Item 1. Financial Statements
Outlook Therapeutics, Inc.
Consolidated Balance Sheets
(unaudited)
|
|
March 31, 2019
|
|
|
September 30, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
155,468
|
|
|
$
|
1,717,391
|
|
Prepaid and other current assets
|
|
|
1,974,664
|
|
|
|
1,585,089
|
|
Total current assets
|
|
|
2,130,132
|
|
|
|
3,302,480
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
14,601,716
|
|
|
|
18,489,976
|
|
Other assets
|
|
|
440,339
|
|
|
|
491,039
|
|
Total assets
|
|
$
|
17,172,187
|
|
|
$
|
22,283,495
|
|
|
|
|
|
|
|
|
|
|
Liabilities, convertible preferred stock and stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Convertible senior secured notes
|
|
$
|
7,617,419
|
|
|
$
|
13,179,449
|
|
Current portion of long-term debt
|
|
|
1,052,714
|
|
|
|
66,480
|
|
Current portion of capital lease obligations
|
|
|
217,949
|
|
|
|
520,794
|
|
Stockholder notes
|
|
|
3,612,500
|
|
|
|
4,612,500
|
|
Accounts payable
|
|
|
5,112,803
|
|
|
|
3,609,607
|
|
Accrued expenses
|
|
|
5,187,301
|
|
|
|
6,458,471
|
|
Income taxes payable
|
|
|
1,856,129
|
|
|
|
1,856,129
|
|
Deferred revenue
|
|
|
2,335,392
|
|
|
|
1,738,603
|
|
Total current liabilities
|
|
|
26,992,207
|
|
|
|
32,042,033
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
75,073
|
|
|
|
98,487
|
|
Capital lease obligations
|
|
|
3,389,087
|
|
|
|
3,453,256
|
|
Warrant liability
|
|
|
2,359,343
|
|
|
|
1,227,225
|
|
Deferred revenue
|
|
|
4,116,993
|
|
|
|
2,758,262
|
|
Other liabilities
|
|
|
3,286,451
|
|
|
|
3,514,738
|
|
Total liabilities
|
|
|
40,219,154
|
|
|
|
43,094,001
|
|
|
|
|
|
|
|
|
|
|
Commitments (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, par value $0.01 per share: 1,000,000 shares authorized, no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Series A-1 convertible preferred stock, par value $.01 per share: 200,000 shares authorized, 63,250 shares issued and outstanding at March 31, 2019 and 60,203 shares issued and outstanding at September 30, 2018
|
|
|
5,039,195
|
|
|
|
4,734,416
|
|
Total convertible preferred stock
|
|
|
5,039,195
|
|
|
|
4,734,416
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share: 7,300,000 shares authorized, no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Series B convertible preferred stock, par value $0.01 per share: 1,500,000 shares authorized, no shares issued
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.01 per share; 200,000,000 shares authorized; 11,759,630 shares issued and outstanding at March 31, 2019 and 9,027,491 shares issued and outstanding at September 30, 2018
|
|
|
117,596
|
|
|
|
90,275
|
|
Additional paid-in capital
|
|
|
211,739,503
|
|
|
|
190,672,166
|
|
Accumulated deficit
|
|
|
(239,943,261
|
)
|
|
|
(216,307,363
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(28,086,162
|
)
|
|
|
(25,544,922
|
)
|
Total liabilities, convertible preferred stock and stockholders' equity (deficit)
|
|
$
|
17,172,187
|
|
|
$
|
22,283,495
|
|
The accompanying notes are an integral part
of these unaudited interim consolidated financial statements.
Outlook Therapeutics, Inc.
Consolidated Statements of Operations
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenues
|
|
$
|
641,140
|
|
|
$
|
771,890
|
|
|
$
|
1,708,738
|
|
|
$
|
1,543,780
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,497,619
|
|
|
|
5,156,386
|
|
|
|
14,918,544
|
|
|
|
5,558,788
|
|
General and administrative
|
|
|
1,849,158
|
|
|
|
2,446,505
|
|
|
|
4,753,146
|
|
|
|
5,995,757
|
|
|
|
|
8,346,777
|
|
|
|
7,602,891
|
|
|
|
19,671,690
|
|
|
|
11,554,545
|
|
Loss from operations
|
|
|
(7,705,637
|
)
|
|
|
(6,831,001
|
)
|
|
|
(17,962,952
|
)
|
|
|
(10,010,765
|
)
|
Interest expense, net
|
|
|
1,053,877
|
|
|
|
920,870
|
|
|
|
2,174,726
|
|
|
|
1,638,753
|
|
Loss on extinguishment of debt
|
|
|
183,554
|
|
|
|
-
|
|
|
|
183,554
|
|
|
|
1,252,353
|
|
Change in fair value of warrant liability
|
|
|
1,301,728
|
|
|
|
(211,992
|
)
|
|
|
(334,592
|
)
|
|
|
(290,775
|
)
|
Loss before income taxes
|
|
|
(10,244,796
|
)
|
|
|
(7,539,879
|
)
|
|
|
(19,986,640
|
)
|
|
|
(12,611,096
|
)
|
Income tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,150,716
|
)
|
Net loss
|
|
|
(10,244,796
|
)
|
|
|
(7,539,879
|
)
|
|
|
(19,986,640
|
)
|
|
|
(9,460,380
|
)
|
Recognition of beneficial conversion feature upon issuance of Series A and A-1 convertible preferred stock
|
|
|
(61,365
|
)
|
|
|
(381,664
|
)
|
|
|
(61,365
|
)
|
|
|
(15,736,683
|
)
|
Series A and A-1 convertible preferred stock dividends and related settlement
|
|
|
(154,271
|
)
|
|
|
(636,695
|
)
|
|
|
(304,779
|
)
|
|
|
(1,087,496
|
)
|
Deemed dividend upon modification of warrants
|
|
|
(829,530
|
)
|
|
|
-
|
|
|
|
(829,530
|
)
|
|
|
-
|
|
Net loss attributable to common stockholders
|
|
$
|
(11,289,962
|
)
|
|
$
|
(8,558,238
|
)
|
|
$
|
(21,182,314
|
)
|
|
$
|
(26,284,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
(0.98
|
)
|
|
$
|
(2.66
|
)
|
|
$
|
(1.98
|
)
|
|
$
|
(8.29
|
)
|
Weighted average shares outstanding, basic and diluted
|
|
|
11,529,033
|
|
|
|
3,216,682
|
|
|
|
10,677,020
|
|
|
|
3,170,530
|
|
The accompanying notes are an integral part of these unaudited
interim consolidated financial statements.
Outlook Therapeutics, Inc.
Consolidated Statements of Convertible
Preferred Stock and Stockholders' Equity (Deficit)
(unaudited)
|
|
Convertible
Preferred Stock
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
Series
A-1
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balance at January 1, 2019
|
|
|
61,708
|
|
|
$
|
4,884,924
|
|
|
|
10,636,421
|
|
|
$
|
106,365
|
|
|
$
|
203,237,836
|
|
|
$
|
(229,698,465
|
)
|
|
$
|
(26,354,264
|
)
|
Proceeds from exercise of common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
358
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
Private placement sale of common stock, net of costs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,072,156
|
|
|
|
10,721
|
|
|
|
7,986,738
|
|
|
|
-
|
|
|
|
7,997,459
|
|
Issuance of vested restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
301
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock in connection with conversion of senior
secured notes
|
|
|
-
|
|
|
|
-
|
|
|
|
50,394
|
|
|
|
504
|
|
|
|
401,464
|
|
|
|
-
|
|
|
|
401,968
|
|
Series A-1 convertible preferred stock dividends and related settlement
|
|
|
1,542
|
|
|
|
154,271
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(154,271
|
)
|
|
|
-
|
|
|
|
(154,271
|
)
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267,742
|
|
|
|
-
|
|
|
|
267,742
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,244,796
|
)
|
|
|
(10,244,796
|
)
|
Balance at March 31, 2019
|
|
|
63,250
|
|
|
$
|
5,039,195
|
|
|
|
11,759,630
|
|
|
$
|
117,596
|
|
|
$
|
211,739,503
|
|
|
$
|
(239,943,261
|
)
|
|
$
|
(28,086,162
|
)
|
|
|
Convertible
Preferred Stock
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
Series
A
|
|
|
Series
B Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balance at January 1, 2018
|
|
|
250,000
|
|
|
$
|
17,190,302
|
|
|
|
1,500,000
|
|
|
$
|
2,661,972
|
|
|
|
3,191,340
|
|
|
$
|
31,913
|
|
|
$
|
160,353,714
|
|
|
$
|
(188,135,903
|
)
|
|
$
|
(25,088,304
|
)
|
Issuance of vested restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,217
|
|
|
|
263
|
|
|
|
(263
|
)
|
|
|
-
|
|
|
|
-
|
|
Series A convertible preferred stock dividends
|
|
|
11,045
|
|
|
|
1,104,480
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(636,695
|
)
|
|
|
-
|
|
|
|
(636,695
|
)
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300,211
|
)
|
|
|
-
|
|
|
|
(300,211
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,539,879
|
)
|
|
|
(7,539,879
|
)
|
Balance at March 31, 2018
|
|
|
261,045
|
|
|
$
|
18,294,782
|
|
|
|
1,500,000
|
|
|
$
|
2,661,972
|
|
|
|
3,217,557
|
|
|
$
|
32,176
|
|
|
$
|
159,416,545
|
|
|
$
|
(195,675,782
|
)
|
|
$
|
(33,565,089
|
)
|
|
|
Convertible
Preferred Stock
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
Series
A-1
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balance at October 1, 2018
|
|
|
60,203
|
|
|
$
|
4,734,416
|
|
|
|
9,027,491
|
|
|
$
|
90,275
|
|
|
$
|
190,672,166
|
|
|
$
|
(216,307,363
|
)
|
|
$
|
(25,544,922
|
)
|
Cumulative effect of adoption of ASU 2014-09 (Topic 606)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,649,258
|
)
|
|
|
(3,649,258
|
)
|
Proceeds from exercise of common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
909
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
Private placement sale of common stock, net of costs
|
|
|
-
|
|
|
|
-
|
|
|
|
2,680,390
|
|
|
|
26,804
|
|
|
|
19,781,513
|
|
|
|
-
|
|
|
|
19,808,317
|
|
Issuance of vested restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
446
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock in connection with conversion of senior
secured notes
|
|
|
-
|
|
|
|
-
|
|
|
|
50,394
|
|
|
|
504
|
|
|
|
401,464
|
|
|
|
-
|
|
|
|
401,968
|
|
Series A-1 convertible preferred stock dividends and related settlement
|
|
|
3,047
|
|
|
|
304,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(304,779
|
)
|
|
|
-
|
|
|
|
(304,779
|
)
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,189,152
|
|
|
|
-
|
|
|
|
1,189,152
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,986,640
|
)
|
|
|
(19,986,640
|
)
|
Balance at March 31, 2019
|
|
|
63,250
|
|
|
$
|
5,039,195
|
|
|
|
11,759,630
|
|
|
$
|
117,596
|
|
|
$
|
211,739,503
|
|
|
$
|
(239,943,261
|
)
|
|
$
|
(28,086,162
|
)
|
|
|
Convertible
Preferred Stock
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
Series
A
|
|
|
Series
B Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balance at October 1, 2017
|
|
|
32,628
|
|
|
$
|
2,924,441
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,116,743
|
|
|
$
|
31,167
|
|
|
$
|
152,533,260
|
|
|
$
|
(186,215,402
|
)
|
|
$
|
(33,650,975
|
)
|
Issuance of vested restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,814
|
|
|
|
1,009
|
|
|
|
(1,009
|
)
|
|
|
-
|
|
|
|
-
|
|
Sale of Series A convertible preferred stock and common stock warrants,
net of costs
|
|
|
217,372
|
|
|
|
14,265,861
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,382,181
|
|
|
|
-
|
|
|
|
6,382,181
|
|
Series A convertible preferred stock dividends and related settlement
|
|
|
11,045
|
|
|
|
1,104,480
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,087,496
|
)
|
|
|
-
|
|
|
|
(1,087,496
|
)
|
Conversion of senior secured notes into Series B convertible preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500,000
|
|
|
|
2,661,972
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,661,972
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,589,609
|
|
|
|
-
|
|
|
|
1,589,609
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,460,380
|
)
|
|
|
(9,460,380
|
)
|
Balance at March 31, 2018
|
|
|
261,045
|
|
|
$
|
18,294,782
|
|
|
|
1,500,000
|
|
|
$
|
2,661,972
|
|
|
|
3,217,557
|
|
|
$
|
32,176
|
|
|
$
|
159,416,545
|
|
|
$
|
(195,675,782
|
)
|
|
$
|
(33,565,089
|
)
|
The accompanying notes are an integral part
of these unaudited interim consolidated financial statements.
Outlook Therapeutics, Inc.
Consolidated Statements of
Cash Flows
(unaudited)
|
|
Six months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,986,640
|
)
|
|
$
|
(9,460,380
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,639,618
|
|
|
|
1,407,888
|
|
Loss on extinguishment of debt
|
|
|
183,554
|
|
|
|
1,252,353
|
|
Non-cash interest expense
|
|
|
895,255
|
|
|
|
970,287
|
|
Stock-based compensation
|
|
|
1,140,031
|
|
|
|
1,589,609
|
|
Change in fair value of warrant liability
|
|
|
(334,592
|
)
|
|
|
(290,775
|
)
|
Loss on disposal of property and equipment
|
|
|
2,911,138
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(88,514
|
)
|
|
|
(262,503
|
)
|
Other assets
|
|
|
42,527
|
|
|
|
(56,401
|
)
|
Accounts payable
|
|
|
233,569
|
|
|
|
(6,909,512
|
)
|
Accrued expenses
|
|
|
(778,364
|
)
|
|
|
(2,584,186
|
)
|
Deferred revenue
|
|
|
(1,693,738
|
)
|
|
|
(1,543,780
|
)
|
Other liabilities
|
|
|
(221,287
|
)
|
|
|
(222,627
|
)
|
Net cash used in operating activities
|
|
|
(16,057,443
|
)
|
|
|
(16,110,027
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(286,569
|
)
|
|
|
(1,350,329
|
)
|
Net cash used in investing activities
|
|
|
(286,569
|
)
|
|
|
(1,350,329
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common stock, net of offering costs
|
|
|
19,808,317
|
|
|
|
-
|
|
Proceeds from issuance of Series A convertible preferred stock
|
|
|
-
|
|
|
|
21,737,200
|
|
Payments of capital leases obligations
|
|
|
(415,697
|
)
|
|
|
(375,081
|
)
|
Repayment of debt
|
|
|
(4,627,180
|
)
|
|
|
(62,009
|
)
|
Payment of financing costs
|
|
|
-
|
|
|
|
(1,089,158
|
)
|
Net cash provided by financing activities
|
|
|
14,765,440
|
|
|
|
20,210,952
|
|
Effect of foreign exchange rate on cash
|
|
|
16,649
|
|
|
|
-
|
|
Net (decrease) increase in cash
|
|
|
(1,561,923
|
)
|
|
|
2,750,596
|
|
Cash at beginning of period
|
|
|
1,717,391
|
|
|
|
3,185,519
|
|
Cash at end of period
|
|
$
|
155,468
|
|
|
$
|
5,936,115
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,681,746
|
|
|
$
|
25,505
|
|
Accrued interest settled by conversion into common stock
|
|
$
|
1,393
|
|
|
$
|
-
|
|
Supplemental schedule of noncash investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment in accounts payable and accrued expenses
|
|
$
|
1,095,266
|
|
|
$
|
27,870
|
|
Supplemental schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
Carrying amount of senior secured notes converted into common stock
|
|
$
|
400,575
|
|
|
$
|
-
|
|
Issuance of Series B convertible preferred stock upon conversion of senior secured notes, net of unamortized debt discount
|
|
$
|
-
|
|
|
$
|
1,409,619
|
|
Issuance of capital lease obligations in connection with purchase of property and equipment
|
|
$
|
48,682
|
|
|
$
|
3,401,964
|
|
Change in fair value of convertible senior secured
notes warrants recorded as debt discount
|
|
$
|
1,466,710
|
|
|
$
|
-
|
|
Series A and A-1 convertible preferred stock dividends and related settlement
|
|
$
|
304,779
|
|
|
$
|
1,104,480
|
|
Accrued directors fees settled in fully vested stock options
|
|
$
|
49,121
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited interim consolidated financial statements.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
|
1.
|
Organization and Description of Business
|
Outlook Therapeutics, Inc.,
(“Outlook” or the “Company”) was incorporated in New Jersey on January 5, 2010 as Oncobiologics,
Inc., started
operations in July 2011, reincorporated in Delaware by merging with and into a Delaware corporation in October 2015
and changed its name to “Outlook Therapeutics, Inc.” in November 2018. The Company is a late clinical-stage
biopharmaceutical company focused on developing and commercializing ONS-5010, a complex monoclonal antibody
(“mAb”) therapeutic for various ophthalmic indications. The Company is based in Cranbury, New Jersey.
The Company has incurred substantial losses
and negative cash flows from operations since its inception and has an accumulated deficit of $239.9 million as of March
31, 2019. As of March 31, 2019, the Company had substantial indebtedness that included $8.5 million of senior secured notes
that mature on June 30, 2019, $3.6 million unsecured notes that were due on demand as of such date, and $1.0 million of unsecured
notes that were also due on demand as of such date but which are subject to a forbearance agreement through March 7, 2020. These
factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited interim
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The unaudited interim consolidated financial statements do not include
any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
On November 30, 2018, the Company received
approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell
approximately $3.7 million of its unused New Jersey net operating losses (“NOLs”) and research and development tax
credits (“R&D credits”). The Company expects to receive approximately $3.4 million of proceeds from the sale of
the New Jersey NOLs and R&D credits, of which approximately $0.8 million was received in April 2019.
On April 12, 2019, the Company completed a public offering of
10,340,000 shares of its common stock, 15-month warrants to purchase up to an aggregate of 10,340,000 shares of common stock and
five-year warrants to purchase up to an aggregate of 10,340,000 shares of common stock. The shares of common stock and the warrants
were immediately separable and were issued separately. The warrants are exercisable immediately at an exercise price of $2.90 per
share. The Company received approximately $26.2 million in net proceeds from the public offering after payment of fees, expenses
and underwriting discounts and commissions.
Management believes that the
Company’s existing cash as of March 31, 2019, the $26.2 million of net proceeds from the April 2019 public common stock
and warrants offering and anticipated proceeds from the sale of New Jersey NOLs and R&D credits will be sufficient to
fund its operations into December 2019, excluding any unscheduled repayment of debt. Substantial additional financing will be
needed by the Company to fund its operations in the future and to commercially develop its product candidates. Management is
currently evaluating different strategies to obtain the required funding for future operations. These strategies may include,
but are not limited to: payments from potential strategic research and development partners, licensing and/or marketing
arrangements with pharmaceutical companies, private placements of equity and/or debt securities, sale of its development stage product
candidates to third parties and public offerings of equity and/or debt securities. There can be no assurance that
these future funding efforts will be successful.
The Company’s future operations are
highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing discussed
above; (ii) the Company’s ability to complete revenue-generating partnerships with pharmaceutical companies; (iii) the success
of its research and development; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies,
and, ultimately; (v) regulatory approval and market acceptance of the Company’s proposed future products.
|
3.
|
Basis of Presentation and Summary of Significant Accounting
Policies
|
Basis of presentation
The accompanying unaudited interim consolidated
financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes
to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting
Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
In the opinion of management, the accompanying
unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals,
estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial
position as of March 31, 2019 and its results of operations for the three and six months ended March 31, 2019 and 2018 and cash
flows for the six months ended March 31, 2019 and 2018. Operating results for the three and six months ended March 31, 2019 are
not necessarily indicative of the results that may be expected for the full year ending September 30, 2019. The unaudited interim
consolidated financial statements, presented herein, do not contain the required disclosures under GAAP for annual consolidated
financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the
annual audited consolidated financial statements and related notes as of and for the year ended September 30, 2018 included in
the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December
18, 2018.
Reverse stock-split
On March 15, 2019, the Company amended
its amended and restated certificate of incorporation to implement a one-for-eight reverse stock split of its common
stock. As a result of the reverse stock split, the Company adjusted the share amounts under its employee incentive plans, outstanding
options, restricted stock units and common stock warrant agreements with third parties. The disclosure of common shares and per
common share data in the accompanying consolidated financial statements and related notes reflect the reverse stock split for all
periods presented.
Use of estimates
The preparation of the unaudited interim
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due
to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated
financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed
and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined
to be necessary.
Net loss per share
Basic and diluted net loss per common share
is determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the
period.
For purposes of calculating diluted loss
per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents
if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include warrants,
stock options and non-vested restricted stock unit (“RSU”) awards using the treasury stock method. The diluted loss
per common share calculation is further affected by an add-back of change in fair value of warrant liability to the numerator under
the assumption that the change in fair value of warrant liability would not have been incurred if the warrants had been converted
into common stock.
The following table sets forth the computation of basic earnings
per share and diluted earnings per share:
|
|
Three months ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss attributable to common stockholders
|
|
$
|
(11,289,962
|
)
|
|
$
|
(8,558,238
|
)
|
|
$
|
(21,182,314
|
)
|
|
$
|
(26,284,559
|
)
|
Common stock outstanding (weighted average)
|
|
|
11,529,033
|
|
|
|
3,216,682
|
|
|
|
10,677,020
|
|
|
|
3,170,530
|
|
Basic and diluted net loss per share
|
|
$
|
(0.98
|
)
|
|
$
|
(2.66
|
)
|
|
$
|
(1.98
|
)
|
|
$
|
(8.29
|
)
|
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
The following potentially dilutive securities
(in common stock equivalents) have been excluded from the computation of diluted weighted-average shares outstanding as of March
31, 2019 and 2018, as they would be antidilutive:
|
|
As of March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Series A convertible preferred stock
|
|
|
-
|
|
|
|
4,933,221
|
|
Series A-1 convertible preferred stock
|
|
|
1,195,295
|
|
|
|
-
|
|
Series B convertible preferred stock
|
|
|
-
|
|
|
|
264,084
|
|
Convertible senior secured notes
|
|
|
957,482
|
|
|
|
-
|
|
Convertible unsecured notes
|
|
|
147,347
|
|
|
|
-
|
|
Performance-based stock units
|
|
|
16,131
|
|
|
|
20,491
|
|
Restricted stock units
|
|
|
7,156
|
|
|
|
12,221
|
|
Stock options
|
|
|
541,746
|
|
|
|
-
|
|
Common stock warrants
|
|
|
5,660,949
|
|
|
|
3,514,563
|
|
Recently issued and adopted accounting pronouncements
On October 1, 2018, the Company adopted
ASU No. 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”) and changed its revenue recognition
policies accordingly. The standard’s stated core principle is 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. This guidance also requires an entity to disclose sufficient information to enable users
of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers. Qualitative and quantitative information is required about:
|
·
|
Contracts with customers
- including revenue and impairments recognized, disaggregation
of revenue and information about contract balances and performance obligations (including the transaction price allocated to the
remaining performance obligations).
|
|
·
|
Significant judgments and changes in judgments
- determining the timing of
satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated
to performance obligations.
|
|
·
|
Certain assets
- assets recognized from the costs to obtain or fulfill a contract.
|
The Company’s arrangements fall under
ASC 808,
Collaborations
(“ASC 808”). ASC 808 does not address recognition or measurement matters but prescribes
that entities look to other GAAP by analogy, namely ASU 2014-09. As such, the Company completed an analysis of existing contracts
with the Company’s collaboration partners and assessed the differences in accounting for such contracts under ASU 2014-09
compared with current revenue accounting standards. The Company previously recognized substantive milestones in the period the
milestones were achieved but ASU 2014-09 prescribes that those milestones are a form of variable consideration which the Company
will recognize over the estimated performance period.
The Company adopted the new accounting
standard utilizing the modified retrospective method, and, therefore, no adjustments were made to amounts in its prior period financial
statements. The Company recorded the cumulative effect of adopting the standard as an adjustment to increase accumulated deficit
by $3.6 million. For the three and six months ended March 31, 2019, the Company would have recognized $0.3 million and $1.1
million, respectively, of collaboration revenues under revenue recognition guidance in effect during fiscal 2018 prior to the adoption
of ASU 2014-09.
In February 2016, the
FASB issued ASU No. 2016-02,
Leases
(“ASC 842”). The FASB issued subsequent amendments to the initial
guidance in July 2018 with ASU 2018-10 and in August 2018 with ASU 2018-11. ASC 842 supersedes the current
accounting for leases. The new standard requires lessees to record a right of use asset and a related liability for the
rights and obligations associated with a lease, regardless of lease classification, and eliminates the required use of
bright-line tests in current U.S. GAAP for determining lease classification. This ASU is effective for annual periods
beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods
thereafter. Earlier application is permitted for all entities, however the Company did not early adopt. The new standard must
be adopted using either the modified retrospective approach, which requires application of the new guidance at the beginning
of the earliest comparative period presented or the optional alternative approach, which requires application of the new
guidance at the beginning of the standard’s effective date. The Company has arrangements currently classified as
operating leases which will be recorded as a right of use asset and corresponding liability on the balance sheet and is
currently evaluating the impact these changes will have on the consolidated financial statements.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
In August 2018, the FASB issued ASU
No. 2018-13,
Fair Value Measurement
(Topic 820):
Disclosure Framework — Changes to the Disclosure
Requirements for Fair Value Measurement
(“ASU 2018-13”)
, which removes
and modifies some existing disclosure requirements and adds others. ASU 2018-13 modifies the disclosure requirements for fair value
measurements and removes the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of
the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair
value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other
comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range
and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for
all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is
permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently evaluating the impact
of the adoption of this standard.
|
4.
|
Fair Value Measurements
|
Certain assets and liabilities are carried
at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable
inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified
and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable
and the last is considered unobservable:
|
·
|
Level 1 - Quoted prices in active markets for identical assets or liabilities.
|
|
·
|
Level 2 - Observable inputs (other than Level 1 quoted prices), such as quoted prices in active
markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities,
or other inputs that are observable or can be corroborated by observable market data.
|
|
·
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant
to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar
techniques.
|
The asset’s or liability’s
fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable
inputs.
The following table presents the Company’s assets and
liabilities that are measured at fair value on a recurring basis:
|
|
March 31, 2019
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,359,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,227,225
|
|
The table presented below is a summary of changes in the fair
value of the Company’s Level 3 valuation for the warrant liability for the six months ended March 31, 2019:
Balance at October 1, 2018
|
|
$
|
1,227,225
|
|
Senior note warrants modification
|
|
|
1,466,710
|
(i)
|
Change in fair value
|
|
|
(334,592
|
)
|
Balance at March 31, 2019
|
|
$
|
2,359,343
|
|
|
(i)
|
In connection with the November 2018 BioLexis private placement (See Note 10), the Company
reduced the
exercise price of the warrants issued in
connection with the senior secured notes (the “Senior Note Warrants”)
from $24.00 to $12.00 and extended the expiration of the Senior Note Warrants by three years. Such Senior Note Warrants now
expire eight years from their initial exercise date.
|
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
The Senior Note Warrants issued in connection
with the senior secured notes (see Note 6) are classified as liabilities on the accompanying consolidated balance sheet as the
Senior Note Warrants include cash settlement features at the option of the holders under certain circumstances. The warrant liability
is revalued each reporting period with the change in fair value recorded in the accompanying consolidated statements of operations
until the warrants are exercised or expire. The fair value of the warrant liability is estimated using the Black-Scholes option
pricing model using the following assumptions:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
2.27
|
%
|
|
|
2.90
|
%
|
Remaining contractual life of warrant
|
|
|
5.88
|
years
|
|
|
3.39
|
years
|
Expected volatility
|
|
|
87
|
%
|
|
|
82
|
%
|
Annual dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair value of common stock
|
|
$
|
7.40
|
per share
|
|
$
|
7.84
|
per share
|
|
5.
|
Property and Equipment, Net
|
Property and equipment, net, consists of:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Laboratory equipment
|
|
$
|
14,075,953
|
|
|
$
|
14,333,624
|
|
Leasehold improvements
|
|
|
10,118,564
|
|
|
|
10,095,100
|
|
Computer software and hardware
|
|
|
497,799
|
|
|
|
483,807
|
|
Land and building
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Construction in progress
|
|
|
210,057
|
|
|
|
2,276,737
|
|
|
|
|
27,902,373
|
|
|
|
30,189,268
|
|
Less: accumulated depreciation and amortization
|
|
|
(13,300,657
|
)
|
|
|
(11,699,292
|
)
|
|
|
$
|
14,601,716
|
|
|
$
|
18,489,976
|
|
Depreciation and amortization expense
was $816,541 and $706,264 for the three months ended March 31, 2019 and 2018, respectively, and $1,639,618 and $1,407,888 for
the six months ended March 31, 2019 and 2018, respectively.
At March 31, 2019, $8,002,538 and at September
30, 2018, $7,953,856 represents laboratory equipment under capital leases and the Company’s corporate office that is classified
as a capital lease. The Company’s corporate office lease matures in February 2028. The term of the equipment leases are between
12 and 36 months and qualify as capital leases. The equipment leases bear interest between 4.0% and 19.4% and the effective interest
rate on the corporate office lease is 43.9%. At March 31, 2019 and September 30, 2018, $1,999,766 and $1,619,741, respectively,
of accumulated amortization related to capital leases.
The Company wrote off certain construction
in progress and laboratory equipment with a carrying amount of $561,735 and $2,911,138 during the three and six months ended March
31, 2019, respectively, due to the Company changing its operations to focus solely on developing and commercializing ONS-5010.
The charge was recorded to research and development on the consolidated statements of operations. The Company determined that the
carrying amount of these assets was not recoverable and was less than the fair value less the cost to sell.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
Accrued expenses consists of:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Compensation
|
|
$
|
1,926,251
|
|
|
$
|
2,231,122
|
|
Severance and related costs
|
|
|
135,432
|
|
|
|
396,138
|
|
Lease termination obligation
|
|
|
402,072
|
|
|
|
395,071
|
|
Research and development
|
|
|
1,155,042
|
|
|
|
1,065,169
|
|
Interest payable
|
|
|
1,093,384
|
|
|
|
1,991,044
|
|
Professional fees
|
|
|
332,085
|
|
|
|
313,585
|
|
Director fees
|
|
|
-
|
|
|
|
59,122
|
|
Other accrued expenses
|
|
|
143,035
|
|
|
|
7,220
|
|
|
|
$
|
5,187,301
|
|
|
$
|
6,458,471
|
|
|
|
March 31,
2019
|
|
|
September 30,
2018
|
|
Convertible senior secured notes
|
|
$
|
8,460,171
|
|
|
$
|
13,500,000
|
|
Unamortized debt discount
|
|
|
(842,752
|
)
|
|
|
(320,551
|
)
|
|
|
$
|
7,617,419
|
|
|
$
|
13,179,449
|
|
In September 2017, the Company entered
into a purchase and exchange agreement (the “Exchange Agreement”) with two existing investors and holders of its senior
secured notes (the “Exchanging Noteholders”), pursuant to which the Exchanging Noteholders exchanged $1.5 million
aggregate principal amount of senior secured notes for 1,500,000 shares of Series B convertible preferred stock (“Series
B Convertible”) and $41,507 of accrued interest on such exchanged senior secured notes in October 2017. The Company recognized
a loss on extinguishment of $1,252,353 in connection with the exchange and represents the excess fair value of the Series B Convertible
issued over the net carrying amount of the debt and accrued interest.
In November 2018, the Company reached an
agreement with the holders of its $13.5 million senior secured notes to extend the maturity of the senior secured notes until
December 22, 2019, in exchange for making several payments of principal and interest through August 31, 2019, subject
to meeting additional capital raising commitments which the Company met in April 2019 through the completed public offering with
gross proceeds of $28.4 million. In addition, the Company agreed to make the senior secured notes convertible into common stock
at a price of $8.9539 per share (120% of the price per share paid by BioLexis under the November 2018 purchase agreement)
and reduced the exercise price of warrants to purchase 485,245 shares of common stock held by the senior secured noteholders from
$24.00 per share to $12.00 per share. The increase in the fair value of the warrants of $1.5 million due to the modification was
recorded as additional debt discount. The Company repaid $4.6 million of principal and $1.3 million of accrued interest of such
notes during the six months ended March 31, 2019. As of March 31, 2019, the senior secured notes remain classified as a current
liability because they mature in less than 12 months.
During February and March 2019,
senior secured notes with a carrying amount of $400,575 and accrued interest of $1,393 were converted into an aggregate
of 50,394 shares of the Company’s common stock.
Interest expense on the senior secured
notes for the three months ended March 31, 2019 and 2018 was $561,485 and $484,746, respectively, and $1,162,917 and $989,331 for
the six months ended March 31, 2019 and 2018, respectively.
On March 7, 2019, the Company entered
into a Forbearance and Exchange Agreement (the “Agreement”) with Iliad Research and Trading, L.P., a Utah limited
partnership (the "Lender"). Concurrently with the execution of this Agreement, the Lender purchased two stockholder
notes issued by the Company previously in the original principal amount of $1,000,000 with an aggregate outstanding balance
as of March 7, 2019 of $1,947,133, including accrued interest. The stockholder notes were accruing interest at the rate of
2.5% per month. The Lender agreed to refrain and forbear from bringing any action to collect under the stockholder notes
until March 7, 2020 and to reduce the interest rates currently in effect to 12% per annum simple interest during such
forbearance period. The Company also agreed to, at the Lender's election, repay or exchange the stockholder notes (or
portions thereof) for shares of the Company’s common stock at an exchange rate of $13.44 per share. The Agreement was
accounted for as an extinguishment of debt and the Company recorded a loss of $183,554.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
Leases
In August 2018, the Company entered
into a lease termination agreement effective September 1, 2018, to terminate the lease for office and laboratory space in
Cranbury, New Jersey. In consideration for the termination of the lease, the Company agreed to make payments to the landlord totaling
up to $5.8 million, which includes (i) $287,615 upon execution of the termination agreement, (ii) $50,000 per month for up
to 30 months, commencing September 1, 2018, and (iii) a $4.0 million payment, in any event, on or before February 1,
2021. The Company and landlord agreed that the $174,250 security deposit will be used to pay the 7th, 8th, 9th and a portion of
the 10th monthly payments. The Company may pay the final $4.0 million payment at any time, whereupon the Company’s obligation
to make the remaining monthly payments terminates.
At March 31, 2019, the current portion
of the lease termination obligation of $402,072 is included in accrued expenses and $3,207,046 is included in other liabilities
on the consolidated balance sheets. A rollforward of the charges incurred to general and administrative expense for the six months
ended March 31, 2019 is as follows:
|
|
Balance
October 1, 2018
|
|
|
Expensed /
Accrued Expense
|
|
|
Cash
Payments
|
|
|
Balance
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination payments
|
|
$
|
3,850,081
|
|
|
$
|
9,037
|
|
|
$
|
(250,000
|
)
|
|
$
|
3,609,118
|
|
|
10.
|
Common Stock, Convertible Preferred Stock and Stockholders’
Equity (Deficit)
|
Common stock
Pursuant to the
November 5, 2018 BioLexis private placement, the Company closed the sale of this private placement for an aggregate of
2,680,390 shares of the Company’s common stock for gross cash proceeds of $20.0 million ($19.8 million net of
issuance costs) during the six months ended March 31, 2019.
During the six months ended
March 31, 2019 and 2018, the Company issued 446 and 100,814 respectively, shares of common stock upon the vesting of RSUs.
Convertible preferred stock
In September 2017,
the Company entered into a purchase agreement with BioLexis, pursuant to which BioLexis agreed to purchase, in a private placement
(the “Initial Private Placement”), $25.0 million of the Company’s newly-created voting Series A Convertible
Preferred Stock (the “Series A Convertible”), and warrants (the “BioLexis Warrants”) to acquire 2,093,750
shares of common stock. In September 2017, the Company completed the initial sale of 32,628 shares of Series A Convertible
to BioLexis for $3,262,800 in cash. In October 2017, the Company completed the sale of the remaining 217,372 shares of Series A
Convertible and the BioLexis Warrants to BioLexis in the Initial Private Placement, for $21,737,200 in cash.
The Series A Convertible was initially
convertible into 4,724,493 shares of the Company’s common stock, representing an effective conversion rate of $5.28
per share, which represented a discount to the market value of the Company’s common stock as of September 7, 2017 and
October 31, 2017 (on which dates, the closing price of the Company’s common stock was $7.20 and $10.08 per share, respectively).
In connection with the second closing of the Series A Convertible in October 2017, the Company issued the BioLexis Warrants,
which have a term of 8-years and an initial exercise price of $7.20 per share. The proceeds from the second closing of the
Series A Convertible were allocated among the Series A Convertible and the BioLexis Warrants based on their relative
fair values. As a result of the discount to the market value and the allocation of a portion of the proceeds to the BioLexis Warrants,
the Company recognized a beneficial conversion charge of $15,355,019, which represents the in-the-money value of the conversion
rate as of the date of sale.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
The Series A Convertible accrued dividends
at a rate of 10% per annum, compounded quarterly, payable quarterly at the Company’s option in cash or in kind in additional
shares of Series A Convertible, although the initial dividends payable on the shares of Series A Convertible issued in
September 2017, while accruing from issuance, was payable in December 2017. The Series A Convertible was also entitled
to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of common stock or other securities.
The initial conversion rate was subject to appropriate adjustment in the event of a stock split, stock dividend, combination, reclassification
or other recapitalization affecting the common stock.
In June 2018, BioLexis converted 208,836
shares of Series A Convertible into 3,946,577 shares of common stock, and in July 2018 exchanged its remaining shares
of Series A Convertible for newly created Series A-1 (as defined below). As of such exchange, there were no longer any
shares of Series A Convertible issued and outstanding.
Series A-1 Convertible Preferred
Stock
A total of 200,000 shares of Series A-1
Convertible Preferred Stock (the “Series A-1”) have been authorized for issuance under the Certificate of Designation
of Series A-1 Convertible Preferred Stock of the Company. The shares of Series A-1 have a stated value of $100.00
per share, are initially convertible into 1,109,972 shares of the Common Stock and rank senior to all junior securities (as defined
in the Certificate of Designation).
The Series A-1 accrue dividends at
a rate of 10% per annum, compounded quarterly, payable quarterly at the Company’s option in cash or in kind in additional
shares of Series A-1. The Series A-1 is also entitled to dividends on an as-if-converted basis in the same form as any
dividends actually paid on shares of Common Stock or other securities. The initial conversion rate is subject to appropriate adjustment
in the event of a stock split, stock dividend, combination, reclassification or other recapitalization affecting the Common Stock.
The holders of the Series A-1 have the right to vote on matters submitted to a vote of the Company’s stockholders on
an as-converted basis, voting with the Company’s other stockholders as a single class. In addition, without the prior written
consent of a majority of the outstanding shares of Series A-1, the Company may not take certain actions, including amending
its certificate of incorporation or bylaws, or issuing securities ranking pari passu or senior to the Series A-1.
During the six months ended March 31, 2019,
the Company issued 3,047 shares of Series A-1 Convertible to settle the related dividends that are due on a quarterly basis.
The terms of the Series A-1 distinguish
between certain liquidation events (such as a voluntary or involuntary liquidation, dissolution or winding up of the Company) and
“deemed” liquidation events (such as a sale of all or substantially all of the Company’s assets, various merger
and reorganization transactions, being delisted from Nasdaq, and the occurrence of an event of default under the terms of the senior
secured notes), in each case as defined in the Certificate of Designation. In the event of a liquidation (as defined in the Certificate
of Designation), the liquidation preference payable equals the sum of (A) 550% of the Series A-1 stated value per share
plus (B) an amount equal to (x) 550% of any accrued, but unpaid, preferred dividends (as defined in the Certificate of Designation)
plus (y) any unpaid participating dividends (as defined in the Certificate of Designation). In the case of a deemed liquidation
event (as defined in the Certificate of Designation), the multiplier is increased to 600%.
The Series A-1 is convertible at any
time at the option of the holder based on the then applicable conversion rate. If conversion is in connection with a liquidation,
the holder is entitled to receive 550% of the number of shares of common stock issuable based upon the then applicable conversion
rate. In the event of a deemed liquidation event, the multiplier is increased to 600%.
Additionally, the holder may irrevocably
require the Company to redeem the Series A-1 in the event of a deemed liquidation event for the sum of (A) 600% of
the Series A-1 stated value per share plus (B) an amount equal to (x) 600% of any accrued, but unpaid, preferred dividends
plus (y) any unpaid participating dividends, although such redemption may not be made without the consent of the senior secured
noteholders if such notes are outstanding at the time of any such redemption.
The shares of Series A-1 have not
been registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold
in the United States without registration or an applicable exemption from the registration requirements of the Securities Act.
The exchange of the Series A-1 for the shares of Series A held by the Investor was made in reliance on Sections 3(a)(9)
and 4(a)(2) under the Securities Act, without general solicitation or advertising.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
Series B Convertible Preferred
Stock
Concurrent with completing
the sale of Series A Convertible in October 2017, the Noteholders exchanged $1,500,000 in aggregate principal borrowings
and $41,507 in accrued interest for 1,500,000 shares of Series B Convertible. The Series B Convertible were convertible
into 264,084 shares of common stock. The exchange was accounted for as an extinguishment of debt, See Note 7. During May and June 2018,
the Noteholders converted all 1,500,000 shares of Series B Convertible into 264,084 shares of common stock. Accordingly, there
are no longer any shares of Series B Convertible issued and outstanding.
Common stock warrants
As of March 31, 2019, shares of common stock issuable upon the
exercise of outstanding warrants were as follows:
Shares of
common stock
issuable upon
exercise of
warrants
|
|
|
Exercise Price
Per Share
|
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
416,666
|
|
|
$
|
12.00
|
|
|
February 18, 2022
|
(i)
|
|
101,186
|
|
|
$
|
0.08
|
|
|
November 11, 2019
|
|
|
277,122
|
|
|
$
|
12.00
|
|
|
December 22, 2024
|
(ii)
|
|
145,686
|
|
|
$
|
12.00
|
|
|
April 13, 2025
|
(ii)
|
|
62,437
|
|
|
$
|
12.00
|
|
|
May 31, 2025
|
(ii)
|
|
2,093,750
|
|
|
$
|
7.20
|
|
|
October 31, 2025
|
|
|
1,282,051
|
|
|
$
|
7.80
|
|
|
May 10, 2026
|
|
|
1,282,051
|
|
|
$
|
7.80
|
|
|
June 8, 2026
|
|
|
5,660,949
|
|
|
|
|
|
|
|
|
|
(i)
|
In January 2019, the Company reduced the exercise
price of these warrants from $52.80 to $12.00 and further extended the exercise period from February 18, 2019 to February 18,
2022.
|
|
(ii)
|
In November 2018, the Company reduced the exercise
price of the warrants issued in connection with its senior secured notes from $24.00 to $12.00 and extended the expiration of
the Senior Note Warrants by three years.
|
During the six months ended March 31, 2019, warrants to purchase
909 shares of common stock with an exercise price of $0.08 were exercised.
|
11.
|
Stock-Based Compensation
|
2011 Equity Incentive Plan
The Company’s 2011 Equity Compensation
Plan (the “2011 Plan”) provided for the Company to sell or issue restricted common stock, RSUs, performance-based awards
(“PSUs”), cash-based awards or to grant stock options for the purchase of common stock to officers, employees, consultants
and directors of the Company. The 2011 Plan was administered by the board of directors or, at the discretion of the board of directors,
by a committee of the board. The number of shares of common stock reserved for issuance under the 2011 Plan is 106,490. As of March
31, 2019, PSUs representing 16,131 shares of the Company’s common stock were outstanding under the 2011 Plan. In light of
the December 2015 adoption of the 2015 Equity Incentive Plan, (the “2015 Plan”) no future awards under the 2011 Plan
will be granted.
2015 Equity Incentive Plan
In December 2015, the Company adopted
the 2015 Plan. The 2015 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards,
performance stock awards and other forms of equity compensation to Company employees, directors and consultants. The aggregate
number of shares of common stock authorized for issuance pursuant to the Company’s 2015 Plan is 1,369,596. As of March 31,
2019, 654,338 shares remained available for grant under the 2015 Plan.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
Stock options and RSUs are granted under
the Company’s 2015 Plan and generally vest over a period of two to four years from the date of grant and, in the case of
stock options, have a term of 10 years. The Company recognizes the grant date fair value of each option and share of
RSU over its vesting period.
The Company recorded stock-based compensation
expense in the following expense categories of its statements of operations for the three and six months ended March 31, 2019 and
2018:
|
|
Three Months Ended March 31,
|
|
|
Six Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
120,763
|
|
|
$
|
(403,034
|
)
|
|
$
|
211,972
|
|
|
$
|
(84,793
|
)
|
General and administrative
|
|
|
146,979
|
|
|
|
102,823
|
|
|
|
928,059
|
|
|
|
1,674,402
|
|
|
|
$
|
267,742
|
|
|
$
|
(300,211
|
)
|
|
$
|
1,140,031
|
|
|
$
|
1,589,609
|
|
During the six months ended March 31, 2019, the Company awarded
stock options with a fair value of $49,121 as settlement for directors fees accrued as of September 30, 2018.
Stock options
As of March 31, 2019, options
to purchase common stock of the Company outstanding under the 2015 Plan were as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (Years)
|
|
Balance at October 1, 2018
|
|
|
182,120
|
|
|
$
|
7.22
|
|
|
|
|
|
Granted
|
|
|
424,498
|
|
|
|
8.56
|
|
|
|
|
|
Expired
|
|
|
(16,250
|
)
|
|
|
7.59
|
|
|
|
|
|
Forfeited
|
|
|
(48,622
|
)
|
|
|
7.25
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
541,746
|
|
|
|
8.26
|
|
|
|
9.6
|
|
Vested and exercisable
|
|
|
131,789
|
|
|
|
7.22
|
|
|
|
9.5
|
|
Vested and expected to vest at March 31, 2019
|
|
|
541,746
|
|
|
$
|
8.26
|
|
|
|
9.6
|
|
As of March 31, 2019, the aggregate
intrinsic value of options outstanding was $102,984. The aggregate intrinsic value represents the total amount by which the
fair value of the common stock subject to options exceeds the exercise price of the related options.
The weighted average grant date fair value
of the options awarded to employees for the six months ended March 31, 2019 and 2018 was $6.36 and $5.84 per option, respectively.
The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
Six Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
2.79
|
%
|
|
|
2.25
|
%
|
Expected life (years)
|
|
|
5.87
|
|
|
|
5.93
|
|
Expected volatility
|
|
|
88.8
|
%
|
|
|
64.0
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
As of March 31, 2019, there was $2,332,260 of unrecognized compensation
expense that is expected to be recognized over a weighted-average period of 3.6 years.
Outlook Therapeutics, Inc.
Notes to Unaudited Interim Consolidated
Financial Statements
Performance-based stock units
The Company has issued PSUs, which
generally have a ten year life from the date of grant. Upon exercise, the PSU holder receives common stock or cash at the
Company’s discretion.
The following table summarizes the activity
related to PSUs during the six months ended March 31, 2019:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Base
|
|
|
Remaining
|
|
|
|
of
|
|
|
Price
|
|
|
Contractual
|
|
|
|
PSUs
|
|
|
Per PSU
|
|
|
Term (Years)
|
|
Balance at October 1, 2018
|
|
|
16,131
|
|
|
$
|
49.99
|
|
|
|
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
16,131
|
|
|
|
49.99
|
|
|
|
5.3
|
|
Vested and exercisable at March 31, 2019
|
|
|
16,113
|
|
|
|
49.86
|
|
|
|
5.3
|
|
Vested and expected to vest at March 31, 2019
|
|
|
16,131
|
|
|
$
|
49.99
|
|
|
|
5.3
|
|
Restricted stock units
The following table summarizes the activity related to RSUs
during the six months ended March 31, 2019:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Grant Date
|
|
|
|
RSUs
|
|
|
Fair Value
|
|
Balance at October 1, 2018
|
|
|
7,638
|
|
|
$
|
153.88
|
|
Vested and settled
|
|
|
(446
|
)
|
|
|
188.36
|
|
Forfeitures
|
|
|
(36
|
)
|
|
|
96.00
|
|
Balance at March 31, 2019
|
|
|
7,156
|
|
|
$
|
152.03
|
|
As of March 31, 2019, there was $232,259
of unamortized expense that will be recognized over a weighted-average period of 0.57 years.
|
12.
|
Related-Party Transactions
|
MTTR — Strategic
Partnership Agreement (ONS-5010)
In November
2018, the
Board of Directors of the Company appointed Mr. Terry Dagnon as Chief Operating Officer, and Mr. Jeff Evanson
as Chief Commercial Officer. Both Mr. Dagnon and Mr. Evanson are providing services to the Company pursuant to the February 2018
strategic partnership agreement with MTTR, LLC
(“MTTR”)
. Mr. Dagnon has a 16.66%
ownership interest in MTTR. The Company will not be paying Mr. Dagnon or Mr. Evanson any direct compensation as consultants or
as employees. Both Mr. Dagnon and Mr. Evanson are compensated directly by MTTR for services provided to the Company as the Company’s
Chief Operating Officer and Chief Commercial Officer, respectively, pursuant to the ONS-5010 Agreement. Mr. Dagnon and Mr. Evanson
have also agreed to provide consulting services to an affiliate of BioLexis pursuant to a separate arrangement.
In February
2018, the Company entered into a strategic partnership agreement with MTTR to advise on regulatory, clinical and commercial strategy
and assist in obtaining approval of ONS-5010, the Company’s bevacizumab therapeutic product candidate for ophthalmic indications.
MTTR earned an aggregate of $290,431
and $580,911 during the three and six months ended March 31, 2019, respectively
,
which includes monthly consulting fees and expense reimbursement.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
You should read this section in conjunction
with our unaudited interim consolidated financial statements and related notes included in Part I. Item 1 of this report and our
audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial
condition and results of operations for the years ended September 30, 2018 and 2017 included in our Annual Report on Form 10-K
for the year ended September 30, 2018, filed with the Securities and Exchange Commission, or SEC, on December 18, 2018.
Forward-Looking Statements
This discussion contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act. Forward-looking statements are identified by words such as “believe,”
“may,” “could,” “will,” “estimate,” “continue,” “anticipate,”
“intend,” “seek,” “plan,” “expect,” “should,” “would,”
“potentially” or the negative of these terms or similar expressions in this report. You should read these statements
carefully because they discuss future expectations, contain projections of future results of operations or financial condition,
or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations,
intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject
to certain risks and uncertainties that could cause a difference include, but are not limited to, those discussed under the caption
“Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2018, filed with the SEC on December
18, 2018, and elsewhere in this report. See “Special Note Regarding Forward-Looking Statements.” Forward-looking statements
are based on our management’s current beliefs and assumptions and based on information currently available to our management.
These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or
revise these statements in light of future developments.
Overview
We are a late clinical-stage biopharmaceutical
company focused on developing and commercializing ONS-5010, a complex, technically challenging and commercially attractive monoclonal
antibody, or mAb, for various ophthalmic indications. Our goal is to launch ONS-5010 as the first, and only, approved bevacizumab
in the United States, Europe, Japan and other markets for the treatment of wet age related macular degeneration, or wet AMD, diabetic
macular edema, or DME, and branch retinal vein occlusion, or BRVO.
ONS-5010 is an innovative mAb therapeutic
product candidate that was reviewed at a successful end of Phase 2 meeting with the FDA conducted in 2018. Our investigational
new drug, or IND, application was filed with, and accepted by, the U.S. Food and Drug Administration, or FDA, in the first quarter
of calendar 2019. We are currently enrolling patients in a Phase 3 clinical trial in Australia (ONS-5010-001) designed to serve
as the first of two adequate and well controlled studies evaluating ONS-5010 against ranibizumab (Lucentis) for wet AMD. Enrollment
in ONS-5010-001 is nearly complete with 51 of the planned 60 patients enrolled to date. The second of the two Phase 3 studies
(ONS-5010-002) has been initiated and is expected to begin enrolling wet AMD patients in the United States, Australia and New Zealand
by the end of June 2019. The ONS-5010-002 study is now expected to enroll a total of at least 220 patients. The endpoint for both
studies is a mean increase in baseline visual acuity of at least 5 letters at 11 months for ONS-5010 dosed on a monthly basis compared
to Lucentis dosed using the approved alternative dosing regimen of 3 monthly doses followed by quarterly dosing.
Currently, the cancer drug Avastin (bevacizumab)
is used off-label for the treatment of wet AMD and other retina diseases such as DME and BRVO even though Avastin has not been
approved by regulatory authorities for use in these diseases. If the ONS-5010 clinical program is successful, it will support our
plans to submit for regulatory approval in multiple markets in 2020 including the United States, Europe and Japan. Because there
are no approved bevacizumab products for the treatment of retinal diseases in such major markets, we are developing ONS-5010 as
an innovative therapy and not using the biosimilar drug development pathway that would be normally be required if Avastin were
an approved drug for the targeted diseases. If approved, we believe ONS-5010 has potential to mitigate risks associated with off-label
use of Avastin or other drugs. Off label use of Avastin is currently estimated to account for at least 50% of all wet AMD prescriptions
in the United States.
Through March 31, 2019, we have
funded substantially all of our operations with $215.3 million in net proceeds from the sale and issuance of our
equity and debt securities. We have also received $29.0 million pursuant to our collaboration and licensing agreements.
On November 5, 2018, we entered into a purchase agreement with BioLexis providing for the private placement
of $20.0 million of shares of our common stock at $7.4616 per share. We closed this private placement in four
monthly tranches for an aggregate of 2,680,390 shares of our common stock for aggregate cash proceeds of $20.0 million in
November and December 2018, January and February 2019. We intend to use the net proceeds from the private placement primarily
for clinical trials for our lead product candidate, ONS-5010, and for working capital and general corporate purposes,
including the agreed repayments on the senior secured notes discussed below.
Also on November 5, 2018, we reached
an agreement with the holders of our senior secured notes to extend the maturity of the $13.5 million of senior secured notes up
to December 22, 2019, among other items, in exchange for making several payments of principal and interest through August 31,
2019, subject to meeting additional capital raising commitments (which capital raising condition we met in April 2019 through the
completed underwritten public offering of our common stock and accompanying warrants). We paid $5.9 million of principal and interest
through March 31, 2019. In addition, we agreed to make the senior secured notes convertible into common stock at a price of $8.9539
per share (120% of the price per share paid by BioLexis under the November 2018 purchase agreement) and reduced the exercise price
of the warrants held by such holders to $12.00 and extended the expiration of these warrants by three years. In January 2019,
we reduced the exercise price of our outstanding Series A warrants (originally issued in connection with our initial public offering,
or IPO) from $52.80 to $12.00 and further extended the expiration date of these warrants from February 18, 2019 to February 18,
2022.
On November 30, 2018, we received
approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell
approximately $3.7 million of our unused New Jersey net operating losses, or NOLs, and research and development tax credits,
or R&D credits. We expect to receive approximately $3.4 million of proceeds from the sale of the New Jersey NOLs and R&D
credits, of which $0.8 million was received in April 2019.
On April 12, 2019, we completed an underwritten
public offering of 10,340,000 shares of our common stock, 15-month warrants to purchase up to an aggregate of 10,340,000 shares
of our common stock and five-year warrants to purchase up to an aggregate of 10,340,000 shares of our common stock at a combined
public offering price of $2.75 per share and accompanying warrants. The shares of common stock and the warrants were immediately
separable and were issued separately. The warrants were exercisable immediately at an exercise price of $2.90 per share. We received
approximately $26.2 million in net proceeds from the public offering after payment of fees, expenses and underwriting discounts
and commissions.
We have incurred recurring losses and
negative cash flows from operations since inception and had an accumulated deficit at March 31, 2019 of $239.9 million.
As of March 31, 2019, we had substantial indebtedness that included $8.5 million of senior secured notes that may become
due in fiscal 2019, $3.6 million unsecured notes, that are due on demand, and $1.0 million of unsecured notes that are
due but are subject to a forbearance agreement through March 7, 2020. We will need to raise substantial additional capital to
fund our planned future operations, commence clinical trials, receive approval for and commercialize ONS-5010, or to develop
other product candidates. We plan to finance our future operations with a combination of proceeds from potential licensing
and/or marketing arrangements with pharmaceutical companies, the issuance of equity securities, and the issuance of
additional debt, potential collaborations and revenues from potential future product sales, if any. There are no assurances
that we will be successful in obtaining an adequate level of financing for the development and commercialization of ONS-5010
or any other current or future product candidates. If we are unable to secure adequate additional funding, our business,
operating results, financial condition and cash flows may be materially and adversely affected. These matters raise
substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any
adjustments that might be necessary if we are unable to continue as a going concern.
Our current cash resources of $0.2
million as of March 31, 2019, the $26.2 of net proceeds from our April 2019 public offering and the anticipated proceeds from the
sale of our remaining New Jersey NOLs and R&D credits, are expected to fund our operations into December 2019, excluding
any unscheduled repayment of debt. To provide additional working capital, we continue to engage in active discussions with global
and regional pharmaceutical companies for licensing and/or co-development rights to ONS-5010. If we are not successful in raising
additional capital or entering into one or more licensing and/or co-development rights agreements, we may be required to, among
other things, modify our clinical trial plans for ONS-5010 in additional indications, make reductions in our workforce, discontinue
our development programs, liquidate all or a portion of our assets, and/or seek protection under the provisions of the U.S. Bankruptcy
Code.
We do not have any products approved for
sale and we have only generated revenue from our collaboration agreements. We have incurred operating losses and negative operating
cash flows since inception and there is no assurance that we will ever achieve profitable operations, and if achieved, that profitable
operations will be sustained. Our net loss for the six months ended March 31, 2019 was $20.0 million. In addition, development
activities, clinical and preclinical testing and commercialization of our product candidates will require significant additional
financing.
Collaboration and License Agreements
From time to time, we enter into collaboration
and license agreements for the research and development, manufacture and/or commercialization of our products and/or product candidates.
These agreements generally provide for non-refundable upfront license fees, development and commercial performance milestone payments,
cost sharing, royalty payments and/or profit sharing.
MTTR, LLC — ONS 5010
In February 2018, we entered into a strategic
partnership agreement with MTTR, LLC, or MTTR, to advise on regulatory, clinical and commercial strategy and assist in obtaining
approval of ONS-5010, our bevacizumab therapeutic product candidate for ophthalmic indications. Under the terms of the agreement,
we paid MTTR a $58,333 monthly consulting fee through December 2018. Beginning January 2019, the monthly fee increased to $105,208
per month, and then, after launch of ONS-5010 in the United States, will increase to $170,833 per month (the amount of which is
reduced by 50% in the event net sales of ONS-5010 are below a certain threshold million per year). We also agreed to pay MTTR a
tiered percentage of the net profits of ONS-5010 ranging in the low- to mid-teens, with the ability to credit monthly fees paid
to MTTR. In March 2018, we amended the MTTR agreement and agreed to pay a one-time fee of $268,553 to MTTR by September 2020 if
certain regulatory milestones are achieved earlier than anticipated. MTTR earned an aggregate $
290,431
and $580,911 during the three and six months ended March 31, 2019, respectively, which includes monthly consulting fees
and expense reimbursement.
Selexis SA
In October 2011, we entered into a research
license agreement with Selexis SA, or Selexis, whereby we acquired a non-exclusive license to conduct research internally or in
collaboration with third parties to develop recombinant proteins from cell lines created in mammalian cells using the Selexis expression
technology, or the Selexis Technology. The original research license had a three-year term, but on October 9, 2014, it was extended
for an additional three-year term through October 9, 2017, and then a limited scope license was extended for one more year through
October 9, 2018. We may sublicense our rights with Selexis’ prior written consent but are prohibited from making commercial
use of the Selexis Technology or the resultant recombinant proteins comprising our product candidates in humans, or from filing
an investigational new drug, absent a commercial license agreement with Selexis covering the particular product candidate developed
under the research license. In connection with the entry into the research license, we paid Selexis an initial fee and agreed to
make additional annual license maintenance payments of the same amount for each of the three years that the research license agreement
term was extended and for a pro rata amount for the most current one-year license extension that expired on October 9, 2018. As
such, we are no longer using the Selexis Technology in our research.
Selexis also granted us a non-transferrable
option to obtain a perpetual, non-exclusive, worldwide commercial license under the Selexis Technology to manufacture, or have
manufactured, a recombinant protein produced by a cell line developed using the Selexis Technology for clinical testing and commercial
sale. We exercised this option in April 2013 and entered into three commercial license agreements with Selexis for our ONS-3010,
ONS-1045 (which covers ONS-5010) and ONS-1050 product candidates. We paid an upfront licensing fee to Selexis for each commercial
license and also agreed to pay a fixed milestone payment for each licensed product. In addition, we are required to pay a single-digit
royalty on a final product-by-final product and country-by-country basis, based on worldwide net sales of such final products by
us or any of our affiliates or sub-licensees during the royalty term. At any time during the term, we have the right to terminate
our royalty payment obligation by providing written notice to Selexis and paying Selexis a royalty termination fee.
As of March 31, 2019, we have paid Selexis
an aggregate of approximately $0.4 million under the commercial license agreements.
IPCA Laboratories Limited -Humira
(ONS-3010), Avastin (ONS-1045) and Herceptin (ONS-1050)
In August 2013, we entered into a strategic
license agreement with IPCA Laboratories Limited, or IPCA, under which we granted IPCA and its affiliates a license for the research,
development, manufacture, use or sale of ONS-3010 and, by amendment in May 2014, ONS-1045. The license is exclusive with respect
to India, Sri Lanka and Myanmar, and non-exclusive with respect to Nepal and Bhutan. Under the terms of the August 2013 agreement,
we received an upfront payment from IPCA, and are eligible to earn additional regulatory milestone payments for each of ONS-3010
and ONS-1045. In addition, we are eligible to receive royalties at a low teens percentage rate of annual net sales of products
by IPCA and its affiliates in the agreed territory.
In January 2014, we entered into an agreement
with IPCA to assist IPCA in establishing its research, development and manufacturing capabilities for mAbs and biologics, including,
in part, through collaborative development, manufacture and commercialization of ONS-1050 (our Herceptin biosimilar), in the agreed
territory (as specified below). The agreed territory for ONS-1050 includes the Republics of India, Sri Lanka, Myanmar, Nepal and
Bhutan, while the agreed territory for any product candidates developed independent of our involvement is global without geographical
restriction. We also agreed to assist IPCA with its research and development program. Under the terms of the January 2014 agreement,
we are eligible to receive development payments and commercialization fees. In addition, we are eligible to receive royalties from
IPCA at a mid-single digit rate on annual net sales of ONS-1050 commercialized by IPCA and its affiliates in the agreed territory.
As of March 31, 2019, we have received
an aggregate of $5.0 million of payments from IPCA under our various agreements.
Liomont - Humira (ONS-3010) and Avastin
(ONS-1045)
In June 2014, we entered into a strategic
license agreement with Laboratories Liomont, S.A. de C.V., or Liomont, under which we granted Liomont and its affiliates an exclusive,
sublicenseable license in Mexico for the research, development, manufacture, use or sale of the ONS-3010 and ONS-1045 biosimilar
product candidates in Mexico. Under the terms of the agreement, we received an upfront payment from Liomont, and we are eligible
to earn milestone payments for each of ONS-3010 and ONS-1045. In addition, we are eligible to receive tiered royalties at upper
single-digit to low teens percentage rates of annual net sales of products by Liomont and its affiliates in Mexico. As of March
31, 2019, we have received an aggregate of $3.0 million of upfront and milestone payments from Liomont.
Huahai - Humira (ONS-3010) and Avastin
(ONS-1045)
In May 2013, we entered into a series of
agreements with Zhejiang Huahai Pharmaceutical Co., Ltd., or Huahai, to form an alliance for the purpose of developing and obtaining
regulatory approval for, and commercial launch and marketing of licensed products in an agreed territory, as described below. The
agreements include a strategic alliance agreement, which sets out the governance framework for the relationship, along with a joint
participation agreement regarding joint development and commercialization of ONS-3010, and a co-development and license agreement
for each of ONS-3010 and ONS-1045. As of September 30, 2018, we have received an aggregate of $16.0 million of upfront and
milestone payments from Huahai.
As contemplated by the strategic alliance
agreement, we entered into a joint participation agreement with Huahai where we agreed to co-fund the development and share the
value ownership interest of ONS-3010 in the United States, Canada, European Union, Japan, Australia and New Zealand. Under the
agreement as amended, we are responsible for completing a defined “Phase-3 Ready Package” at our expense, for which
the portion of the funds received from Huahai to date under this joint participation agreement was used.
In the event Huahai funds its proportionate
share of development costs incurred after completion of the “Phase-3 Ready Packages,” Huahai would be entitled to retain
its 51% value ownership, with us entitled to retain our 49% value ownership, of ONS-3010 in the agreed territories. Similarly,
revenues from commercialization of ONS-3010 in the agreed countries (including major markets such as the United States and the
European Union, among others), would also be shared based on such proportional ownership interests. In the event that Huahai does
not fund its proportionate share of such development costs, the joint participation agreement provides for a proportionate adjustment
to our respective value ownership interests based on our respective investments in such development costs, which would increase
our value ownership interest in ONS-3010. Under the joint participation agreement, we could also be required to form a joint venture
to further develop and commercialize ONS-3010 with Huahai in the agreed countries, if so requested by Huahai.
In conjunction with the strategic alliance
agreement, we also entered into a co-development and license agreement with Huahai, under which we granted Huahai and its affiliates
an exclusive license, in the territory (as specified below) for the research, development, manufacture, use or sale of ONS-3010
or ONS-1045 in China, including, the People’s Republic of China, Hong Kong, Macau and Taiwan. We will each bear our respective
costs under the development plans. Huahai agreed to carry out all clinical, manufacturing and regulatory requirements necessary
for approval of the products in the agreed territory. Under the terms of the agreement, we received an upfront payment from Huahai
for ONS-3010, and have received regulatory milestone payments for each of ONS-3010 and ONS-1045.
BioLexis — Humira (ONS-3010) and Avastin (ONS-1045)
On September 7, 2017, in connection with
the entry into the BioLexis purchase agreement for shares of our Series A convertible preferred stock and warrants, we also entered
into a joint development and license agreement providing for the license of rights to ONS-3010 and ONS-1045 in emerging markets,
excluding China, India and Mexico, which superseded and replaced a previous strategic licensing agreement dated July 25, 2017.
As of March 31, 2019, we have received an aggregate of $5.0 million of payments from BioLexis under our joint development
and license agreement.
Components of our Results of Operations
Collaboration Revenue
To date, we have derived revenue only from
activities pursuant to our collaboration and licensing agreements. We have not generated any revenue from commercial product sales.
For the foreseeable future, we expect all of our revenue, if any, will be generated from our collaboration and licensing agreements.
If any of our product candidates currently under development are approved for commercial sale, we may generate revenue from product
sales, or alternatively, we may choose to select a collaborator to commercialize our product candidates.
On October 1, 2018, we adopted Accounting
Standards Update, or ASU, No. 2014-09,
Revenue from Contracts with Customers
, or ASU 2014-09, and changed our revenue
recognition policies accordingly. The standard’s stated core principle is 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. Our arrangements fall under Accounting Standards Codification, or ASC,
808,
Collaborations
, or ASC 808. ASC 808 does not address recognition or measurement matters but prescribes that entities
look to other GAAP by analogy, namely ASU 2014-09. As such, we completed an analysis of existing contracts with our collaboration
partners and assessed the differences in accounting for such contracts under ASU 2014-09 compared with current revenue accounting
standards. We previously recognized substantive milestones in the period the milestones were achieved, but ASU 2014-09 prescribes
that those milestones are a form of variable consideration and should be recognized when the performance obligation is satisfied,
which results in such amounts being recognized over the estimated performance period. We adopted the new accounting standard utilizing
the modified retrospective method, and recorded the cumulative effect of adopting the standard as an adjustment to increase accumulated
deficit by $3.6 million.
Research and Development Expenses
Research and development expense consists
of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development
costs as incurred. These expenses include:
|
·
|
expenses incurred under agreements with contract research organizations, or CROs, as well as investigative
sites and consultants that conduct our preclinical studies and clinical trials;
|
|
·
|
manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical
trial materials and commercial materials, including manufacturing validation batches;
|
|
·
|
outsourced professional scientific development services;
|
|
·
|
employee-related expenses, which include salaries, benefits and stock-based compensation;
|
|
·
|
payments made under a third-party assignment agreement, under which we acquired intellectual property;
|
|
·
|
expenses relating to regulatory activities, including filing fees paid to regulatory agencies;
|
|
·
|
laboratory materials and supplies used to support our research activities; and
|
|
·
|
allocated expenses, utilities and other facility-related costs.
|
The successful development of ONS-5010
and any of our other product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing
and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net
cash inflows may commence from ONS-5010 or any of our other product candidates. This uncertainty is due to the numerous risks and
uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as
a result of many factors, including:
|
·
|
the number of clinical sites included in the trials;
|
|
·
|
the length of time required to enroll suitable patients;
|
|
·
|
the number of patients that ultimately participate in the trials;
|
|
·
|
the number of doses patients receive;
|
|
·
|
the duration of patient follow-up;
|
|
·
|
the results of our clinical trials;
|
|
·
|
the establishment of commercial manufacturing capabilities;
|
|
·
|
the receipt of marketing approvals; and
|
|
·
|
the commercialization of product candidates.
|
Our expenditures are subject to additional
uncertainties, including the terms and timing of regulatory approvals. We may never succeed in achieving regulatory approval for
any of ONS-5010 or our other product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue,
delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these variables
with respect to the development of a product candidate could mean a significant change in the costs and timing associated with
the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct
clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical
trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
Product commercialization will take several years and millions of dollars in development costs.
Research and development activities are
central to our business model. Product candidates in later stages of clinical development generally have higher development costs
than those in earlier stages of clinical development, primarily due to the increased size, complexity and duration of later-stage
clinical trials.
General and Administrative Expenses
General and administrative expenses consist
principally of salaries and related costs for personnel in executive, administrative, finance and legal functions, including stock-based
compensation, travel expenses and recruiting expenses. Other general and administrative expenses include facility related costs,
patent filing and prosecution costs and professional fees for business development, legal, auditing and tax services and insurance
costs.
We anticipate that our general and administrative
expenses will increase if and when we believe a regulatory approval of a product candidate appears likely, and we anticipate an
increase in payroll and expense as a result of our preparation for commercial operations, particularly as it relates to the sales
and marketing of our product.
Interest Expense
Interest expense consists of cash paid
and non-cash interest expense related to our senior secured notes, former bank loans, and notes with current and former stockholders,
equipment loans, capital lease and other finance obligations.
Loss on Extinguishment of Debt
We recorded a loss on
extinguishment of debt of $0.2 million during the three and six months ended March 31, 2019 in connection with a forbearance
and exchange agreement in March 2019 pursuant to which a third party purchased two stockholder notes previously issued in an
aggregate original principal amount of $1.0 million with an aggregate outstanding balance of $1.9 million, including accrued
interest.
We recorded a loss on the extinguishment
of debt of $1.3 million during the six months ended March 31, 2018 related to the exchange of $1.5 million aggregate principal
amount of our senior secured notes for shares of our Series B Convertible Preferred Stock.
Change in Fair Value of Warrant Liability
Warrants to purchase our common stock that
have been issued in conjunction with our senior secured notes are classified as liabilities and recorded at fair value. The warrants
are subject to re-measurement at each balance sheet date and we recognize any change in fair value in our statements of operations.
Income Taxes
On November 30, 2018, we received
approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell
approximately $3.7 million of our unused New Jersey NOLs and R&D credits. We expect to receive approximately $3.4 million
of proceeds from the sale of the New Jersey NOLs and R&D credits, of which approximately $0.8 million was received in April
2019. Since inception, we have not recorded any U.S. federal or state income tax benefits (excluding the sale of New Jersey NOLs
and R&D credits) for the net losses we have incurred in each year or on our earned R&D credits, due to our uncertainty
of realizing a benefit from those items. As of September 30, 2018, we had federal and state NOL carryforwards of $164.2 million
and $67.6 million, respectively that will begin to expire in 2030 and 2036, respectively. As of September 30, 2018, we
had federal foreign tax credit carryforwards of $2.4 million available to reduce future tax liabilities, which begin
to expire starting in 2023. As of September 30, 2018, we also had federal R&D tax credit carryforwards of $8.5 million
that begin to expire in 2032.
In general, under Section 382 of the Internal
Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations
on its ability to utilize its NOLs to offset future taxable income. We have not completed a study to assess whether an ownership
change has occurred in the past. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if
we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes
in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the
Code. Our NOLs are also subject to international regulations, which could restrict our ability to utilize our NOLs.
Furthermore, our ability to utilize NOLs of companies that we
may acquire in the future, if any, may be subject to limitations. There is also a risk that due to regulatory changes, such as
suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset
future income tax liabilities.
Results of Operations
Comparison of Three Months Ended March 31, 2019 and 2018
|
|
Three months ended March 31,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenues
|
|
$
|
641,140
|
|
|
$
|
771,890
|
|
|
$
|
(130,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,497,619
|
|
|
|
5,156,386
|
|
|
|
1,341,233
|
|
General and administrative
|
|
|
1,849,158
|
|
|
|
2,446,505
|
|
|
|
(597,347
|
)
|
|
|
|
8,346,777
|
|
|
|
7,602,891
|
|
|
|
743,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,705,637
|
)
|
|
|
(6,831,001
|
)
|
|
|
(874,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
1,053,877
|
|
|
|
920,870
|
|
|
|
133,007
|
|
Loss on extinguishment of debt
|
|
|
183,554
|
|
|
|
-
|
|
|
|
183,554
|
|
Change in fair value of warrant liability
|
|
|
1,301,728
|
|
|
|
(211,992
|
)
|
|
|
1,513,720
|
|
Loss before income taxes
|
|
|
(10,244,796
|
)
|
|
|
(7,539,879
|
)
|
|
|
(2,704,917
|
)
|
Income tax (benefit) expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(10,244,796
|
)
|
|
$
|
(7,539,879
|
)
|
|
$
|
(2,704,917
|
)
|
Collaboration Revenues
The following table sets forth a summary
of revenue recognized from our collaboration and licensing agreements for the three months ended March 31, 2019 and 2018, all of
which was from the recognition of deferred revenues under such agreements:
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
IPCA Collaboration
|
|
$
|
128,007
|
|
|
$
|
65,268
|
|
Liomont Collaboration
|
|
|
84,414
|
|
|
|
59,160
|
|
Huahai Collaboration
|
|
|
371,427
|
|
|
|
178,712
|
|
BioLexis Collaboration
|
|
|
57,292
|
|
|
|
468,750
|
|
|
|
$
|
641,140
|
|
|
$
|
771,890
|
|
Collaboration revenues decreased by $0.1
million to $0.7 million for the three months ended March 31, 2019, as compared to $0.8 million for the three months ended March
31, 2018. The decrease is primarily due to the adoption of ASU No. 2014-09, effective October 1, 2018, which changed our revenue
recognition policies for milestone payments. We previously recognized substantive milestones in the period the milestones were
achieved but ASU 2014-09 prescribes that those milestones are a form of variable consideration and should be recognized when the
performance obligation is satisfied, which results in such amounts being recognized over the estimated performance period.
Research and Development Expenses
The following table summarizes our research
and development expenses by functional area for the three months ended March 31, 2019 and 2018:
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
ONS-5010 development
|
|
$
|
2,622,113
|
|
|
$
|
1,953,850
|
|
Compensation and related benefits
|
|
|
1,511,822
|
|
|
|
1,676,419
|
|
Stock-based compensation
|
|
|
120,763
|
|
|
|
(403,034
|
)
|
Loss on disposal of property and equipment
|
|
|
561,735
|
|
|
|
-
|
|
Other research and development
|
|
|
1,681,186
|
|
|
|
1,929,151
|
|
Total research and development expenses
|
|
$
|
6,497,619
|
|
|
$
|
5,156,386
|
|
Research and development expenses for the
three months ended March 31, 2019 increased by $1.3 million compared to the three months ended March 31, 2018. The increase was
primarily due to increased ONS-5010 development costs of $0.6 million as we progressed into Phase 3 clinical trials near the end
of fiscal year 2018 and a $0.6 million write off of certain construction in progress assets and laboratory equipment resulting
from our decision to focus solely on ONS-5010 and to outsource the commercial manufacturing for the program.
General and Administrative Expenses
The following table summarizes our general
and administrative expenses by type for the three months ended March 31, 2019 and 2018:
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
649,355
|
|
|
$
|
699,503
|
|
Compensation and related benefits
|
|
|
430,126
|
|
|
|
708,618
|
|
Stock-based compensation
|
|
|
146,979
|
|
|
|
102,823
|
|
Facilities, fees and other related costs
|
|
|
622,698
|
|
|
|
935,561
|
|
Total general and administrative expenses
|
|
$
|
1,849,158
|
|
|
$
|
2,446,505
|
|
General and administrative expenses
for the three months ended March 31, 2019 decreased by $0.6 million compared to the three months ended March 31, 2018. The
decrease was due to our ongoing efforts to reduce general and administrative expenses and focus our resources on
the development of ONS-5010.
Interest Expense
Interest expense increased by $0.1 million
to $1.0 million for the three months ended March 31, 2019 as compared to $0.9 million for the three months ended March 31, 2018.
The increase was primarily due to a $0.1 million net increase in interest expense from equipment loans, and capital lease obligations
and amortization of debt discount and interest expense on the senior secured notes issued due to the modification made to the notes
during the year.
Change in Fair Value of Warrant Liability
During the three months ended March 31,
2019, we recorded expense of $1.3 million related to the increase in the fair value of our common stock warrant liability associated
with the warrants issued in connection with our senior secured notes, which resulted from an increase in the price of our common
stock.
Comparison of Six Months Ended
March 31, 2019 and 2018
|
|
Six months ended March 31,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenues
|
|
$
|
1,708,738
|
|
|
$
|
1,543,780
|
|
|
$
|
164,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14,918,544
|
|
|
|
5,558,788
|
|
|
|
9,359,756
|
|
General and administrative
|
|
|
4,753,146
|
|
|
|
5,995,757
|
|
|
|
(1,242,611
|
)
|
|
|
|
19,671,690
|
|
|
|
11,554,545
|
|
|
|
8,117,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(17,962,952
|
)
|
|
|
(10,010,765
|
)
|
|
|
(7,952,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
2,174,726
|
|
|
|
1,638,753
|
|
|
|
535,973
|
|
Loss on extinguishment of debt
|
|
|
183,554
|
|
|
|
1,252,353
|
|
|
|
(1,068,799
|
)
|
Change in fair value of warrant liability
|
|
|
(334,592
|
)
|
|
|
(290,775
|
)
|
|
|
(43,817
|
)
|
Loss before income taxes
|
|
|
(19,986,640
|
)
|
|
|
(12,611,096
|
)
|
|
|
(7,375,544
|
)
|
Income tax (benefit) expense
|
|
|
-
|
|
|
|
(3,150,716
|
)
|
|
|
3,150,716
|
|
Net loss
|
|
$
|
(19,986,640
|
)
|
|
$
|
(9,460,380
|
)
|
|
$
|
(10,526,260
|
)
|
Collaboration Revenues
The following table sets forth a summary
of revenue recognized from our collaboration and licensing agreements for the six months ended March 31, 2019 and 2018, all of
which was from the recognition of deferred revenues under such agreements:
|
|
Six months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
IPCA Collaboration
|
|
$
|
256,014
|
|
|
$
|
130,536
|
|
Liomont Collaboration
|
|
|
183,828
|
|
|
|
118,321
|
|
Huahai Collaboration
|
|
|
742,854
|
|
|
|
357,423
|
|
BioLexis Collaboration
|
|
|
526,042
|
|
|
|
937,500
|
|
|
|
$
|
1,708,738
|
|
|
$
|
1,543,780
|
|
Collaboration revenues increased $0.2 million,
to $1.7 million, for the six months ended March 31, 2019, as compared to $1.5 million for the six months ended March 31, 2018.
The increase is primarily due to the adoption of ASU No. 2014-09, effective October 1, 2018, which changed our revenue recognition
policies for milestone payments. We previously recognized substantive milestones in the period the milestones were achieved but
ASU 2014-09 prescribes that those milestones are a form of variable consideration and should be recognized when the performance
obligation is satisfied, which results in such amounts being recognized over the estimated performance period.
Research and Development Expenses
The following table summarizes our research
and development expenses by functional area for the six months ended March 31, 2019 and 2018:
|
|
Six months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
ONS-5010 development
|
|
$
|
4,993,082
|
|
|
$
|
1,953,850
|
|
Settlement of clinical development contract
|
|
|
-
|
|
|
|
(3,228,613
|
)
|
Compensation and related benefits
|
|
|
3,396,471
|
|
|
|
3,102,821
|
|
Stock-based compensation
|
|
|
211,972
|
|
|
|
(84,793
|
)
|
Loss on disposal of property and equipment
|
|
|
2,911,138
|
|
|
|
-
|
|
Other research and development
|
|
|
3,405,881
|
|
|
|
3,815,523
|
|
Total research and development expenses
|
|
$
|
14,918,544
|
|
|
$
|
5,558,788
|
|
Research and development expenses for
the six months ended March 31, 2019 increased by $9.4 million compared to the six months ended March 31, 2018. The increase
was primarily due to increased ONS-5010 development costs of $3.0 million as we progressed into Phase 3 clinical trials near
the end of fiscal year 2018. A portion of the increase was also due to a $2.9 million write off of certain construction in
progress assets and laboratory equipment resulting from our decision to focus on ONS-5010 and to outsource the commercial
manufacturing for the program. In addition, 2018 reflects a $3.2 million favorable settlement of a contract related to
our inactive biosimilar product candidates in fiscal 2018.
General and Administrative Expenses
The following table summarizes our general and administrative
expenses by type for the six months ended March 31, 2019 and 2018:
|
|
Six Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
2,130,329
|
|
|
$
|
1,427,523
|
|
Compensation and related benefits
|
|
|
591,307
|
|
|
|
1,304,864
|
|
Stock-based compensation
|
|
|
928,059
|
|
|
|
1,674,402
|
|
Facilities, fees and other related costs
|
|
|
1,103,451
|
|
|
|
1,588,968
|
|
Total general and administrative expenses
|
|
$
|
4,753,146
|
|
|
$
|
5,995,757
|
|
General and administrative expenses for the six months ended
March 31, 2019 decreased by $1.2 million compared to the six months ended March 31, 2018. The decrease was primarily due to a reduction
in stock-based compensation expense, which decreased because the first quarter of fiscal 2018 reflected the completion of the vesting
period for many of our pre-IPO equity grants and a decrease in compensation expense related to the reversal of previously accrued
compensation cost. Additionally, our ongoing efforts to reduce expenses to support the ongoing development of ONS-5010 resulted
in a reduction in facilities and other costs of approximately $0.6 million which were offset by an increase in professional fees
due to advisory services related to the restructuring of our senior secured notes.
Interest Expense
Interest expense increased by $0.6 million to $2.2 million for
the six months ended March 31, 2019 as compared to $1.6 million for the six months ended March 31, 2018. The increase was primarily
due to a $0.3 million net increase in interest expense from equipment loans, and capital lease obligations and $0.2 million increase
in amortization of debt discount and interest expense on the senior secured notes issued due to the modification made to the notes
during the six month period.
Change in Fair Value of Warrant Liability
During the six months ended March 31, 2019,
we recorded expense of $0.3 million related to the increase in the fair value of our common stock warrant liability associated
with the warrants issued in connection with our senior secured notes, which resulted from an increase in the price of our common
stock.
Liquidity and Capital Resources
We have not generated any revenue from
product sales. Since inception, we have incurred net losses and negative cash flows from our operations. Through March 31, 2019,
we have funded substantially all of our operations through the receipt of $215.3 million net proceeds from the issuance of
our equity securities, debt securities and borrowings under debt facilities. We have also received an aggregate of $29.0 million
pursuant to our collaboration and licensing agreements.
In November and December 2018, we issued
1,608,234 shares of the common stock to BioLexis for aggregate cash proceeds of $12.0 million pursuant our November 2018
purchase agreement. In January and February 2019, we issued 1,072,156 shares of common stock for the remaining $8.0 million aggregate
cash proceeds thereunder. In November 2018, we also reached an agreement with the holders of our $13.5 million senior secured notes
to extend the maturity of the senior secured notes up to December 22, 2019, among other items, in exchange for making several payments
of principal and interest through August 31, 2019, subject to meeting additional capital raising commitments (which capital raising
condition was met in April 2019 through the completed underwritten public offering of our common stock and accompanying warrants).
In addition, we agreed to make the senior secured notes convertible into common stock at a price of $8.9539 per share (120% of
the price per share paid by BioLexis under the purchase agreement) and reduced the exercise price of the warrants held by such
holders to $12.00 and extended the expiration of these warrants by three years. We paid $5.9 million of principal and interest
on the senior secured notes through March 31, 2019.
In November 2018, we
received approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer
Program to sell approximately $3.7 million of our unused New Jersey NOLs and R&D credits for $3.4 million, of which
approximately $0.8 million was received in April 2019. We expect to receive the balance of approximately $2.6 million of
proceeds from the sale of the New Jersey NOLs and R&D credits in the third quarter of fiscal 2019.
On April 12, 2019, we completed an underwritten
public offering of 10,340,000 shares of our common stock, 15-month warrants to purchase up to an aggregate of 10,340,000 shares
of our common stock and five-year warrants to purchase up to an aggregate of 10,340,000 shares of our common stock at a combined
public offering price of $2.75 per share and accompanying warrants. The shares of common stock and the warrants were immediately
separable and were issued separately. The warrants were exercisable immediately at an exercise price of $2.90 per share. We received
approximately $26.2 million in net proceeds from the public offering after payment of fees, expenses and underwriting discounts
and commissions.
As of March 31, 2019, we had an
accumulated deficit of $239.9 million and a cash balance of $0.2 million. In addition, we have $8.5 million of senior
secured notes which may become due in fiscal 2019, $3.6 million unsecured notes, which are due on demand as of such date, and
$1.0 million of unsecured notes that are due on demand but are subject to a forbearance agreement through March 7, 2020.
These matters raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might result from the outcome of this uncertainty. We anticipate incurring additional
losses until such time, if ever, that we can generate significant sales of our product candidates currently in development.
We will need substantial additional financing to fund our operations and to commercially develop our product candidates.
Management is currently evaluating various strategic opportunities to obtain the required funding for future operations.
These strategies may include, but are not limited to payments from potential strategic research and development, licensing
and/or marketing arrangements with pharmaceutical companies, private placements and/or public offerings of equity and/or debt
securities. There can be no assurance that these future funding efforts will be successful.
Our future operations are highly dependent
on a combination of factors, including (i) the timely and successful completion of additional financing discussed above, (ii)
our ability to complete revenue-generating partnerships with pharmaceutical companies, (iii) the success of our research and development,
(iv) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (v) regulatory
approval and market acceptance of our proposed future products.
Funding Requirements
We plan to focus in the near term on advancing
ONS-5010 through clinical trials to support the filing of a Biologics License Application with the FDA to support the generation
of commercial revenues. We anticipate we will incur net losses and negative cash flow from operations for the foreseeable future.
We may not be able to complete the development and initiate commercialization of ONS-5010 if, among other things, our clinical
trials are not successful or if the FDA does not approve our application arising out of our current clinical trials when we expect,
or at all.
Our primary uses of capital are, and we
expect will continue to be, compensation and related expenses, manufacturing and facility costs, external research and development
services, laboratory and related supplies, legal and other regulatory expenses, and administrative and overhead costs. Our future
funding requirements will be heavily determined by the resources needed to support development of our lead product candidate.
We believe our existing cash as
of March 31, 2019, together with the $26.2 million of net proceeds from the April 2019 public common stock and warrants
offering and anticipated proceeds from the sale of New Jersey NOLs and R&D credits will provide adequate financial
resources to fund our operations into December 2019, excluding any unscheduled repayment of debt. We have based this estimate
on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We
will need to raise substantial additional capital in order to complete our planned ONS-5010 development program. We plan to
finance our future operations with a combination of proceeds from potential strategic collaborations, sale of the development
and commercial rights to our drug product candidates, the issuance of equity securities, the issuance of additional debt, and
revenues from potential future product sales, if any. If we raise additional capital through the sale of equity or
convertible debt securities, your ownership will be diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect your rights as a holder of our common stock. There are no assurances that we will be
successful in obtaining an adequate level of financing for the development and commercialization of ONS-5010 or any other
current or future product candidates. Alternatively, we will be required to, among other things, modify our clinical trial
plans for ONS-5010 in additional indications, make reductions in our workforce, scale back our plans and place certain
activities on hold, discontinue our development programs, liquidate all or a portion of our assets, and/or seek protection
under the provisions of the U.S. Bankruptcy Code.
Cash Flows
The following table summarizes our cash flows for each of the
periods presented:
|
|
Six months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(16,057,443
|
)
|
|
$
|
(16,110,027
|
)
|
Net cash used in investing activities
|
|
|
(286,569
|
)
|
|
|
(1,350,329
|
)
|
Net cash provided by financing activities
|
|
|
14,765,440
|
|
|
|
20,210,952
|
|
Operating Activities.
During the six months ended March 31, 2019, we used $16.1 million
of cash in operating activities resulting from our net loss of $20.0 million and the change in our operating assets and liabilities
of $2.5 million. This use of cash was partially offset by $6.4 million of noncash items such as non-cash interest expense, stock-based
compensation, change in fair value of warrant liability, loss on disposal of property and equipment, loss on extinguishment of
debt and depreciation and amortization expense. The change in our operating assets and liabilities was primarily due to payments
of our accrued expenses from September 30, 2018 as well as the amortization of our deferred revenues from collaborations.
During the six months ended March 31, 2018,
we used $16.1 million of cash in operating activities resulting from our net loss of $9.5 million and the change in our operating
assets and liabilities of $11.6 million. This use of cash was partially offset by $4.9 million of noncash items such as non-cash
interest expense, stock-based compensation, change in fair value of warrant liability, loss on extinguishment of debt and depreciation
and amortization expense. The change in our operating assets and liabilities was primarily due to payments of our outstanding accounts
payable and accrued expenses from September 30, 2017 as well as the prepayment of certain research and development expenses and
the amortization of our deferred revenues from collaborations.
Investing Activities.
During the six months ended March
31, 2019 and 2018, we used cash of $0.3 million and $1.4 million, respectively, in investing activities for the purchase of
property and equipment.
Financing Activities.
During the six months ended March 31,
2019, net cash provided by financing activities was $14.8 million, primarily attributable to $19.8 million in net proceeds
from the November 2018 BioLexis private placement. In November 2018 through February 2019, we closed the sale of this private
placement for an aggregate of 2,680,390 shares of our common stock for gross cash proceeds of $20.0 million. We also
made $5.0 million in debt and capital lease obligations payments.
During the six months ended March 31, 2018,
net cash provided by financing activities was $20.2 million, primarily attributable to $20.6 million in net proceeds from our second
closing of our Series A Convertible in October 2017. We also had $0.4 million in debt payments.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March
31, 2019.
Contractual Obligations and Commitments
Not applicable.
Critical Accounting Policies and Significant
Judgments and Estimates
The Critical Accounting Policies and Significant
Judgments and Estimates included in our Form 10-K for the fiscal year ended September 30, 2018, filed with the SEC on December
18, 2018, have not materially changed with the exception of our revenue recognition policies.
On October 1, 2018, we adopted ASU No.
2014-09 and changed our revenue recognition policies accordingly. The standard’s stated core principle is 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. This guidance also requires an entity to disclose
sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers. Qualitative and quantitative information is required about:
|
·
|
Contracts with customers
- including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations).
|
|
·
|
Significant judgments and changes in judgments
- determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations.
|
|
·
|
Certain assets
- assets recognized from the costs to obtain or fulfill a contract.
|
Our arrangements fall under ASC 808.
ASC 808 does not address recognition or measurement matters but prescribes that entities look to other GAAP by analogy,
namely ASU 2014-09. As such, we completed an analysis of existing contracts with our collaboration partners and assessed the
differences in accounting for such contracts under ASU 2014-09 compared with current revenue accounting standards. We
previously recognized substantive milestones in the period the milestones were achieved, but ASU 2014-09 prescribes that
those milestones are a form of variable consideration which results in such amounts being recognized over the estimated
performance period. For the three and six months ended March 31, 2019, we would have recognized $0.3 million and $1.1
million, respectively, of collaboration revenues under revenue recognition guidance in effect during fiscal 2018 prior to the
adoption of ASU 2014-09.
JOBS Act Accounting Election
The JOBS Act, permits an “emerging
growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards
applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to
“opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are
required to be adopted by public companies that are not emerging growth companies.