Quarterly Report (10-q)

Date : 10/25/2019 @ 10:10AM
Source : Edgar (US Regulatory)
Stock : Medicinova Inc (MNOV)
Quote : 6.54  0.0 (0.00%) @ 1:01PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2019

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

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number: 001-33185

 

MEDICINOVA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

33-0927979

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4275 Executive Square, Suite 300

La Jolla, CA

 

92037

(Address of Principal Executive Offices)

 

(Zip Code)

 

(858) 373-1500

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Common Stock, $0.001 par value

 

MNOV

 

The Nasdaq Stock Market LLC

(Title of each class)

 

(Trading symbol(s))

 

(Name of each exchange on which registered)

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

Emerging growth company           


 

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

 

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

As of October 23, 2019, the registrant had 43,841,965 shares of Common Stock ($0.001 par value) outstanding.

 

 


 

2


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q, in particular "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the information incorporated by reference herein contains “forward-looking statements”. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in "Risk Factors" and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. Considering the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

Inability to raise additional capital if needed;

 

Inability to generate revenues from product sales to continue business operations;

 

Inability to develop and commercialize our product candidates;

 

Failure or delay in completing clinical trials or obtaining Food and Drug Administration or foreign regulatory approval for our product candidates in a timely manner;

 

Unsuccessful clinical trials stemming from clinical trial designs, failure to enroll a sufficient number of patients, undesirable side effects and other safety concerns;

 

Inability to demonstrate sufficient efficacy of product candidates;

 

Reliance on the success of our MN-166 (ibudilast) and MN-001 (tipelukast) product candidates;

 

Delays in commencement or completion of clinical trials or suspension or termination of clinical trials;

 

Loss of our licensed rights to develop and commercialize a product candidate as a result of the termination of the underlying licensing agreement;

 

Competitors may develop products rendering our product candidates obsolete and noncompetitive;

 

Inability to successfully attract partners and enter into collaborations on acceptable terms;

 

Dependence on third parties to conduct clinical trials and to manufacture product candidates;

 

Dependence on third parties to market and distribute products;

 

Our product candidates, if approved, may not gain market acceptance or obtain adequate coverage for third party reimbursement;

 

Disputes or other developments concerning our intellectual property rights;

 

Actual and anticipated fluctuations in our quarterly or annual operating results;

 

Price and volume fluctuations in the overall stock markets;

 

Litigation or public concern about the safety of our potential products;

 

International trade or foreign exchange restrictions, increased tariffs, foreign currency exchange;

 

High quality material for our products may become difficult to obtain or expensive;

 

Strict government regulations on our business;

 

Regulations governing the production or marketing of our product candidates;

 

3


 

 

Loss of, or inability to attract, key personnel; and

 

Economic, political, foreign exchange and other risks associated with international operations.

 

 

4


 

MEDICINOVA, INC.

TABLE OF CONTENTS

 

 

 

 

 

5


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS.

 

 

MEDICINOVA, INC.

CONSOLIDATED BALANCE SHEETS 

 

 

 

September 30,

 

 

 

 

December 31,

 

 

 

2019

 

 

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

62,872,907

 

 

 

 

$

62,313,418

 

Prepaid expenses and other current assets

 

 

401,559

 

 

 

 

 

444,942

 

Total current assets

 

 

63,274,466

 

 

 

 

 

62,758,360

 

Goodwill

 

 

9,600,240

 

 

 

 

 

9,600,240

 

In-process research and development

 

 

4,800,000

 

 

 

 

 

4,800,000

 

Property and equipment, net

 

 

38,920

 

 

 

 

 

53,134

 

Other non-current assets

 

 

510,431

 

 

 

 

 

10,958

 

Total assets

 

$

78,224,057

 

 

 

 

$

77,222,692

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

230,376

 

 

 

 

$

616,753

 

Accrued expenses and other liabilities

 

 

1,503,287

 

 

 

 

 

1,575,161

 

Total current liabilities

 

 

1,733,663

 

 

 

 

 

2,191,914

 

Long-term deferred revenue

 

 

1,694,163

 

 

 

 

 

1,694,163

 

Deferred tax liability

 

 

201,792

 

 

 

 

 

201,792

 

Other non-current liabilities

 

 

243,399

 

 

 

 

 

27,211

 

Total liabilities

 

 

3,873,017

 

 

 

 

 

4,115,080

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized at September 30, 2019 and December 31, 2018; 43,448,604 and 42,081,306 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

43,449

 

 

 

 

 

42,081

 

Additional paid-in capital

 

 

441,488,806

 

 

 

 

 

429,289,968

 

Accumulated other comprehensive loss

 

 

(92,358

)

 

 

 

 

(93,150

)

Accumulated deficit

 

 

(367,088,857

)

 

 

 

 

(356,131,287

)

Total stockholders’ equity

 

 

74,351,040

 

 

 

 

 

73,107,612

 

Total liabilities and stockholders' equity

 

$

78,224,057

 

 

 

 

$

77,222,692

 

 

See accompanying notes.

 

6


 

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

  

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research, development and patents

 

$

1,150,815

 

 

$

2,370,035

 

 

$

4,250,205

 

 

$

5,411,335

 

General and administrative

 

 

1,494,750

 

 

 

4,657,679

 

 

 

7,556,740

 

 

 

9,683,242

 

Total operating expenses

 

 

2,645,565

 

 

 

7,027,714

 

 

 

11,806,945

 

 

 

15,094,577

 

Operating loss

 

 

(2,645,565

)

 

 

(7,027,714

)

 

 

(11,806,945

)

 

 

(15,094,577

)

Interest income

 

 

288,643

 

 

 

268,437

 

 

 

900,462

 

 

 

650,013

 

Other income (expense)

 

 

(21,582

)

 

 

(20,681

)

 

 

(51,087

)

 

 

(22,584

)

Net loss applicable to common stockholders

 

$

(2,378,504

)

 

$

(6,779,958

)

 

$

(10,957,570

)

 

$

(14,467,148

)

Basic and diluted net loss per common share

 

$

(0.05

)

 

$

(0.16

)

 

$

(0.26

)

 

$

(0.35

)

Shares used to compute basic and diluted net

   loss per common share

 

 

43,343,329

 

 

 

41,879,073

 

 

 

42,963,287

 

 

 

40,866,343

 

Net loss applicable to common stockholders

 

$

(2,378,504

)

 

$

(6,779,958

)

 

$

(10,957,570

)

 

$

(14,467,148

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(782

)

 

 

(612

)

 

 

792

 

 

 

1,205

 

Comprehensive loss

 

$

(2,379,286

)

 

$

(6,780,570

)

 

$

(10,956,778

)

 

$

(14,465,943

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.


 

7


 

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

equity

 

Balance at December 31, 2018

 

 

42,081,306

 

 

$

42,081

 

 

$

429,289,968

 

 

$

(93,150

)

 

$

(356,131,287

)

 

$

73,107,612

 

Share-based compensation

 

 

 

 

 

 

 

 

2,699,500

 

 

 

 

 

 

 

2,699,500

 

Issuance of shares under an employee stock purchase plan (ESPP)

 

 

2,401

 

 

2

 

 

 

16,901

 

 

 

 

 

 

 

16,903

 

Issuance of common stock, net of offering costs

 

 

 

 

 

 

(8,532

)

 

 

 

 

 

 

(8,532

)

Issuance of common stock for option exercises

 

 

977,454

 

 

978

 

 

 

3,919,757

 

 

 

 

 

 

 

3,920,735

 

Net loss

 

 

 

 

 

 

 

 

 

 

(4,697,190

)

 

 

(4,697,190

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

(1,781

)

 

 

 

 

(1,781

)

Balance at March 31, 2019

 

 

43,061,161

 

 

 

43,061

 

 

 

435,917,594

 

 

 

(94,931

)

 

 

(360,828,477

)

 

 

75,037,247

 

Share-based compensation

 

 

 

 

 

 

 

 

1,842,514

 

 

 

 

 

 

 

 

 

1,842,514

 

Issuance of common stock for option exercises

 

 

38,000

 

 

 

38

 

 

 

180,332

 

 

 

 

 

 

 

 

 

180,370

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,881,876

)

 

 

(3,881,876

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

3,355

 

 

 

 

 

 

3,355

 

Balance at June 30, 2019

 

 

43,099,161

 

 

 

43,099

 

 

 

437,940,440

 

 

 

(91,576

)

 

 

(364,710,353

)

 

 

73,181,610

 

Share-based compensation

 

 

 

 

 

 

 

 

373,844

 

 

 

 

 

 

 

 

 

373,844

 

Issuance of shares under an employee stock purchase plan (ESPP)

 

 

1,541

 

 

 

2

 

 

 

10,415

 

 

 

 

 

 

 

 

 

10,417

 

Issuance of common stock, net of offering costs

 

 

347,902

 

 

 

348

 

 

 

3,164,107

 

 

 

 

 

 

 

 

 

3,164,455

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,378,504

)

 

 

(2,378,504

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(782

)

 

 

 

 

 

(782

)

Balance at September 30, 2019

 

 

43,448,604

 

 

$

43,449

 

 

$

441,488,806

 

 

$

(92,358

)

 

$

(367,088,857

)

 

$

74,351,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


 

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

equity

 

Balance at December 31, 2017

 

 

36,452,893

 

 

$

36,453

 

 

$

380,156,510

 

 

$

(94,623

)

 

$

(341,456,200

)

 

$

38,642,140

 

Share-based compensation

 

 

 

 

 

 

 

 

2,530,425

 

 

 

 

 

 

 

 

 

2,530,425

 

Issuance of shares under an employee stock purchase plan (ESPP)

 

 

4,861

 

 

 

5

 

 

 

27,897

 

 

 

 

 

 

 

 

 

27,902

 

Issuance of common stock, net of offering costs

 

 

4,545,928

 

 

 

4,546

 

 

 

38,494,817

 

 

 

 

 

 

 

 

 

38,499,363

 

Issuance of common stock for option exercises

 

 

125,391

 

 

 

125

 

 

 

407,071

 

 

 

 

 

 

 

 

 

407,196

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,543,051

)

 

 

(4,543,051

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

5,832

 

 

 

 

 

 

5,832

 

Balance at March 31, 2018

 

 

41,129,073

 

 

 

41,129

 

 

 

421,616,720

 

 

 

(88,791

)

 

 

(345,999,251

)

 

 

75,569,807

 

Share-based compensation

 

 

 

 

 

 

 

 

823,212

 

 

 

 

 

 

 

 

 

823,212

 

Issuance of common stock, net of offering costs

 

 

 

 

 

 

 

 

(18,462

)

 

 

 

 

 

 

 

 

(18,462

)

Exercise of warrants

 

 

750,000

 

 

 

750

 

 

 

2,361,750

 

 

 

 

 

 

 

 

 

2,362,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,144,139

)

 

 

(3,144,139

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(4,015

)

 

 

 

 

 

(4,015

)

Balance at June 30, 2018

 

 

41,879,073

 

 

 

41,879

 

 

 

424,783,220

 

 

 

(92,806

)

 

 

(349,143,390

)

 

 

75,588,903

 

Share-based compensation

 

 

 

 

 

 

 

 

4,728,260

 

 

 

 

 

 

 

 

 

4,728,260

 

Issuance of shares under an employee stock purchase plan (ESPP)

 

 

2,233

 

 

 

2

 

 

 

23,105

 

 

 

 

 

 

 

 

 

23,107

 

Issuance of common stock, net of offering costs

 

 

 

 

 

 

 

 

(7,929

)

 

 

 

 

 

 

 

 

(7,929

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,779,958

)

 

 

(6,779,958

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(612

)

 

 

 

 

 

(612

)

Balance at September 30, 2018

 

 

41,881,306

 

 

$

41,881

 

 

$

429,526,656

 

 

$

(93,418

)

 

$

(355,923,348

)

 

$

73,551,771

 

 

See accompanying notes.


 

9


 

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,957,570

)

 

$

(14,467,148

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Non-cash stock-based compensation

 

 

4,915,858

 

 

 

8,081,897

 

Depreciation and amortization

 

 

18,347

 

 

 

19,768

 

Change in joint venture investment

 

 

 

 

 

(19,867

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(452,515

)

 

 

(32,494

)

Accounts payable, accrued liabilities and other liabilities

 

 

(244,725

)

 

 

(1,052,514

)

Net cash used in operating activities

 

 

(6,720,605

)

 

 

(7,470,358

)

Investing activities:

 

 

 

 

 

 

 

 

Proceeds from dissolution of joint venture

 

 

 

 

 

636,524

 

Acquisition of property and equipment

 

 

(4,013

)

 

 

(10,207

)

Net cash (used in) provided by investing activities

 

 

(4,013

)

 

 

626,317

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, exercise of common

stock options and warrants, net of issuance costs

 

 

7,257,028

 

 

 

41,242,667

 

Proceeds from issuance of equity awards under ESPP

 

 

27,320

 

 

 

51,010

 

Net cash provided by financing activities

 

 

7,284,348

 

 

 

41,293,677

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(241

)

 

 

987

 

Net change in cash and cash equivalents

 

 

559,489

 

 

 

34,450,623

 

Cash and cash equivalents, beginning of period

 

 

62,313,418

 

 

 

27,991,743

 

Cash and cash equivalents, end of period

 

$

62,872,907

 

 

$

62,442,366

 

 

See accompanying notes.

 

 

 

10


 

MEDICINOVA, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1. Interim Financial Information

Organization and Business

MediciNova, Inc. (the “Company” or “MediciNova”) was incorporated in the state of Delaware in September 2000 and is a public company. The Company’s common stock is listed in both the United States and Japan and trades on the NASDAQ Global Market and the JASDAQ Market of the Tokyo Stock Exchange. MediciNova is a biopharmaceutical company focused on acquiring and developing novel, small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the U.S. market. The Company’s current strategy is to focus its development activities on MN-166 (ibudilast) for neurological disorders such as progressive multiple sclerosis (MS), amyotrophic lateral sclerosis (ALS), chemotherapy-induced peripheral neuropathy, degenerative cervical myelopathy, glioblastoma, and substance dependence and addiction (e.g., methamphetamine dependence, opioid dependence and alcohol dependence), and MN-001 (tipelukast) for fibrotic diseases such as nonalcoholic steatohepatitis (NASH) and idiopathic pulmonary fibrosis (IPF). The Company’s pipeline also includes MN-221 (bedoradrine) for the treatment of acute exacerbation of asthma and MN-029 (denibulin) for solid tumor cancers.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of MediciNova, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation.  

Segment Reporting

The Company operates in a single operating segment – the acquisition and development of small molecule therapeutics for the treatment of serious diseases with unmet medical needs.

Cash and Cash Equivalents

         Cash and cash equivalents consist of cash and other highly liquid investments including money market accounts.

Research, Development and Patents

Research and development costs are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, facilities and depreciation, research and development supplies, licenses and outside services. Such research and development costs totaled $1.1 million and $2.3 million for the three months ended September 30, 2019 and 2018, respectively. Research and development costs totaled $4.0 million and $5.2 million for each of the nine months ended September 30, 2019 and 2018, respectively.

Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. The Company includes all external costs related to the filing of patents on developments in Research, Development and

 

11


 

Patents expenses. Such patent-related expenses totaled $0.1 million for each of the three months ended September 30, 2019 and 2018, respectively and $0.3 million and $0.2 million for each of the nine months ended September 30, 2019 and 2018, respectively.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. The Company elected to not recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less and to not separate non-lease components from lease. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $0.4 million, lease liabilities for operating leases of approximately $0.4 million and a zero cumulative-effect adjustment to accumulated deficit, with no material impact to its consolidated statements of operations. See Note 4 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

In August 2018, the FASB ASU No. 2018-13, Fair Value Measurement (Topic 820), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires that changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculated for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. The Company does not expect the standard to have a material impact on its consolidated financial statements.

 

2. Revenue Recognition

Revenue Recognition Policy

Revenues consist mainly of research and development services performed under a contract with a customer. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an enforceable right to payment for performance completed to date.

Kissei Pharmaceutical Co., Ltd

In October 2011, the Company entered into a collaboration agreement with Kissei Pharmaceutical Co., Ltd., (“Kissei”), to perform research and development services relating to MN-221 (bedoradrine) in exchange for a non-refundable upfront payment of $2.5 million. Under the terms of the agreement, the Company is responsible for all costs to be incurred in the performance of these services. The Company assessed the services in accordance with the authoritative guidance and concluded that the two studies to be performed under the agreement represented two separate performance obligations. The transaction price was allocated among the two studies that were deemed separate performance obligations based on the expected costs to be incurred for each obligation. Revenue is recognized proportional to the total costs expected for each performance obligation as incurred over the service period. The first study was completed in 2013 and the timing of the second study is undetermined as of September 30, 2019. The amount received from Kissei and allocated, net of the amount recorded as revenue, is included on the balance sheet as long-term deferred revenue and will be recognized as revenue as the remaining performance obligation is satisfied. No revenue was recognized for the three and nine months ended September 30, 2019 and 2018 in connection with the collaboration agreement with Kissei.

 

12


 

3. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1: 

Observable inputs such as quoted prices in active markets;

 

 

Level 2: 

Inputs are quoted prices for similar items in active markets or quoted prices for identical or similar items in markets that are not active near the measurement date; and

 

 

Level 3: 

Unobservable inputs due to little or no market data, which require the reporting entity to develop its own assumptions.

Cash and cash equivalents, including money market accounts of $688,865 and $677,594 measured at fair value as of September 30, 2019 and December 31, 2018, respectively, are classified within Level 1 of the fair value hierarchy.

 

4. Leases

 

The Company has operating leases primarily for real estate in the United States and Japan. The United States lease is for the Company’s headquarters in San Diego and is for a term of four years and one month with a term date of December 31, 2021. The Company’s lease in Tokyo, Japan was renewed in May 2019 and has a term of two years with an auto-renewal, two-year extension. The real estate operating leases are included in "Other non-current assets" on the Company's balance sheet and represents the Company’s right to use the underlying assets for the lease term. The Company’s obligation to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's balance sheet. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of September 30, 2019, total right-of-use assets and operating lease liabilities were approximately $0.4 million and $0.5 million, respectively. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. The Company’s finance lease was deemed immaterial to the consolidated financial statements.

 

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

 

Information related to the Company's right-of-use assets and related lease liabilities are as follows:

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30, 2019

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Cash paid for operating lease liabilities

 

$

59,491

 

 

$

170,056

 

Operating lease costs

 

 

58,934

 

 

 

168,385

 

Right-of-use assets obtained in exchange for new operating lease obligations

 

 

31,877

 

 

 

534,605

 

 

Maturities of operating lease liabilities as of September 30, 2019 were as follows:

 

 

 

 

2019

 

$

59,947

 

2020

 

 

243,917

 

2021

 

 

190,592

 

 

 

 

494,456

 

Less imputed interest

 

 

(43,903

)

Total lease liabilities

 

$

450,553

 

 

 

 

 

 

Current operating lease liabilities

 

$

211,246

 

Non-current operating lease liabilities

 

 

239,307

 

Total operating lease liabilities

 

$

450,553

 

 

 

 

 

 

Weighted-average remaining lease term

 

 

2.05

 

Discount rate

 

 

8.8

%

 

 

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As of December 31, 2018, the total estimated future annual minimum lease payments under the Company’s non-cancelable building and copier leases for the years ending after December 31, 2018 are as follows:

 

Years ending December 31:

 

 

 

 

2019

 

$

182,847

 

2020

 

 

144,234

 

2021

 

 

149,951

 

2022

 

 

1,532

 

2023

 

 

1,404

 

Total minimum payments

 

$

479,968

 

5. Stock-based Compensation

Stock Incentive Plans

In June 2013, the Company adopted the 2013 Equity Incentive Plan (2013 Plan), under which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company or its subsidiaries. The 2013 Plan is the successor to the Company’s Amended and Restated 2004 Stock Incentive Plan (2004 Plan). A total of 7,200,000 shares of common stock are reserved for issuance under the 2013 Plan. In addition, “returning shares” that may become available from time to time are added back to the plan. “Returning shares” are shares that are subject to outstanding awards granted under the 2004 Plan that expire or terminate prior to exercise or settlement, are forfeited because of the failure to vest, are repurchased, or are withheld to satisfy tax withholding or purchase price obligations in connection with such awards. Although the Company no longer grants equity awards under the 2004 Plan, all outstanding stock awards granted under the 2004 Plan will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the 2004 Plan. As of September 30, 2019, 2,284,292 shares remain available for future grants under the 2013 Plan.

The Company occasionally issues employee performance-based stock options, the vesting of which is based on a determination made by the board of directors as to the achievement of certain corporate objectives at the end of the performance period. The grant date of such awards is the date on which the board of directors makes its determination. For periods preceding the grant date, the expense related to these awards is measured based on their fair value at each reporting date.

Stock Options

Options granted under the 2013 Plan and the 2004 Plan have terms of ten years from the date of grant and generally vest over a three or four year period. The exercise price of all options granted through September 30, 2019 and in 2018, was equal to the market value of the Company’s common stock on the date of grant.

A summary of stock option activity and related information as of September 30, 2019 is as follows:

 

 

 

Number of

Option Shares

 

 

Weighted Average

Exercise Price

 

 

Outstanding at December 31, 2018

 

 

6,609,647

 

 

$

4.61

 

 

Granted

 

 

1,337,000

 

 

 

9.67

 

 

Exercised

 

 

(1,015,454

)

 

 

4.04

 

 

Cancelled

 

 

(126,700

)

 

 

8.84

 

 

Outstanding at September 30, 2019

 

 

6,804,493

 

 

$

5.61

 

 

Exercisable at September 30, 2019

 

 

5,587,493

 

 

$

4.73

 

 

 

During the nine months ended September 30, 2019 and 2018, 1,015,454 and 125,391 options were exercised, from which the Company received gross proceeds of $4.1 million and $0.4 million, respectively.

Employee Stock Purchase Plan

Under the Company’s 2007 Employee Stock Purchase Plan (ESPP), 300,000 shares of common stock were originally reserved for issuance. In addition, the shares reserved automatically increase each year by a number equal to the lesser of: (i) 15,000 shares; (ii) 1% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such lesser amount as determined by the Board. The ESPP permits full-time employees to purchase common stock through payroll deductions (which

 

14


 

cannot exceed 15% of each employee’s compensation) at the lower of 85% of fair market value at the beginning of the offering period or the end of each six-month offering period. The ESPP is considered a compensatory plan and the Company records compensation expense included in the Company’s statement of operations.

For the nine months ended September 30, 2019, an aggregate of 3,942 shares were issued under the ESPP. As of September 30, 2019, there were 202,936 shares available for future issuance under the ESPP.

Compensation Expense

Stock-based compensation expense for stock option awards and ESPP shares are reflected in total operating expenses for each respective year.

The following table summarizes stock-based compensation expenses for the three and nine months ended September 30, 2018, respectively:

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Research, development and patents

 

$

91,089

 

 

$

1,380,311

 

 

$

1,424,737

 

 

$

2,348,337

 

General and administrative

 

 

282,755

 

 

 

3,347,949

 

 

 

3,491,121

 

 

 

5,733,560

 

Total stock-based compensation expense

 

$

373,844

 

 

$

4,728,260

 

 

$

4,915,858

 

 

$

8,081,897

 

The Company uses the Black-Scholes valuation model for determining the estimated fair value for stock-based awards granted to employees and stock purchased under the ESPP. The following table provides the assumptions used in the Black-Scholes valuation model used to estimate the fair value of options granted and stock purchased under the ESPP during the nine months ended September 30, 2019 and 2018, and to estimate the fair value of performance-based stock options as of September 30, 2019 and 2018.

 

 

 

Nine months ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

Stock Option assumptions:

 

 

 

 

 

 

 

 

Risk-free interest rate