Rule 3-04 of Regulation S-X to interim periods. We will adopt this new rule beginning with our financial reporting for
the quarter ended March 31, 2019. Upon adoption, the Company will include the consolidated Statements of Stockholders’ Equity
with each quarterly filing on Form 10-Q.
4. Stockholders’ Equity
Lincoln Park Capital Fund, LLC –
On August 8, 2017, the Company entered into a purchase agreement (the “
LPC Purchase Agreement
”) and a registration
rights agreement with LPC, pursuant to which the Company has the right to sell to LPC shares of the Company’s common stock,
subject to certain limitations and conditions set forth in the LPC Purchase Agreement.
During the three months ended September 30,
2018, the Company sold 15,000 shares of common stock to LPC for net proceeds of approximately $21,000. During the nine months ended
September 30, 2018, the Company sold 435,000 shares of common stock to LPC for net proceeds of approximately $1,312,000.
April 2018 Registered Direct Offering
and Private Placement
– On April 11, 2018, the Company closed a registered direct offering of 1,510,604 shares of the
Company’s common stock at a purchase price of $3.15 per share (the “
April 2018 Offering
”) pursuant to
the Securities Purchase Agreement dated as of April 9, 2018, by and among the Company and each purchaser identified on the signature
pages thereto. In a concurrent private placement, the Company sold warrants (the “
Warrants
”) to purchase a total
of 1,132,953 shares of common stock at a purchase price of $0.125 per underlying warrant share and with an exercise price of $3.15
per share (the “
Private Placement
”). In connection with the April 2018 Offering and Private Placement, the Company
issued warrants to purchase a total of 75,530 shares of common stock with an exercise price of $4.0546 per share to the placement
agent, H.C. Wainwright & Co., LLC (the “
Placement Agent Warrants
”). Assuming the Warrants and Placement
Agent Warrants are not exercised, net proceeds to the Company from the April 2018 Offering and Private Placement were $4,210,000
after deducting placement agent fees and offering expenses paid by the Company.
The
Company assessed the Warrants and Placement Agent Warrants under the FASB ASC Topic 480, “
Distinguishing Liabilities from
Equity
” (“
ASC 480
”) and determined that the Warrants and Placement Agent Warrants were outside the
scope of ASC 480. The Company next assessed the Warrants and Placement Agent Warrants under the FASB ASC Topic 815, “
Derivatives
and Hedging
” (“
ASC 815
”). Under the related guidance, a reporting entity shall not consider a contract
to be a derivative instrument if the contract is both (1) indexed to the entity’s own stock and (2) classified in stockholders’
equity. The Company determined that the Warrants and Placement Agent Warrants were indexed to the Company’s stock, as the
agreements do not contain any exercise contingencies and the settlement amount equals the difference between the fair value of
the Company’s common stock price and the strike price. The Company also assessed the classification in stockholders’
equity and determined the Warrants and Placement Agent Warrants met all of the criteria for classification as equity under ASC
815. Based on this analysis, the Company determined that the Warrants and Placement Agent Warrants would be classified in stockholders’
equity.
Warrants —
The following table
summarizes the Company’s outstanding equity-classified warrants at September 30, 2018:
|
Exercise price
|
|
|
Number of Shares
Underlying
Warrants
|
|
|
Expiration
|
|
|
$
|
52.00
|
|
|
|
130,007
|
|
|
|
June 2, 2020
|
|
|
$
|
9.00
|
|
|
|
1,277,793
|
|
|
|
December 21, 2021
|
|
|
$
|
3.15
|
|
|
|
1,132,953
|
|
|
|
May 31, 2023
|
|
|
$
|
4.0546
|
|
|
|
75,530
|
|
|
|
April 9, 2023
|
|
|
|
Total warrants outstanding
|
|
|
|
2,616,283
|
|
|
|
|
|
5. Net Loss per Share
The following table sets forth the potential
common shares excluded from the calculation of net loss per share because their inclusion would be anti-dilutive:
|
|
|
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Options to purchase common stock
|
|
|
157,514
|
|
|
|
53,100
|
|
|
Unvested, restricted stock
|
|
|
73,587
|
|
|
|
–
|
|
|
Restricted stock units
|
|
|
151,250
|
|
|
|
–
|
|
|
Warrants to purchase common stock
|
|
|
2,616,283
|
|
|
|
1,408,000
|
|
|
Total
|
|
|
2,998,634
|
|
|
|
1,461,100
|
|
6. Stock-based Compensation
Stock Options
The Company uses the Black-Scholes option-pricing
model to determine the fair value of all its option grants. For valuing options granted during the three and nine months ended
September 30, 2018 and 2017, the following assumptions were used:
|
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Risk-free interest rate
|
|
|
2.93
|
%
|
|
|
1.94 – 2.35
|
%
|
|
|
2.70 – 2.93
|
%
|
|
|
1.73 – 2.49
|
%
|
|
Expected volatility
|
|
|
161.45
|
%
|
|
|
83.87 – 91.99
|
%
|
|
|
91.28 – 161.45
|
%
|
|
|
82.99 – 123.01
|
%
|
|
Weighted average expected volatility
|
|
|
161.45
|
%
|
|
|
87.93
|
%
|
|
|
159.55
|
%
|
|
|
84.65
|
%
|
|
Expected lives (in years)
|
|
|
6.25
|
|
|
|
6.25 – 10.00
|
|
|
|
5.50 – 10.00
|
|
|
|
5.20 – 10.00
|
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted average fair value of options
granted during the three months ended September 30, 2018 and 2017 was $1.72 and $4.90, respectively. The weighted average fair
value of options granted during the nine months ended September 30, 2018 and 2017 was $1.75 and $4.90, respectively.
The risk-free interest rate used for each
grant is based upon the yield on zero-coupon U.S. Treasury securities with a term similar to the expected life of the related option.
The Company’s expected stock price volatility assumption is based upon the Company’s own implied volatility. The expected
life assumption for option grants is based upon the simplified method provided for under ASC 718. The dividend yield assumption
is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.
The following table summarizes the activity
of the Company’s stock options for the nine months ended September 30, 2018:
|
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
Balance at December 31, 2017
|
|
|
|
50,180
|
|
|
$
|
192.30
|
|
|
|
|
|
|
|
Granted
|
|
|
|
108,250
|
|
|
|
1.83
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
(916
|
)
|
|
|
29.50
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
|
|
157,514
|
|
|
$
|
62.35
|
|
|
$
|
–
|
|
|
|
Exercisable at September 30, 2018
|
|
|
|
38,939
|
|
|
$
|
244.14
|
|
|
$
|
–
|
|
Stock-based compensation expense related
to stock options for the three months ended September 30, 2018 and 2017 was $17,000 and $43,000, respectively.
Stock-based compensation expense related
to stock options for the nine months ended September 30, 2018 and 2017 was $95,000 and $276,000, respectively.
Restricted Stock Units
In addition to options to purchase shares
of common stock, the Company may also grant restricted stock units (“
RSUs
”). RSUs are generally subject to graded
vesting and the satisfaction of service requirements, similar to our stock options. Upon vesting, each outstanding RSU will be
exchanged for one share of the Company’s common stock. The fair value of the RSUs awarded are based on the Company’s
closing stock price at the grant date and are expensed over the requisite service period.
The following table summarizes the activity
of the Company’s RSUs for the nine months ended September 30, 2018:
|
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant
Date Fair Value Per Share
|
|
|
|
Unvested units at December 31, 2017
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
Granted
|
|
|
|
151,250
|
|
|
|
1.79
|
|
|
|
Vested
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Forfeited
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Unvested units at September 30, 2018
|
|
|
|
151,250
|
|
|
$
|
1.79
|
|
During the three and nine months ended
September 30, 2018, the Company recorded $22,000 of expense related to RSUs. There was no expense related to RSUs recorded in the
same prior year periods. Such expense is included in stock-based compensation expense in the condensed consolidated statement of
operations.
Restricted Stock
On August 31, 2018, Geert Cauwenbergh, Dr.
Med. Sc., the Company’s Chief Executive Officer, elected the right to receive, in lieu of cash, for the period from September
15, 2018 to December 31, 2018, up to 50% of his base salary and cash bonuses, if any, (collectively, the “
Compensation
”)
payable in the form of unvested, restricted shares of the Company’s common stock. Such restricted shares will be received
in the form of a series of grants made on each Company payroll date in lieu of cash payment of the Compensation and shall vest
in full on January 1, 2019, subject to his continued employment through such date. The fair value of the restricted stock is based
on the Company’s closing stock price on the date of grant and is expensed over the vesting period.
For the three and nine months ended September
30, 2018, the Company granted 73,587 restricted shares of the Company’s common stock in lieu of Compensation to Dr. Cauwenbergh.
No stock-based compensation expense was recorded related to the restricted shares for the three and nine months ended September
30, 2018 or 2017. Stock-based compensation expense based on the grant date fair value of the restricted shares will be recognized
as an expense over the requisite vesting period, which is expected to occur during the three months ended December 31, 2018.
Compensation Expense Related to Equity Awards
The Company recorded total stock-based
compensation expense related to equity awards in the condensed consolidated statement of operations for the three and nine months
ended September 30, 2018 and 2017 as follows, in thousands:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Research and development
|
|
$
|
9
|
|
|
$
|
7
|
|
|
$
|
29
|
|
|
$
|
80
|
|
|
General and administrative
|
|
|
30
|
|
|
|
36
|
|
|
|
88
|
|
|
|
196
|
|
|
Total stock-based compensation
|
|
$
|
39
|
|
|
$
|
43
|
|
|
$
|
117
|
|
|
$
|
276
|
|
7. Subsequent Events
On October 3, 2018, the Company closed an
underwritten public offering (the “
October 2018 Offering
”) of (i) 3,725,714 units (the “
Units
”),
at a public offering price of $0.70 per Unit, with each Unit consisting of one share of common stock and one warrant (the “
October
2018 Warrants
”) to purchase one share of common stock and (ii) 17,702,858 pre-funded units (the “
Pre-Funded
Units
”), at a public offering price of $0.69 per Pre-Funded Unit, with each Pre-Funded Unit consisting of one pre-funded
warrant (the “
Pre-Funded Warrants
”) to purchase one share of common stock and one October 2018 Warrant. The
October 2018 Warrants included in the Units and Pre-Funded Units are immediately exercisable at a price of $0.70 per share and
expire seven years from the date of issuance. The Pre-Funded Warrants included in the Pre-Funded Units are immediately exercisable
at a price per share of $0.01 and do not expire. The Company is currently reviewing the accounting for the Pre-Funded Warrants
and Warrants issued in the October 2018 Offering. Assuming the October 2018 Warrants are not exercised, net proceeds from the October
2018 Offering were approximately $13,300,000 after deducting underwriting discounts and commissions and offering expenses paid
by the Company.
The net proceeds from the October 2018 Offering
will be reflected in stockholders’ equity for the year ending December 31, 2018.
Additionally, pursuant to the October 2018
Offering, the Company issued warrants to purchase up to 1,607,143 shares of common stock at an exercise price of $0.875 per share
to the underwriter, H.C. Wainwright & Co., LLC.
Subsequent to the balance sheet date, 10,534,286
Pre-Funded Warrants were converted into 10,534,286 shares of common stock for net proceeds of $105,000.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
In this document, “we,” “our,” “ours,”
“us,” “RXi” and the “Company” refers to RXi Pharmaceuticals Corporation and our subsidiary,
MirImmune, LLC and the ongoing business operations of RXi Pharmaceuticals Corporation and MirImmune, LLC, whether conducted through
RXi Pharmaceuticals Corporation or MirImmune, LLC.
This management’s discussion and analysis of financial
condition as of September 30, 2018 and results of operations for the three and nine months ended September 30, 2018 and 2017 should
be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2017, which was filed with the Securities and Exchange Commission on March 26, 2018.
This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as
“intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,”
“suggests,” “may,” “should,” “potential,” “designed to,” “will”
and similar references, although not all forward-looking statements contain these words. Forward-looking statements are neither
historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and
assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the
economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results
and financial condition may differ materially from those indicated in the forward-looking statements as a result of a number of
important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2017 under the
heading “Risk Factors” and in other filings the Company periodically makes with the Securities and Exchange Commission.
Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements contained in this Quarterly
Report on Form 10-Q speak as of the date hereof and the Company does not undertake to update any of these forward-looking statements
to reflect a change in its views or events or circumstances that occur after the date of this report.
Overview
RXi
Pharmaceuticals Corporation is a biotechnology company developing the next generation of immuno-oncology therapeutics based on
its self-delivering RNAi (“
sd-rxRNA
®
”) therapeutic platform. Our sd-rxRNA compounds do not require
a delivery vehicle to penetrate the cell and are designed to “silence,” or down-regulate, the expression of a specific
gene that may be over-expressed in a disease condition. We believe that this provides the Company with a distinct advantage in
adoptive cell transfer (“
ACT
”) therapy, the Company’s initial focus and approach to immuno-oncology.
Prior
to the Company’s acquisition of MirImmune Inc. (“
MirImmune
”) in January 2017, the Company’s principal
activities consisted of the preclinical and clinical development of our sd-rxRNA compounds and topical immunotherapy
agent in the areas of dermatology and ophthalmology. In January 2018, after a thorough review of our business operations, development
programs and financial resources, the Company made a strategic decision to focus solely on immuno-oncology to accelerate growth
and support a potential return on investment for its stockholders. The Company’s current business strategy focuses on the
development of immuno-oncology therapeutics utilizing our proprietary sd-rxRNA technology.
In
ACT, immune cells are isolated from specific patients or retrieved from allogeneic immune cell banks, which are banks of cells
donated from healthy volunteers. The immune cells are then expanded and modified before being returned and used to treat the same
patient. We believe our sd-rxRNA compounds are ideally suited to be used in combination with ACT, in order to make these immune
cells more effective. Our approach involves the treatment of the immune cells with our sd-rxRNA compounds during the expansion
and modification phase. Because our sd-rxRNA compounds do not require a delivery vehicle to penetrate into the cells, we are able
to enhance these cells (for example, by inhibiting the expression of immune checkpoint genes) by merely adding our sd-rxRNA compounds
during the expansion process. After enhancing these cells
ex-vivo
, they are returned to the patient for treatment.
In various types of immune cells tested to date, the sd-rxRNA treatment results in potent silencing while maintaining
close to 100% transfection efficiency and nearly full cell viability.
We believe that
our sd-rxRNA therapeutics are uniquely positioned in the immuno-oncology field for the following reasons:
|
|
·
|
|
Our sd-rxRNA compounds do not need facilitated delivery (mechanical or formulation);
|
|
|
·
|
|
Can target multiple genes (i.e. multiple immunosuppression pathways) in a single therapeutic entity;
|
|
|
·
|
|
Demonstrate efficient uptake of sd-rxRNA to immune cells;
|
|
|
·
|
|
Silencing by sd-rxRNA has been shown to have a sustained (long-term) effect
in vivo
;
|
|
|
·
|
|
Favorable clinical safety profile of sd-rxRNA with local administration; and
|
|
|
·
|
|
Can be readily manufactured under current good manufacturing practices.
|
We currently have
a pipeline of discovery and preclinical programs in three focus areas in which we are aligning our internal research and development
efforts with extramural collaborations.
Checkpoint Inhibition
in T-Cells
This is our key
focus area and our most advanced immuno-oncology program. We have developed sd-rxRNA targeting PD-1, TIGIT and other undisclosed
checkpoints in ACT for the treatment of solid tumors. RXI-762 and RXI-804, sd-rxRNA compounds that are designed to suppress the
expression of immune checkpoint proteins PD-1 and TIGIT, respectively, which, when used in ACT, are expected to result in an improved
efficacy to the targeted tumors.
Our collaboration
with the Center for Cancer Immune Therapy at Herlev Hospital, or CCIT, a leading European cancer center, is evaluating the potential
of our sd-rxRNA technology platform to enhance the function of tumor-infiltrating lymphocytes (“
TILs
”) for use
in the treatment for a number of cancer types, including melanoma and ovarian cancer. To date, CCIT has evaluated sd-rxRNA compounds
targeting immune checkpoints in preclinical screening models of matched TIL/tumor cell pairs from melanoma and cancer patients.
Results have shown a marked PD-1 reduction on the surface of TILs in a pilot rapid expansion protocol.
Through
our collaboration with Medigene AG, a German biotechnology company developing highly innovative, complementary treatment platforms
to target various types and stages of cancer, we are exploring the potential synergies of our sd-rxRNA technology in
combination with Medigene’s recombinant TCRs to develop modified T-cells with enhanced efficacy and/or safety with
the ultimate goal to further improve Medigene’s T-cell therapies for the treatment of cancer patients. In recent
studies, Medigene has observed the reduction of PD-1 surface levels in T-cells transduced with TCRs and treated with our sd-rxRNA
compound, RXI-762.
We expect to enter
clinical development with RXI-762 as part of an ACT therapy for solid tumors by the end of 2019.
Targets Outside
of Checkpoint Inhibition in T-Cells and Other Immune Cell Types
This focus area uses our sd-rxRNA in T-cells
and other immune cell types, such as natural killer (“
NK
”) cells and dendritic cells, for targets other than
immune checkpoints in order to weaponize and improve cell persistence and cell viability in the immunosuppressive tumor micro-environment.
We believe this shows the broad applicability of our platform technology, and that our potential impact in immuno-oncology is
not limited to checkpoints and TILs.
We have shown that sd-rxRNAs are rapidly
and efficiently taken up by immune effector cells without the use of transfection reagents. Using sd-rxRNA compounds against checkpoint
inhibitors, we can suppress their expression levels up to 95% in immune cells, including T-cells and NK cells. Furthermore, we
have demonstrated potent silencing activity as well as a phenotypic effect (enhanced degranulation activity) of NK cells treated
with sd-rxRNA compounds targeting checkpoints. By treating NK cells
ex-vivo
, prior to ACT with sd-rxRNA reducing the expression
of proteins such as Cbl-b and TIGIT, the anti-tumor response of these cells can be improved. Ongoing work expands these findings
to include compounds for more specific NK targets, including NK specific inhibitory receptors, which could be used alone or in
combination.
Tumor and/or Tumor Micro-Environment Targets
Our third focus area includes the use of
our sd-rxRNA directly towards tumor and/or tumor micro-environment (“
TME
”) targets. Impacting the tumor cells
and/or tumor micro-environment through a direct use of sd-rxRNA, such as via intra-tumoral injection, could potentially become
an important form of adjuvant therapy. We believe that this will also show that our contributions with our sd-rxRNA compounds
in immuno-oncology are not limited to use with another company’s cell platform. Additionally, the Company has shown that
its sd-rxRNA compounds are safe and well-tolerated via intradermal injections and injections in the eye through its completed
clinical trials with RXI-109 in dermatology and ophthalmology.
Our collaborative research agreement with
Gustave Roussy, a leading comprehensive cancer center in France, concentrates on determining the feasibility of our sd-rxRNA platform
to target TME via intratumoral injection. The goal of our recent study with Gustave Roussy was to identify sd-rxRNA compounds to
their target of interest and demonstrate efficacy (silencing and phenotypic effect) of sd-rxRNA compounds in a mouse model. Results
from this study showed an 80—85% reduction of the target gene in a mouse model of melanoma via intra-tumoral injection.
We continue to advance our sd-rxRNA technology
platform towards clinical development in immuno-oncology, both independently and with our strategic collaborations. We plan to
focus our internal resources on therapeutic areas where research and development is appropriate for the size and financial resources
of the Company and to seek partners in therapeutic areas with the requisite expertise and resources to advance our product and
research candidates through clinical development. We believe that this approach to our strategy will allow us to build upon these
current collaborations to add additional partnerships to our immuno-oncology pipeline, support the Company with a shorter path
to the clinic by allowing us to utilize and build upon already established protocols of our partners and provide us with the opportunity
to expand our immuno-oncology programs and pipeline in multiple areas.
While
the Company announced in January 2018 that its current business strategy is to focus solely on its immuno-oncology pipeline development,
this year the Company also completed and reported on its clinical trials in dermatology and ophthalmology with RXI-109, our
first sd-rxRNA clinical candidate, and Samcyprone
®
. The results of the Company’s clinical trials with RXI-109 and
Samcyprone
are as follows:
|
|
·
|
In December 2017, the Company announced positive results with RXI-109 in a Phase 2 open-label, multi-center, prospective, within-subject controlled study evaluating the effectiveness and safety of RXI-109 on the outcome of scar revision surgery for hypertrophic scars in healthy adults. The primary effectiveness objective was met as shown by a statistically significant improved visual appearance of revised scars after scar revision surgery and treatment with RXI-109 versus control, as assessed by the investigator. The full study results showed that the product was safe and well tolerated for all dosage groups. Exploratory endpoint analysis furthermore showed that the cosmetic outcomes of RXI-109 treated scars were highly preferred over the untreated revised scars, by both investigators and patients.
|
|
|
·
|
In May 2018, the Company announced results from our Phase 2 clinical trial with Samcyprone
in cutaneous warts. The primary effectiveness objectives were met as shown by high levels of immunotherapeutic response and therapeutic response. The immunotherapeutic response rate – a prerequisite for therapeutic response – was 97.7% across all 88 subjects enrolled in the study. From a therapeutic response viewpoint, with once weekly dosing for up to 10 weeks, more than 70% of all warts showed a positive wart response rate, i.e. reduction of wart size of more than 50%. Complete wart clearance throughout the study was 54% for all warts, and up to 71.4% for certain wart types (non-plantar warts). The study results show furthermore that Samcyprone
was safe and well tolerated.
|
|
|
·
|
In August 2018, the Company announced positive results from our Phase 1/2 clinical trial to evaluate the safety and clinical activity of RXI-109 in reducing the progression of retinal scarring. The trial was a multi-dose, dose escalation study conducted in subjects with wet age-related macular degeneration with evidence of subretinal fibrosis. Each subject in the study received four doses of RXI-109 by intraocular injection at one-month intervals for a total dosing period of three months. The primary objective was met as shown by the absence of dose-limiting and serious toxicities, and only mild to moderate procedure related adverse events. None of the adverse events were drug related. In addition, comprehensive ocular examinations showed no indications of inflammation nor any other tolerability issues related to the treatment. The secondary objective of the study was also met with improved or stable disease in the study eyes of several subjects.
|
The
Company intends to seek a partner and/or out-licensee for each of its dermatology and ophthalmology franchises, including
RXI-109 and Samcyprone
®
, to continue their development. The goal of any such transaction would be to allow the Company
to monetize these preclinical and clinical assets to further fund ongoing and future development work in our immuno-oncology programs
and extend our financial runway.
On
January 3, 2018, the Board of Directors of the Company approved a 1-for-10 reverse stock split of the Company’s outstanding
common stock, which was effected on January 8, 2018. All share and per share amounts have been retroactively adjusted for all periods
presented to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in par value to additional paid-in capital
in the financial statements.
On April 11, 2018,
the Company closed a registered direct offering of 1,510,604 shares of the Company’s common stock at a purchase price of
$3.15 per share (the “
April 2018 Offering
”) pursuant to the Securities Purchase Agreement dated as of April
9, 2018, by and among the Company and each purchaser identified on the signature pages thereto. In a concurrent private placement,
the Company sold warrants (the “
Warrants
”) to purchase a total of 1,132,953 shares of common stock at a purchase
price of $0.125 per underlying warrant share and with an exercise price of $3.15 per share (the “
Private Placement
”).
In connection with the Offering and Private Placement, the Company issued warrants to purchase a total of 75,530 shares of common
stock with an exercise price of $4.0546 per share to the placement agent, H.C. Wainwright & Co., LLC (the “
Placement
Agent Warrants
”). Assuming the Warrants and Placement Agent Warrants are not exercised, net proceeds to the Company from
the Offering and Private Placement were $4,210,000 after deducting placement agent fees and offering expenses paid by the Company.
On October 3, 2018,
the Company closed an underwritten public offering (the “
October 2018 Offering
”) of (i) 3,725,714 units (the
“
Units
”), at a public offering price of $0.70 per Unit, with each Unit consisting of one share of common stock
and one warrant (the “
October 2018 Warrants
”) to purchase one share of common stock and (ii) 17,702,858 pre-funded
units (the “
Pre-Funded Units
”), at a public offering price of $0.69 per Pre-Funded Unit, with each Pre-Funded
Unit consisting of one pre-funded warrant (the “
Pre-Funded Warrants
”) to purchase one share of common stock
and one October 2018 Warrant. The October 2018 Warrants included in the Units and Pre-Funded Units are immediately exercisable
at a price of $0.70 per share and expire seven years from the date of issuance. The Pre-Funded Warrants included in the Pre-Funded
Units are immediately exercisable at a price per share of $0.01 and do not expire. Assuming the October 2018 Warrants are not exercised,
net proceeds from the October 2018 Offering were approximately $13,300,000 after deducting underwriting discounts and commissions
and offering expenses paid by the Company. Additionally, pursuant to the October 2018 Offering, the Company issued warrants to
purchase up to 1,607,143 shares of common stock at an exercise price of $0.875 per share to the underwriter, H.C. Wainwright &
Co., LLC.
Critical Accounting Policies and Estimates
There
have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting
policies are described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
section of our Annual Report on Form 10-K for the year ended December 31, 2017, which we filed with the SEC on March 26, 2018.
Results of Operations
The following data summarizes the results
of our operations for the periods indicated, in thousands:
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
Description
|
|
2018
|
|
|
2017
|
|
|
Dollar
Change
|
|
|
2018
|
|
|
2017
|
|
|
Dollar Change
|
|
|
Revenues
|
|
$
|
57
|
|
|
$
|
–
|
|
|
$
|
57
|
|
|
$
|
138
|
|
|
$
|
–
|
|
|
$
|
138
|
|
|
Operating expenses
|
|
|
(1,549
|
)
|
|
|
(2,476
|
)
|
|
|
927
|
|
|
|
(5,768
|
)
|
|
|
(12,071
|
)
|
|
|
6,303
|
|
|
Operating loss
|
|
|
(1,492
|
)
|
|
|
(2,476
|
)
|
|
|
984
|
|
|
|
(5,630
|
)
|
|
|
(12,071
|
)
|
|
|
6,441
|
|
|
Income tax benefit
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,621
|
|
|
|
(1,621
|
)
|
|
Net loss
|
|
|
(1,493
|
)
|
|
|
(2,476
|
)
|
|
|
983
|
|
|
|
(5,633
|
)
|
|
|
(10,450
|
)
|
|
|
4,817
|
|
Comparison of the Three and Nine Months Ended September 30,
2018 and 2017
Revenues
The following table summarizes our total
revenues, for the periods indicated, in thousands:
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
Description
|
|
|
2018
|
|
|
2017
|
|
|
Dollar
Change
|
|
|
2018
|
|
|
2017
|
|
|
Dollar Change
|
|
|
|
Revenues
|
|
|
$
|
57
|
|
|
$
|
–
|
|
|
$
|
57
|
|
|
$
|
138
|
|
|
$
|
–
|
|
|
$
|
138
|
|
Revenues for the three and nine months ended
September 30, 2018 related to the work performed by the Company as a sub-awardee under the government grant issued to our collaborator
BioAxone Biosciences, Inc. from the National Institute of Neurological Disorders and Stroke. The grant provides funding for the
development of a novel sd-rxRNA compound, BA-434, that targets PTEN for the treatment of spinal cord injury. There were no revenues
for the three and nine months ended September 30, 2017.
Operating Expenses
The following table summarizes our total
operating expenses, for the periods indicated, in thousands:
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
Description
|
|
2018
|
|
|
2017
|
|
|
Dollar
Change
|
|
|
2018
|
|
|
2017
|
|
|
Dollar
Change
|
|
|
Research and development
|
|
$
|
838
|
|
|
$
|
1,490
|
|
|
$
|
(652
|
)
|
|
$
|
3,382
|
|
|
$
|
4,166
|
|
|
$
|
(784
|
)
|
|
Acquired in-process research and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,696
|
|
|
|
(4,696
|
)
|
|
General and administrative
|
|
|
711
|
|
|
|
986
|
|
|
|
(275
|
)
|
|
|
2,386
|
|
|
|
3,209
|
|
|
|
(823
|
)
|
|
Total operating expenses
|
|
$
|
1,549
|
|
|
$
|
2,476
|
|
|
$
|
(927
|
)
|
|
$
|
5,768
|
|
|
$
|
12,071
|
|
|
$
|
(6,303
|
)
|
Research and Development Expenses
Research
and development expenses relate to salaries, employee benefits, facility-related expenses, supplies, stock-based compensation related
to employees and non-employees involved in the Company’s research and development, external services, other operating
costs and overhead related to our research and development departments, costs to acquire technology licenses and expenses associated
with our preclinical activities and clinical trials.
Research and development expenses for the
three months ended September 30, 2018 decreased 44% compared with the three months ended September 30, 2017, primarily due to a
decrease in clinical-trial related expenses as subject participation is complete for all of the Company’s clinical trials
in dermatology and ophthalmology and a decrease in payroll-related expenses due to a reduction in headcount as compared with the
prior year period.
Research and development expenses for the
nine months ended September 30, 2018 decreased 19% compared with the nine months ended September 30, 2017, primarily due to a decrease
in expenses related to the Company’s dermatology and ophthalmology programs, including clinical trial and manufacturing fees,
as these projects ramp down with the Company’s sole focus on immuno-oncology and a decrease in payroll-related expenses due
to a reduction in headcount as compared with the prior year period.
Acquired In-process Research and Development
Expense
In
January 2017, the Company acquired all of the issued and outstanding capital stock of MirImmune, a privately-held biotechnology
company that was engaged in the development of cancer immunotherapies, in exchange for securities of the Company. The Company determined
that the acquired assets did not constitute a business and that the transaction would be accounted for as an asset acquisition.
As the assets and development programs acquired from MirImmune were at an early stage of development and determining the future
economic benefit of the acquired assets at the date of acquisition was highly uncertain, the fair value of the assets was fully
expensed as in-process research and development expense.
There was no acquired in-process research
and development expense during the three months ended September 30, 2018 or 2017 or for the nine months ended September 30, 2018.
During the nine months ended September 30, 2017, the Company recorded acquired in-process research and development expense related
to the fair value of consideration given, which included transaction costs, liabilities assumed and cancellation of notes receivable,
and the deferred tax impact of the acquisition of MirImmune.
General and Administrative Expenses
General
and administrative expenses relate to salaries, employee benefits, facility-related expenses, stock-based compensation expense
related to employees dedicated to general and administrative activities. Other general and administrative expenses include professional
fees for legal, audit, tax and consulting services, as well as other general corporate expenses.
General and administrative expenses
for the three months ended September 30, 2018 decreased 28% compared with the three months ended September 30, 2017, primarily due to decreases in payroll-related expenses, including those related to a reduction in headcount.
General and administrative expenses for
the nine months ended September 30, 2018 decreased 26% compared with the nine months ended September 30, 2017,
primarily due to decreases in payroll-related expenses, including those related to a reduction in headcount, as well as a
decrease in professional fees for legal-related services.
Income Tax
The following table summarizes the Company’s
income tax for the periods indicated, in thousands:
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
Description
|
|
2018
|
|
|
2017
|
|
|
Dollar
Change
|
|
|
2018
|
|
|
2017
|
|
|
Dollar Change
|
|
|
Income tax benefit
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,621
|
|
|
$
|
(1,621
|
)
|
There was no income tax during the three
months ended September 30, 2018 or 2017 or for the nine months ended September 30, 2018. For the nine months ended September 30,
2017, we recognized an income tax benefit for the tax-related impact of the Company’s acquisition of MirImmune in January
2017.
Liquidity and Capital Resources
On August 8, 2017, the Company entered
into a purchase agreement (the “
LPC Purchase Agreement
”) and a registration rights agreement with Lincoln Park
Capital Fund, LLC (“
LPC
”), pursuant to which the Company has the right to sell to LPC up to $15,000,000 in shares
of the Company’s common stock, subject to certain limitations and conditions set forth therein, over the 30-month term of
the LPC Purchase Agreement. During the nine months ended September 30, 2018, the Company sold 435,000 shares of common stock to
LPC for net proceeds of approximately $1,312,000. In total, the Company has sold 495,000 shares of common stock to LPC for net
proceeds of approximately $1,602,000.
On April 11, 2018, the Company closed on
the April 2018 Offering and Private Placement of its common stock and the Warrants. Assuming the Warrants and Placement Agent Warrants
are not exercised, net proceeds to the Company from the Offering and Private Placement were $4,210,000 after deducting placement
agent fees and offering expenses paid by the Company.
On October 3, 2018,
the Company closed on the October 2018 Offering of its Units and Pre-Funded Units. Assuming the October 2018 Warrants included
in the Units and Pre-Funded Units are not exercised, net proceeds from the October 2018 Offering were approximately $13,300,000
after deducting underwriting discounts and commissions and offering expenses paid by the Company.
We had cash and cash equivalents of
$3,240,000 as of September 30, 2018, compared with $3,581,000 as of December 31, 2017. We have reported recurring losses from
operations since inception and expect that we will continue to have negative cash flows from our operations for the foreseeable
future. Historically, the Company’s primary source of funding has been the sale of its securities.
In
the future, we will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity,
or strategic opportunities, in order to maintain our operations. There is no guarantee that debt, additional equity or other funding
will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced
to scale back or terminate our operations or to seek to merge with or to be acquired by another company.
We believe that
our existing cash, the net proceeds from the April 2018 Offering and the net proceeds from the October 2018 Offering should be
sufficient to fund our operations for at least the next twelve months.
The following table summarizes our cash flows
for the periods indicated, in thousands:
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Net cash used in operating activities
|
|
$
|
(5,774
|
)
|
|
$
|
(7,313
|
)
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(103
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
5,433
|
|
|
|
(74
|
)
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
$
|
(341
|
)
|
|
$
|
(7,490
|
)
|
Net Cash Flow from Operating Activities
Net cash used in operating activities was
$5,774,000 for the nine months ended September 30, 2018 compared with $7,313,000 for the nine months ended September 30, 2017.
The decrease in cash used in operating activities of $1,539,000 was primarily attributable to a decrease in net loss offset by
adjustments for non-cash expenses, primarily acquired in-process research and development expense and deferred tax related to the
Company’s acquisition of MirImmune in the prior year.
Net Cash Flow from Investing Activities
There were no net cash flows related to investing
activities for the nine months ended September 30, 2018. Net cash used in investing activities was $103,000 for the nine months
ended September 30, 2017. The decrease in net cash flow from investing activities was primarily related to the purchase of laboratory
equipment in the prior year.
Net Cash Flow from Financing Activities
Net cash provided by financing activities
was $5,433,000 for the nine months ended September 30, 2018 and was due to proceeds received by the Company from the April 2018
Offering, Private Placement and the issuance of common stock to LPC. Net cash used in financing activities for the nine months
ended September 30, 2017 was $74,000 and was due to offering costs in relation to the LPC Purchase Agreement.
Off-Balance Sheet Arrangements
In
connection with certain license agreements, we are required to indemnify the licensor for certain damages arising in connection
with the intellectual property rights licensed under the agreement. In addition, we are a party to a number of agreements entered
into in the ordinary course of business that contain typical provisions that obligate us to indemnify the other parties to such
agreements upon the occurrence of certain events. These indemnification obligations are considered off-balance sheet
arrangements in accordance with Accounting Standards Codification Topic 460, “
Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
.” To date, we have not encountered
material costs as a result of such obligations and have not accrued any liabilities related to such obligations in our financial
statements. See Note 7 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2017, which was filed with the Securities and Exchange Commission on March 26, 2018, for further discussion of these indemnification
agreements.