Quarterly Report (10-q)

Date : 08/05/2019 @ 11:03AM
Source : Edgar (US Regulatory)
Stock : Minerva Neurosciences Inc (NERV)
Quote : 5.15  -0.12 (-2.28%) @ 7:28PM

Quarterly Report (10-q)

 

yahf

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                      to                      

Commission File No. 001-36517

 

Minerva Neurosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

26-0784194

(State or Other Jurisdiction of
Incorporation or Organization)

 

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

 

 

1601 Trapelo Road, Suite 286
Waltham, MA

 

02451

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 600-7373

 

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

NERV

The NASDAQ Global Market

The number of shares of Registrant’s Common Stock, $0.0001 par value per share, outstanding as of July 31, 2019 was 39,025,471.

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

 

 

 


 

INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

PART I — Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

4

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

 

4

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018

 

5

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2019 and 2018

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

21

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

29

Item 4.

 

Controls and Procedures

 

29

 

 

 

 

 

 

 

PART II — Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

Item 3.

 

Defaults Upon Senior Securities

 

31

Item 4.

 

Mine Safety Disclosures

 

31

Item 5.

 

Other Information

 

31

Item 6.

 

Exhibits

 

32

 

 

 

 

 

SIGNATURES

 

33

 

 

 

2


 

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to “Minerva,” “the Company,” “we,” “us,” and “our” refer to Minerva Neurosciences, Inc. and, where appropriate, its subsidiaries.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements reflect our plans, estimates and beliefs. These 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, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item IA, “Risk Factors.”

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

 

 

3


 

P ART I – Financial Information

Item 1 – Financial Statements

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

27,844,692

 

 

$

50,234,871

 

Marketable securities

 

41,448,613

 

 

 

37,762,439

 

Restricted cash

 

100,000

 

 

 

100,000

 

Prepaid expenses and other current assets

 

1,453,233

 

 

 

1,921,050

 

Total current assets

 

70,846,538

 

 

 

90,018,360

 

 

 

 

 

 

 

 

 

Equipment, net

 

24,744

 

 

 

33,478

 

Other noncurrent assets

 

14,808

 

 

 

14,808

 

Operating lease right-of-use assets

 

335,849

 

 

 

 

In-process research and development

 

34,200,000

 

 

 

34,200,000

 

Goodwill

 

14,869,399

 

 

 

14,869,399

 

Total assets

$

120,291,338

 

 

$

139,136,045

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

2,941,788

 

 

 

1,799,666

 

Accrued expenses and other current liabilities

 

4,485,605

 

 

 

1,809,532

 

Operating leases

 

161,602

 

 

 

 

Total current liabilities

 

7,588,995

 

 

 

3,609,198

 

Deferred taxes

 

4,057,488

 

 

 

4,057,488

 

Deferred revenue

 

41,175,600

 

 

 

41,175,600

 

Noncurrent operating leases

 

201,066

 

 

 

 

Other noncurrent liabilities

 

 

 

 

28,990

 

Total liabilities

 

53,023,149

 

 

 

48,871,276

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Preferred stock; $0.0001 par value; 100,000,000 shares authorized; none issued

   or outstanding as of June 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

Common stock; $0.0001 par value; 125,000,000 shares authorized; 39,025,471 and

   38,937,971 shares issued and outstanding as of June 30, 2019 and

   December 31, 2018, respectively

 

3,903

 

 

 

3,894

 

Additional paid-in capital

 

310,120,685

 

 

 

304,813,603

 

Accumulated deficit

 

(242,856,399

)

 

 

(214,552,728

)

Total stockholders’ equity

 

67,268,189

 

 

 

90,264,769

 

Total liabilities and stockholders’ equity

$

120,291,338

 

 

$

139,136,045

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

4


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

8,319,612

 

 

$

9,062,234

 

 

$

19,925,809

 

 

$

17,511,501

 

General and administrative

 

4,584,361

 

 

 

3,872,309

 

 

 

9,290,035

 

 

 

8,166,854

 

Total expenses

 

12,903,973

 

 

 

12,934,543

 

 

 

29,215,844

 

 

 

25,678,355

 

Loss from operations

 

(12,903,973

)

 

 

(12,934,543

)

 

 

(29,215,844

)

 

 

(25,678,355

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange (losses) gains

 

(6,718

)

 

 

29,274

 

 

 

(13,031

)

 

 

11,165

 

Investment income

 

434,220

 

 

 

411,542

 

 

 

925,204

 

 

 

825,849

 

Interest expense

 

 

 

 

(35,781

)

 

 

 

 

 

(106,430

)

Net loss

$

(12,476,471

)

 

$

(12,529,508

)

 

$

(28,303,671

)

 

$

(24,947,771

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

$

(0.32

)

 

$

(0.32

)

 

$

(0.73

)

 

$

(0.64

)

Weighted average shares outstanding, basic and diluted

 

39,025,471

 

 

 

38,749,343

 

 

 

38,996,949

 

 

 

38,749,343

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

5


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-In Capital

 

 

Deficit

 

 

Total

 

Balances at January 1, 2018

 

38,749,343

 

 

$

3,875

 

 

$

295,975,010

 

 

$

(164,381,441

)

 

$

131,597,444

 

Stock-based compensation

 

 

 

 

 

 

 

2,113,936

 

 

 

 

 

 

2,113,936

 

Net loss

 

 

 

 

 

 

 

 

 

 

(12,418,263

)

 

 

(12,418,263

)

Balances at March 31, 2018

 

38,749,343

 

 

 

3,875

 

 

 

298,088,946

 

 

 

(176,799,704

)

 

 

121,293,117

 

Stock-based compensation

 

 

 

 

 

 

 

1,897,873

 

 

 

 

 

 

1,897,873

 

Net loss

 

 

 

 

 

 

 

 

 

 

(12,529,508

)

 

 

(12,529,508

)

Balances at June 30, 2018

 

38,749,343

 

 

$

3,875

 

 

$

299,986,819

 

 

$

(189,329,212

)

 

$

110,661,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2019

 

38,937,971

 

 

$

3,894

 

 

$

304,813,603

 

 

$

(214,552,728

)

 

$

90,264,769

 

Exercise of stock options

 

87,500

 

 

 

9

 

 

 

524,991

 

 

 

 

 

 

525,000

 

Stock-based compensation

 

 

 

 

 

 

 

2,461,699

 

 

 

 

 

 

2,461,699

 

Net loss

 

 

 

 

 

 

 

 

 

 

(15,827,200

)

 

 

(15,827,200

)

Balances at March 31, 2019

 

39,025,471

 

 

 

3,903

 

 

 

307,800,293

 

 

 

(230,379,928

)

 

 

77,424,268

 

Stock-based compensation

 

 

 

 

 

 

 

2,320,392

 

 

 

 

 

 

2,320,392

 

Net loss

 

 

 

 

 

 

 

 

 

 

(12,476,471

)

 

 

(12,476,471

)

Balances at June 30, 2019

 

39,025,471

 

 

$

3,903

 

 

$

310,120,685

 

 

$

(242,856,399

)

 

$

67,268,189

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

6


 

MINERVA NEUROSCIENCES,  INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(28,303,671

)

 

$

(24,947,771

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

8,734

 

 

 

8,734

 

Amortization of debt discount recorded as interest expense

 

 

 

 

36,638

 

Accretion of marketable securities premium

 

(501,227

)

 

 

(82,869

)

Amortization of right-of-use assets

 

70,143

 

 

 

 

Stock-based compensation expense

 

4,782,091

 

 

 

4,011,809

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

452,516

 

 

 

(1,930,254

)

Accounts payable

 

1,142,122

 

 

 

(125,793

)

Accrued expenses and other current liabilities

 

2,676,073

 

 

 

871,614

 

Operating lease liabilities, current

 

26,052

 

 

 

 

Other noncurrent liabilities

 

 

 

 

790

 

Operating lease liabilities, noncurrent

 

(83,065

)

 

 

 

Net cash used in operating activities

 

(19,730,232

)

 

 

(22,157,102

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from the maturity and redemption of marketable securities

 

30,000,000

 

 

 

75,351,000

 

Purchase of marketable securities

 

(33,184,947

)

 

 

(7,934,482

)

Net cash (used in) provided by investing activities

 

(3,184,947

)

 

 

67,416,518

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

525,000

 

 

 

 

Repayments of notes payable

 

 

 

 

(2,602,632

)

Net cash provided by (used in) financing activities

 

525,000

 

 

 

(2,602,632

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

(22,390,179

)

 

 

42,656,784

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

Beginning of period

 

50,334,871

 

 

 

26,131,821

 

End of period

$

27,944,692

 

 

$

68,788,605

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

$

 

 

$

85,082

 

Reconciliation of the Condensed Consolidated Statements of Cash Flows to the

   Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

Cash and cash equivalents

$

27,844,692

 

 

$

68,688,605

 

Restricted cash

 

100,000

 

 

 

100,000

 

Total cash, cash equivalents and restricted cash

$

27,944,692

 

 

$

68,788,605

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

7


 

MINERVA NEUROSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

As of June 30, 2019 and for the Six Months Ended June 30, 2019 and 2018

(Unaudited)

 

NOTE 1 — NATURE OF OPERATIONS AND LIQUIDITY

Nature of Operations

Minerva Neurosciences, Inc. (“Minerva” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system diseases. The Company has acquired or in-licensed four development-stage proprietary compounds that it believes have innovative mechanisms of action and therapeutic profiles that may potentially address the unmet needs of patients with these diseases. The Company’s lead product candidate is roluperidone (also known as MIN-101), a compound the Company is developing for the treatment of schizophrenia. In addition, the Company’s portfolio includes seltorexant (also known as MIN-202 or JNJ-42847922), a compound the Company is co-developing with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and major depressive disorder (“MDD”); MIN-117, a compound the Company is developing for the treatment of MDD; and MIN-301, a compound the Company is developing for the treatment of Parkinson’s disease.

In November 2013, the Company merged with Sonkei Pharmaceuticals Inc. (“Sonkei”), a clinical-stage biopharmaceutical company and, in February 2014, the Company acquired Mind-NRG, a pre-clinical-stage biopharmaceutical company. The Company refers to these transactions as the Sonkei Merger and Mind-NRG Acquisition, respectively. The Company holds licenses to roluperidone and MIN-117 from Mitsubishi Tanabe Pharma Corporation (“MTPC”) with the rights to develop, sell and import roluperidone and MIN-117 globally, excluding most of Asia. With the acquisition of Mind-NRG, the Company obtained exclusive rights to develop and commercialize MIN-301. The Company has also entered into a co-development and license agreement with Janssen, for the exclusive right to commercialize, and the co-exclusive right (with Janssen and its affiliates) to use and develop, seltorexant in the European Union, Switzerland, Liechtenstein, Iceland and Norway (the “Minerva Territory”), subject to certain royalty payments to Janssen, and royalty rights for any sales outside the Minerva Territory.

Liquidity

The accompanying financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has limited capital resources and has incurred recurring operating losses and negative cash flows from operations since inception. As of June 30, 2019, the Company has an accumulated deficit of approximately $242.9 million and net cash used in operating activities was approximately $19.7 million during the six months ended June 30, 2019. Management expects to continue to incur operating losses and negative cash flows from operations. The Company has financed its operations to date from proceeds from the sale of common stock, warrants, loans and convertible promissory notes.

 

As of June 30, 2019, the Company had cash, cash equivalents, marketable securities, and restricted cash of $69.4 million. The Company believes that its existing cash, cash equivalents, restricted cash and marketable securities will be sufficient to meet its cash commitments for at least the next 12 months after the date that the interim condensed financial statements are issued. The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research and development programs, the infrastructure to support a commercial enterprise, the cost of a commercial product launch and the level of financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials which will be predicated upon adequate funding to complete the trials.

The Company will need to raise additional capital in order to continue to fund operations and fully fund later stage clinical development programs. The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund future operations; however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

 

8


 

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and the requirements of the Securities and Exchange Commission (“SEC”) in accordance with Regulation S-X, Rule 10-01. Under those rules, certain notes and financial information that are normally required for annual financial statements can be condensed or omitted. In the opinion of the Company’s management, the accompanying financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of June 30, 2019, the results of operations for the three and six months ended June 30, 2019 and 2018 and cash flows for the six months ended June 30, 2019 and 2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The consolidated balance sheet as of December 31, 2018 was derived from the audited annual financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2019.

Consolidation

The accompanying consolidated financial statements include the results of the Company and its wholly-owned subsidiaries, Mind-NRG Sarl and Minerva Neurosciences Securities Corporation. Intercompany transactions have been eliminated.

Significant risks and uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

Use of estimates

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

Cash and cash equivalents

Cash equivalents include short-term, highly-liquid instruments, consisting of money market accounts and short-term investments with maturities from the date of purchase of 90 days or less. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand which reduces counterparty performance risk.

9


 

Marketable securitie s

Marketable securities consists of corporate and U.S. government debt securities maturing in 5.50 months or less. Based on the Company’s intentions regarding its marketable securities, all marketable securities are classified as held-to-maturity and are carried under the amortized cost approach. The Company’s investments in marketable securities are classified as Level 2 within the fair value hierarchy. As of June 30, 2019, remaining final maturities of marketable securities ranged from July 2019 to December 2019, with a weighted average remaining maturity of approximately 2 months. The following table provides the amortized cost basis, aggregate fair value, unrealized gains/losses, and the net carrying value of investments in held-to-maturity securities as of June 30, 2019:

 

 

June 30, 2019

 

 

Amortized

 

 

Aggregate

 

 

Unrealized

 

 

Unrealized

 

 

Net Carrying

 

 

Cost

 

 

Fair Value

 

 

Gains

 

 

Losses

 

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds/notes

$

5,836,239

 

 

$

5,843,128

 

 

$

 

 

$

(6,889

)

 

$

5,836,239

 

Commercial paper

 

21,903,104

 

 

 

21,903,104

 

 

 

 

 

 

 

 

$

21,903,104

 

U.S. government agency securities

 

11,978,768

 

 

 

11,981,760

 

 

 

 

 

 

(2,992

)

 

$

11,978,768

 

Foreign bonds

 

1,730,502

 

 

 

1,732,058

 

 

 

 

 

 

(1,556

)

 

$

1,730,502

 

Marketable securities current total

$

41,448,613

 

 

$

41,460,050

 

 

$

 

 

$

(11,437

)

 

$

41,448,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Amortized

 

 

Aggregate

 

 

Unrealized

 

 

Unrealized

 

 

Net Carrying

 

 

Cost

 

 

Fair Value

 

 

Gains

 

 

Losses

 

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds/notes

$

16,054,071

 

 

$

16,050,462

 

 

$

3,609

 

 

$

 

 

$

16,054,071

 

Commercial paper

 

17,756,394

 

 

 

17,756,394

 

 

 

 

 

 

 

 

 

17,756,394

 

U.S. government agency securities

 

3,951,974

 

 

 

3,951,040

 

 

 

934

 

 

 

 

 

 

3,951,974

 

Marketable securities current total

$

37,762,439

 

 

$

37,757,896

 

 

$

4,543

 

 

$

 

 

$

37,762,439

 

 

Restricted cash

Cash accounts with any type of restriction are classified as restricted. The Company maintained restricted cash balances as collateral for corporate credit cards in the amount of $0.1 million at June 30, 2019 and December 31, 2018.

 

Research and development costs

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. The Company determines expenses related to clinical studies based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some trials may be recognized on a straight-line basis if the anticipated costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expenses.

 

In-process research and development

In-process research and development (“IPR&D”) assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition date fair values. The initial fair value of the research projects are recorded as intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use.

10


 

The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of research and development efforts associated with the project. An IPR&D asset is considered abandoned when it ceases to be used (that is, research and development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive defensive value from the asset). At t hat point, the asset is considered to be disposed of and is written off. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization. The Company test s its indefinite-lived intangibles, IPR&D assets, for impairment annually on November 30 and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. When testing indefinite-lived intangible s for impairment, the Company may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the asset is impaired. Alternatively, the Company may byp ass this qualitative assessment for some or all of its indefinite-lived intangibles and perform the quantitative impairment test that compares the fair value of the indefinite-lived intangible asset with the asset’s carrying amount. There was no impairment of IPR&D for the three and six months ended June 30, 2019 or 2018.

Stock-based compensation

The Company recognizes compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. The Company determines the fair value of stock-based awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate fair value. The method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield, actual forfeiture rate and expected life of the options. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the Company’s common stock on the date of grant.

The date of expense recognition for grants to non-employees is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instrument is reached or the date at which the counterparty’s performance is complete. The Company determines the fair value of stock-based awards granted to non-employees similar to the way fair value of awards are determined for employees except that certain assumptions used in the Black-Scholes option-pricing model, such as expected life of the option, may be different.

Foreign currency transactions

The Company’s functional currency is the U.S. Dollar. The Company pays certain vendor invoices in the respective foreign currency. The Company records an expense in U.S. Dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date an expense is recorded and the payment date is recorded as a foreign currency gain or loss.

Loss per share

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. The treasury stock method is used to determine the dilutive effect of the Company’s stock options and warrants. The Company had a net loss in all periods presented, thus the inclusion of stock options and warrants would be anti-dilutive to net loss per share.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and marketable securities. The Company maintains its cash and cash equivalent balances in the form of business checking accounts and money market accounts, the balances of which, at times, may exceed federally insured limits. Exposure to cash and cash equivalents credit risk is reduced by placing such deposits with major financial institutions and monitoring their credit ratings. Marketable securities consist primarily of corporate bonds, with fixed interest rates. Exposure to credit risk of marketable securities is reduced by maintaining a diverse portfolio and monitoring their credit ratings.

Equipment

Equipment is stated at cost less accumulated depreciation. Equipment is depreciated on the straight-line basis over their estimated useful lives of three years. Expenditures for maintenance and repairs are charged to expense as incurred.

 

11


 

Lease s

 

Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), using the required modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.

 

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in the Company’s leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term and in a similar economic environment. In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.

 

In accordance with ASC 842, components of a lease should be allocated between lease components (e.g., land, building, etc.) and non-lease components (e.g., common area maintenance, consumables, etc.). The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

 

Although separation of lease and non-lease components is required, certain expedients are available. Entities may elect the practical expedient to not separate lease and non-lease components by class of underlying asset where entities would account for each lease component and the related non-lease component together as a single component. For new and amended leases beginning in 2019 and after, the Company has elected to account for the lease and non-lease components for leases for classes of all underlying assets and allocate all of the contract consideration to the lease component only.

Long-lived assets

The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. If required, the Company compares the estimated undiscounted future net cash flows to the related asset’s carrying value to determine whether there has been an impairment. If an asset is considered impaired, the asset is written down to fair value, which is based either on discounted cash flows or appraised values in the period the impairment becomes known. The Company believes that all long-lived assets are recoverable, and no impairment was deemed necessary at June 30, 2019 and 2018.

Goodwill

The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its reporting unit’s carrying value to its fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. The Company tests its goodwill for impairment as of November 30. There was no impairment of goodwill for the six months ended June 30, 2019 and 2018.

 

12


 

Revenue recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers . Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable, and collectability is reasonably assured. The Company is a development stage company and has had no revenues from product sales to date.

When the Company enters into an arrangement that meets the definition of a collaboration under ASC 808, Collaborative Arrangements , the Company recognizes revenue as research and development is performed and its respective share of the expenses are incurred. The Company assesses whether the arrangement contains multiple elements or deliverables, which may include (1) licenses to the Company's technology, (2) research and development activities performed for the collaboration partner, and (3) participation on Joint Steering Committees. Payments may include non-refundable, upfront payments, milestone payments upon achieving significant development events, and royalties on future sales. Each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-alone value” to the customer. The arrangement’s consideration is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling price, and (iii) best estimate of selling price. The best estimate of selling price reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold by the Company on a stand-alone basis. The consideration allocated to each unit of accounting is then recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. Supply or service transactions may involve the charge of a nonrefundable initial fee with subsequent periodic payments for future products or services. The up-front fees, even if nonrefundable, are recognized as revenue as the products and/or services are delivered and performed over the term of the arrangement.

Deferred revenue

The Company applies the revenue recognition guidance in accordance with ASC 606. Using ASC 606, revenue that is unearned is deferred. Deferred revenue that is expected to be recognized as revenue more than one year subsequent to the balance sheet date is classified as long-term deferred revenue.

Segment information

Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) about which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief decision maker, who is the Chief Executive Officer, reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company views its operations and manages its business as one operating segment.

Comprehensive loss

The Company had no items of comprehensive loss other than its net loss for each period presented.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the FASB and are adopted by the Company as of the specified effective date.

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases . 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. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The Company adopted ASC 842 on January 1, 2019 using a cumulative-effect adjustment on the effective date of the standard, for which comparative periods are presented in accordance with the previous guidance in ASC 840.

 

13


 

In adopting ASC 842, the Com pany elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard, which did not require the reassessment of the following: (i) whether existing or expired arrangements are or contain a le ase, (ii) the lease classification of existing or expired leases, and (iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. Additionally, the Company made an accounting policy election to exclude leases with a term of 12 months or less from its balance sheet.

 

The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $0.4 million and $0.4 million, respectively, on the Company’s balance sheet relating to its leases for its corporate headquarters at 1601 Trapelo Road, Suite 286, Waltham, MA 02451. The adoption of the standard did not have a material effect on the Company’s condensed consolidated statements of operation and comprehensive loss or condensed consolidated statements of cash flows.

 

Refer to Note 10 – Leases , for the Company’s current lease commitments.

In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities. The new standard is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company adopted the new standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting . The new standard is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. This update expands the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new standard supersedes Subtopic 505-50, Equity-Equity-Based payments to Non-Employees . The update is effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers . The Company adopted the new standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting pronouncements not yet adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350). The new standard simplifies the test for goodwill impairment. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated financial statements.

 

NOTE 3 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

 

 

June 30,

2019

 

 

December 31,

2018

 

Research and development costs and other accrued

   expenses

$

2,879,894

 

 

$

1,353,987

 

Accrued bonus

 

935,697

 

 

 

 

Professional fees

 

586,850

 

 

 

455,545

 

Vacation pay

 

83,164

 

 

 

 

 

$

4,485,605

 

 

$

1,809,532

 

 

 

14


 

NOTE 4 — NET LOSS PER SHARE OF COMMON STOCK

Diluted loss per share is the same as basic loss per share for all periods presented as the effects of potentially dilutive items were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. The following table sets forth the computation of basic and diluted loss per share for common stockholders:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

$

(12,476,471

)

 

$

(12,529,508

)

 

$

(28,303,671

)

 

$

(24,947,771

)

Weighted average shares of

   common stock outstanding

 

39,025,471

 

 

 

38,749,343

 

 

 

38,996,949

 

 

 

38,749,343

 

Net loss per share of common

   stock – basic and diluted

$

(0.32

)

 

$

(0.32

)

 

$

(0.73

)

 

$

(0.64

)

 

The following securities outstanding at June 30, 2019 and 2018 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of loss per share is antidilutive:

 

 

June 30,

 

 

2019

 

 

2018

 

Common stock options

 

8,508,672

 

 

 

6,655,150

 

Restricted stock units

 

127,300

 

 

 

185,950

 

Common stock warrants

 

40,790

 

 

 

40,790

 

 

 

NOTE 5 — DEBT

Loan and security agreement

On January 16, 2015, the Company entered into a Loan and Security Agreement (as amended, the “Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and, together with Oxford, the “Lenders”), providing for term loans to the Company in an aggregate principal amount of up to $15 million, in two tranches (the “Term Loans”).

The Company drew down the initial Term Loans in the aggregate principal amount of $10 million (the “Term A Loans”), on January 16, 2015. The Term A Loans bore interest at a fixed rate of 7.05% per annum. The Company believes that the Company's debt obligations accrued interest at rates which approximated prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximated fair value.

The Company paid a facility fee at the time of borrowing of $75 thousand for access to the Term Loans and paid a final payment of $510 thousand in August 2018, representing 5.1% of the total amount borrowed, which has been included as a component of the debt discount and was amortized to interest expense over the term of the loans. The Term Loans matured on August 1, 2018 and the Company made a final repayment in the amount of $510 thousand on such date. As of June 30, 2019, the Company had no borrowings outstanding under the Term Loans.

For the three months ended June 30, 2019 and 2018, the Company recognized interest expense of zero and $43 thousand, respectively, including zero and $12 thousand , respectively, related to the debt discount. For the six months ended June 30, 2019 and 2018, the Company recognized interest expense of zero and $0.1 million respectively, including zero and $37 thousand, respectively, related to the debt discount.

15


 

NOTE 6 — CO-DEVELOPMENT AND LICENSE AGREEMENT

On February 13, 2014, the Company signed a co-development and license agreement (the “Agreement”) with Janssen, which became effective upon completion of the Company’s initial public offering and provided for the payment of a $22.0 million license fee by the Company. Under the Agreement, Janssen, the licensor, granted the Company an exclusive license, with the right to sublicense, in the Minerva Territory, under (i) certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right as an active ingredient, and (ii) seltorexant for any use in humans. In addition, upon regulatory approval in the Minerva Territory (and earlier if certain default events occur), the Company will have rights to manufacture seltorexant, also known as JNJ-42847922. The Company has granted to the licensor an exclusive license, with the right to sublicense, under all patent rights and know-how controlled by the Company covering selective antagonists of orexin-2 receptors, including seltorexant, to sell those compounds outside the Minerva Territory. In consideration of the licenses granted on July 7, 2014, the Company made a license fee payment of $22.0 million, which was included as a component of research and development expense in 2014.

The Company accounts for the Agreement as a joint risk-sharing collaboration in accordance with ASC 808, Collaborative Arrangements . Payments between the Company and the licensor with respect to each party’s share of seltorexant development costs that have been incurred pursuant to the joint development plan are recorded within research and development expenses or general and administrative expenses, as applicable, in the accompanying consolidated statements of operations due to the joint risk-sharing nature of the activities.

On July 6, 2016, the Company and Janssen agreed that “Decision Point 2” had been reached as defined under the Agreement. As neither party exercised their right to withdraw from the Agreement, the Company paid Janssen $3.5 million and has incurred direct expenses of $0.3 million related to development activities under the current phase of development. During the three and six months ended June 30, 2019 and 2018, the Company recorded an expense of zero for certain development activities in accordance with the terms of the Agreement.

In June 2017, the Company entered into an amendment (“the Amendment”) to the Agreement. The effectiveness of the Amendment was contingent upon approval of its terms by the European Commission and the closing of the acquisition of Actelion Ltd. by affiliates of Janssen. These conditions were subsequently met, and the Amendment became effective on August 29, 2017. Under the Amendment, Janssen has waived its right to royalties on seltorexant insomnia sales in the Minerva Territory. The Company retains all of its rights to seltorexant, including commercialization of the molecule for the treatment of insomnia and as an adjunctive therapy for MDD, which include an exclusive license in the Minerva Territory, with royalties payable by the Company to Janssen on seltorexant sales outside of the insomnia indication. Royalties on sales outside of the Minerva Territory are payable by Janssen to the Company. Janssen made an upfront payment to the Company of $30 million upon the effectiveness of the Amendment and agreed to make a $20 million payment at the start of a Phase 3 insomnia trial for seltorexant and a $20 million payment when 50% of the patients are enrolled in this trial. Janssen further agreed to waive development payments from the Company until completion of the Phase 2b development milestone. This milestone is referred to as “Decision Point 4”. Completion of the current Phase 2b studies is expected to occur in the second half of 2019. The $30 million payment and $11.2 million in previously accrued collaborative expenses, which were forgiven upon the effective date of the Amendment, are earned and recognized as revenue as the services are performed from the commencement of Phase 3 development to the completion of the development activities using the proportional performance method. The $30 million payment along with the $11.2 million in previously accrued collaborative expenses have been included under deferred revenue on the Company’s balance sheet at June 30, 2019 and December 31, 2018. In connection with the Amendment, the Company repurchased all of the approximately 3.9 million shares of its common stock previously owned by Johnson & Johnson Innovation-JJDC Inc. at a per share price of $0.0001, for an aggregate purchase price of approximately $389.

As a result of the Amendment, the Company assumed strategic control of matters relating to the clinical development of seltorexant for insomnia and has no further financial obligations until after Decision Point 4. After Decision Point 4, both the Company and Janssen have the right to opt-out of the Agreement.

If the Company opts-out, it collects a royalty on worldwide sales of seltorexant in the single digits with no further obligations to Janssen. If Janssen opts-out, the Minerva Territory would be expanded to include North America and the Company would pay Janssen single digit royalties on sales of seltorexant outside of the insomnia indication.

If both parties elect to continue past Decision Point 4 into Phase 3, the Company would be obligated to fund the clinical trials related to insomnia, receive up to $40 million in milestone payments from Janssen, and be responsible for 40% of all costs incurred in the Phase 3 MDD program.

16


 

The Company determined that the license under the Amendment is not considered to be a separate deliverable as it contains no value without the development activities performed under the Agreement. The participation in the joint steering committee under the Amendment is consider ed to be not separable from the development activities and therefore the two deliverables are combined into a single unit of account. The Company concluded that the milestone payments are related to future performance obligations and will be recognized as those performance obligations are performed by the Company. Similarly, the Company will recognize royalty revenues in the periods of the sale of the related products, provided that no future performance obligations exist and revenue recognition is limited to amounts for which it is probable that a significant reversal will not occur.

NOTE 7 — STOCKHOLDERS’ EQUITY

Term loan warrants

In connection with the Loan Agreement, the Company issued the Lenders warrants to purchase shares of its common stock upon its draw of each tranche of the Term Loans (see Note 5). The aggregate number of shares of common stock issuable upon exercise of the warrants is equal to 2.25% of the amount drawn of such tranche, divided by the average closing price per share of the Company’s common stock reported on the Nasdaq Global Market for the 10 consecutive trading days prior to the applicable draw. Upon the draw of the Term A Loans, the Company issued the Lenders warrants to purchase 40,790 shares of common stock at a per share exercise price of $5.516. The warrants are immediately exercisable upon issuance, and other than in connection with certain mergers or acquisitions, will expire on the ten-year anniversary of the date of issuance. The fair value of the warrants was estimated at $0.2 million using a Black-Scholes model and assuming: (i) expected volatility of 100.8%, (ii) risk free interest rate of 1.83%, (iii) an expected life of 10 years and (iv) no dividend payments. The fair value of the warrants was included as a discount to the Term A Loans and also as a component of additional paid-in capital and will be amortized to interest expense over the term of the loan. All such warrants were outstanding as of June 30, 2019.

 

NOTE 8 — STOCK AWARD PLAN AND STOCK-BASED COMPENSATION

In December 2013, the Company adopted the 2013 Equity Incentive Plan (as subsequently amended and restated, the “Plan”), which provides for the issuance of options, stock appreciation rights, stock awards and stock units. On January 1, 2018, in accordance with the terms of the Plan , the total shares authorized for issuance under the plan increased by 750,000 to 6,531,333. This increase represents the lesser of 750,000 shares or 4% of the total shares outstanding calculated as of the end of the most recent fiscal year. The exercise price per share shall not be less than the fair value of the Company’s underlying common stock on the grant date and no option may have a term in excess of ten years. Further, pursuant to Nasdaq listing rules, the Company issued inducement awards in December 2017 outside of the Plan in the form of an option to purchase 775,000 shares of the Company’s common stock and a restricted stock unit award to purchase 40,000 shares of the Company’s common stock. In June 2018, the Company increased the aggregate number of shares of common stock authorized for issuance under the Plan by 2,500,000 shares. Stock option activity for employees and non-employees for the six months ended June 30, 2019 is as follows:

 

 

 

Shares Issuable

Pursuant to Stock

Options

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual

Term (Years)

 

 

Total

Intrinsic Value

(in thousands)

 

Outstanding January 1, 2019

 

 

8,498,047

 

 

$

6.99

 

 

8.1

 

 

$

5,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

140,000

 

 

$

5.11

 

 

 

 

 

 

 

 

 

Exercised

 

 

(87,500

)

 

$

6.00

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(41,875

)

 

$

6.49

 

 

 

 

 

 

 

 

 

Outstanding June 30, 2019

 

 

8,508,672

 

 

$

6.97

 

 

 

7.6

 

 

$

945

 

Exercisable June 30, 2019

 

 

4,397,446

 

 

$

6.48

 

 

6.4

 

 

$

793

 

Available for future grant

 

 

671,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The weighted average grant-date fair value of stock options outstanding on June 30, 2019 was $5.14 per share. Total unrecognized compensation costs related to non-vested stock options at June 30, 2019 was approximately $19.5 million and is expected to be recognized within future operating results over a weighted-average period of 2.79 years. The total intrinsic value of the options exercised during the six months ended June 30, 2019 was approximately $0.2 million. No options were exercised during the six months ended June 30, 2018.

The expected term of the employee-related options was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment . The volatility assumption was determined by examining the historical volatilities

17


 

for industry peer companies, as the Company did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury i nstruments whose term was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate payi ng dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.

The Company uses the Black-Scholes model to estimate the fair value of stock options granted. For stock options granted to employees during the six months ended June 30, 2019 and 2018, the Company utilized the following assumptions:

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Expected term (years)

 

5.5

 

 

5.5-6.25

 

Risk free interest rate

 

1.91-1.96%

 

 

2.33-2.80%

 

Volatility

 

74-77%

 

 

76-83%

 

Dividend yield

 

0%

 

 

0%

 

Weighted average grant date fair value per share of

   common stock

 

$

3.26

 

 

$

4.66

 

 

The Company from time to time grants options to purchase common stock to non-employees for services rendered and records expense ratably over the vesting period of each award. The Company estimates the fair value of the stock options using the Black-Scholes valuation model at each reporting date. The Company granted zero stock options to non-employees and recorded stock-based compensation expense of $0.3 million during the six months ended June 30, 2019. The Company granted 40,000 stock options to non-employees and recorded stock-based compensation expense of $0.5 million during the six months ended June 30, 2018.

For stock options granted to non-employees, the Company utilized the following assumptions:

 

 

 

June 30,

 

 

 

2019 (1)

 

 

2018

 

Expected term (years)

 

 

 

 

8.2-9.6

 

Risk free interest rate

 

 

 

 

2.46-2.84%

 

Volatility

 

 

 

 

83-110%

 

Dividend yield

 

 

 

 

0%

 

Weighted average reporting date fair value per share of

   common stock

 

 

 

 

$

7.35

 

 

 

(1)

There were no stock options granted to non-employees during the six months ended June 30, 2019.

RSU activity under the Plan for the six months ended June 30, 2019 is as follows:

 

 

 

 

 

 

 

Weighted-

Average

 

 

 

 

 

 

 

Grant Date

 

 

 

RSUs

 

 

Fair Value

 

Unvested January 1, 2019

 

 

127,300

 

 

$

11.71

 

Granted

 

 

 

 

$

 

Vested

 

 

 

 

$

 

Forfeited

 

 

 

 

$

 

Unvested June 30, 2019

 

 

127,300

 

 

$

11.71

 

18


 

RSUs awarded to employees generally vest one-fourth per year over four years from the anniversary of the date of grant, provided the employee remains continuously employed with the Company. Shares of the Company’s stock are delivered to the employee upon vesting, subject to payment of applicable withholding taxes. The fair value o f RSUs is equal to the closing price of the Company’s common stock on the date of grant. Total unrecognized compensation costs related to non-vested RSUs at June 30, 2019 was approximately $1.1 million and is expected to be recognized within future operati ng results over a period of 1.59 years. The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Research and development

 

$

653,718

 

 

$

584,719

 

 

$

1,353,981

 

 

$

1,108,865

 

General and administrative

 

 

1,666,674

 

 

 

1,313,154

 

 

 

3,428,110

 

 

 

2,902,944

 

Total

 

$

2,320,392

 

 

$

1,897,873

 

 

$

4,782,091

 

 

$

4,011,809

 

 

NOTE 9 — COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of the Company’s business activities. At this time, the Company is not aware of any such legal proceedings or claims. The Company is not aware of any claim or litigation, the outcome of which, if determined adversely to the Company, would have a material effect on the Company’s financial position or results of operations

Refer to Note 10 – Leases, for the Company’s current lease commitments.

NOTE 10 — LEASES

 

Operating leases

On October 2, 2017, the Company entered into an office sublease agreement (the “Sublease”) with Profitect, Inc. (the “Sublandlord”) to sublease approximately 5,923 rentable square feet of office space located at 1601 Trapelo Road, Waltham, MA 02451 (the “Premises”). The term of the Sublease began on November 1, 2017 and will expire on July 31, 2021 (the “Term”), with a monthly rental rate starting at $14,808 and escalating to a maximum monthly rental rate of $16,288 in the final 12 months of the Term. The Sublandlord provided the Premises to the Company free of charge for the first two months of the Term. The Company will recognize the remaining expense on a straight-line basis over the remaining Term.

 

Throughout the Term, the Company is responsible for paying certain costs and expenses, in addition to the rent, as specified in the
Sublease, including a proportionate share of applicable taxes, operating expenses and utilities. In applying the ASC 842 transition guidance, the Company retained the classification of this Sublease as operating and recorded a lease liability and a right-of-use asset on the ASC 842 effective date.

The following table contains a summary of the Sublease costs recognized under ASC 842 and other information pertaining to the Company’s operating Sublease for the six months ended June 30, 2019:

 

 

 

Six Months Ended

 

 

 

June 30, 2019

 

Sublease cost

 

 

 

 

Operating Sublease cost

 

$

89,635

 

Total Sublease cost

 

$

89,635

 

 

 

 

 

 

Other information

 

 

 

 

Operating cash flows used for operating Sublease

 

$

76,505

 

Weighted average remaining Sublease term

 

2.1 years

 

Weighted average discount rate

 

10%

 

 

19


 

Future minimum Sublease payments under the Company’s non-cancelable operating Sublease as of June 30, 2019, are as follows:

 

Future Operating Sublease Payments

 

Waltham

 

2019 (excluding the six months ended June 30, 2019)

 

$

94,274

 

2020

 

 

192,004