|
ITEM 1.
|
FINANCIAL STATEMENTS (UNAUDITED)
|
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,270,823
|
|
|
$
|
5,560,716
|
|
Marketable investment securities
|
|
|
16,408,750
|
|
|
|
21,279,570
|
|
Accrued interest income
|
|
|
9,256
|
|
|
|
38,943
|
|
Prepaid and other current assets
|
|
|
453,446
|
|
|
|
329,548
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
26,142,275
|
|
|
|
27,208,777
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $1,113,988 and $1,092,710, respectively
|
|
|
82,162
|
|
|
|
103,440
|
|
Other assets
|
|
|
30,753
|
|
|
|
30,753
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
26,255,190
|
|
|
$
|
27,342,970
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
803,819
|
|
|
$
|
245,915
|
|
Accrued expenses
|
|
|
1,680,315
|
|
|
|
1,080,254
|
|
Total current liabilities
|
|
|
2,484,134
|
|
|
|
1,326,169
|
|
Total liabilities
|
|
|
2,484,134
|
|
|
|
1,326,169
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 5, 7, 8 and 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; zero issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.0001 per share, 100,000,000 shares authorized; 21,185,817 and 18,462,325 issued and 21,180,107 and 18,456,615 outstanding
|
|
|
2,119
|
|
|
|
1,846
|
|
Additional paid-in capital
|
|
|
144,878,419
|
|
|
|
131,481,123
|
|
Treasury stock at cost, 5,710 shares
|
|
|
(40,712
|
)
|
|
|
(40,712
|
)
|
Accumulated other comprehensive loss
|
|
|
(533
|
)
|
|
|
(8,493
|
)
|
Accumulated deficit
|
|
|
(121,068,237
|
)
|
|
|
(105,416,963
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
23,771,056
|
|
|
|
26,016,801
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
26,255,190
|
|
|
$
|
27,342,970
|
|
See accompanying notes to
unaudited condensed consolidated financial statements
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
and Comprehensive Loss
(Unaudited)
|
|
Three Months Ending September 30,
|
|
|
Nine Months Ending September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,046,533
|
|
|
$
|
1,506,581
|
|
|
$
|
9,237,169
|
|
|
$
|
6,747,673
|
|
General and administrative
|
|
|
2,719,526
|
|
|
|
1,394,406
|
|
|
|
6,578,423
|
|
|
|
9,038,837
|
|
Restructuring costs
|
|
|
-
|
|
|
|
385,233
|
|
|
|
-
|
|
|
|
385,233
|
|
Total operating expenses
|
|
|
4,766,059
|
|
|
|
3,286,220
|
|
|
|
15,815,592
|
|
|
|
16,171,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,766,059
|
)
|
|
|
(3,286,220
|
)
|
|
|
(15,815,592
|
)
|
|
|
(16,171,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
65,811
|
|
|
|
50,735
|
|
|
|
165,018
|
|
|
|
167,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(4,700,248
|
)
|
|
|
(3,235,485
|
)
|
|
|
(15,650,574
|
)
|
|
|
(16,004,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(700
|
)
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,700,248
|
)
|
|
$
|
(3,235,485
|
)
|
|
$
|
(15,651,274
|
)
|
|
$
|
(16,005,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.22
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
20,890,580
|
|
|
|
18,252,681
|
|
|
|
19,666,131
|
|
|
|
18,252,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.22
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
20,890,580
|
|
|
|
18,252,681
|
|
|
|
19,666,131
|
|
|
|
18,252,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,700,248
|
)
|
|
$
|
(3,235,485
|
)
|
|
$
|
(15,651,274
|
)
|
|
$
|
(16,005,040
|
)
|
Net unrealized gain (loss) on available-for-sale securities
|
|
|
79
|
|
|
|
(5,824
|
)
|
|
|
7,960
|
|
|
|
33,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(4,700,169
|
)
|
|
$
|
(3,241,309
|
)
|
|
$
|
(15,643,314
|
)
|
|
$
|
(15,972,018
|
)
|
See accompanying notes to
unaudited condensed consolidated financial statements
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash
Flows
(Unaudited)
|
|
Nine Months Ending September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,651,274
|
)
|
|
$
|
(16,005,040
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,278
|
|
|
|
23,724
|
|
Stock-based compensation expense
|
|
|
2,217,709
|
|
|
|
1,934,258
|
|
Accretion (amortization) of premium/discount on marketable investment securities
|
|
|
(56,530
|
)
|
|
|
209,738
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest income
|
|
|
29,687
|
|
|
|
29,331
|
|
Prepaid and other current assets
|
|
|
(123,898
|
)
|
|
|
(107,270
|
)
|
Accounts payable
|
|
|
557,904
|
|
|
|
357,884
|
|
Accrued expenses
|
|
|
600,061
|
|
|
|
(2,177,495
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(12,405,063
|
)
|
|
|
(15,734,870
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
(59,650
|
)
|
Purchases of marketable investment securities
|
|
|
(24,746,690
|
)
|
|
|
(19,213,749
|
)
|
Maturities of marketable investment securities
|
|
|
29,682,000
|
|
|
|
19,680,000
|
|
Payment of rental deposit
|
|
|
-
|
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by investing activities
|
|
|
4,935,310
|
|
|
|
399,601
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
534,977
|
|
|
|
34,249
|
|
Net proceeds from common stock offering
|
|
|
10,644,883
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
11,179,860
|
|
|
|
34,249
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,710,107
|
|
|
|
(15,301,020
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
5,560,716
|
|
|
|
20,007,659
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,270,823
|
|
|
$
|
4,706,639
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Net unrealized gain on available-for-sale securities
|
|
$
|
7,960
|
|
|
$
|
33,022
|
|
Cash paid for income taxes
|
|
|
700
|
|
|
|
700
|
|
See accompanying notes to
unaudited condensed consolidated financial statements
LIPOCINE INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
|
(1)
|
Basis of Presentation
|
The accompanying unaudited condensed consolidated
financial statements included herein have been prepared by Lipocine Inc. (“Lipocine” or the “Company”)
in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited
condensed consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries collectively
referred to as the Company. In management's opinion, the interim financial data presented includes all adjustments (consisting
solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated.
Certain information required by U.S. generally accepted accounting principles has been condensed or omitted in accordance with
rules and regulations of the SEC. Operating results for the three and nine months ended September 30, 2017 are not necessarily
indicative of the results that may be expected for any future period or for the year ending December 31, 2017.
These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for
the year ended December 31, 2016.
The preparation of the unaudited condensed consolidated
financial statements requires management to make estimates and assumptions relating to reporting of the assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period in conformity with U.S. generally accepted accounting principles.
Actual results could differ from these estimates.
|
(2)
|
Earnings (Loss) per Share
|
Basic earnings (loss) per share is calculated by
dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during
the period. Net income (loss) available to common shareholders for the three and nine months ended September 30, 2017 and 2016
was calculated using the two-class method, which is an earnings (loss) allocation method for computing earnings (loss) per share
when an entity’s capital structure includes common stock and participating securities. The two-class method determines earnings
(losses) per share based on dividends declared on common stock and participating securities (i.e., distributed earnings) and participation
rights of participating securities in any undistributed earnings (loss). The application of the two-class method was required since
the Company’s historical unvested restricted stock contained non-forfeitable rights to dividends or dividend equivalents.
However, unvested restricted stock grants were not included in computing basic earnings (loss) per share for periods where the
Company has losses as these securities are not contractually obligated to share in losses of the Company.
Diluted earnings (loss) per share is based on the
weighted average number of common shares outstanding plus, where applicable, the additional potential common shares that would
have been outstanding related to dilutive options and unvested restricted stock units to the extent such shares are dilutive.
The following table sets forth the computation of
basic and diluted earnings (loss) per share of common stock for the three and nine months ended September 30, 2017 and 2016:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic loss per share attributable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,700,248
|
)
|
|
$
|
(3,235,485
|
)
|
|
$
|
(15,651,274
|
)
|
|
$
|
(16,005,040
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted avg. common shares outstanding
|
|
|
20,890,580
|
|
|
|
18,252,681
|
|
|
|
19,666,131
|
|
|
|
18,252,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.22
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,700,248
|
)
|
|
$
|
(3,235,485
|
)
|
|
$
|
(15,651,274
|
)
|
|
$
|
(16,005,040
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted avg. common shares outstanding
|
|
|
20,890,580
|
|
|
|
18,252,681
|
|
|
|
19,666,131
|
|
|
|
18,252,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.22
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.88
|
)
|
The computation of diluted loss per share for the
three and nine months ended September 30, 2017 and 2016 does not include the following stock options and unvested restricted stock
units to purchase shares in the computation of diluted loss per share because these instruments were antidilutive:
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
2,067,967
|
|
|
|
2,132,094
|
|
Unvested restricted stock units
|
|
|
272,000
|
|
|
|
-
|
|
|
(3)
|
Marketable Investment Securities
|
The Company has classified its marketable investment
securities as available-for-sale securities. These securities are carried at fair value with unrealized holding gains and losses,
net of the related tax effect, included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains
and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized
on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains,
gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security
at September 30, 2017 and December 31, 2016 were as follows:
September 30, 2017
|
|
Amortized
Cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Aggregate
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds and notes
|
|
$
|
4,741,024
|
|
|
$
|
334
|
|
|
$
|
(485
|
)
|
|
$
|
4,740,873
|
|
Corporate bonds and commercial paper
|
|
|
11,668,259
|
|
|
|
310
|
|
|
|
(692
|
)
|
|
|
11,667,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,409,283
|
|
|
$
|
644
|
|
|
$
|
(1,177
|
)
|
|
$
|
16,408,750
|
|
December 31, 2016
|
|
Amortized
Cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Aggregate
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government notes
|
|
$
|
7,473,273
|
|
|
$
|
-
|
|
|
$
|
(2,219
|
)
|
|
$
|
7,471,054
|
|
Corporate bonds, notes and commercial paper
|
|
|
13,814,790
|
|
|
|
-
|
|
|
|
(6,274
|
)
|
|
|
13,808,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,288,063
|
|
|
$
|
-
|
|
|
$
|
(8,493
|
)
|
|
$
|
21,279,570
|
|
Maturities of debt securities
classified as available-for-sale securities at September 30, 2017 are as follows:
September 30, 2017
|
|
Amortized
Cost
|
|
|
Aggregate
fair value
|
|
Due within one year
|
|
$
|
16,409,283
|
|
|
$
|
16,408,750
|
|
|
|
$
|
16,409,283
|
|
|
$
|
16,408,750
|
|
There were no sales of marketable investment securities
during the three and nine months ended September 30, 2017 and 2016 and therefore no realized gains or losses. Additionally, $8.4
million and $11.6 million of marketable investment securities matured during the three months ended September 30, 2017 and 2016,
respectively. Also, $29.7 million and $19.7 million of marketable investment securities matured during the nine months ended September
30, 2017 and 2016, respectively. The Company determined there were no other-than-temporary impairments for the three and nine months
ended September 30, 2017 and 2016.
The Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value
based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous
market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized in one of the following levels:
|
•
|
Level 1 Inputs: Quoted
prices for identical instruments in active markets.
|
|
•
|
Level 2 Inputs: Quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active,
and model-derived valuation in which all significant inputs and significant value drivers are observable in active markets.
|
|
•
|
Level 3 Inputs: Valuations
derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
All of the Company’s financial instruments
are valued using quoted prices in active markets or based on other observable inputs. For accrued interest income, prepaid and
other current assets, accounts payable, and accrued expenses, the carrying amounts approximate fair value because of the short
maturity of these instruments. The following table presents the placement in the fair value hierarchy of assets and liabilities
that are measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
Fair value measurements at reporting date using
|
|
|
|
2017
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds, commercial paper, and government notes
|
|
$
|
4,973,808
|
|
|
$
|
2,176,105
|
|
|
$
|
2,797,703
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds and notes
|
|
|
4,740,873
|
|
|
|
4,740,873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and commercial paper
|
|
|
11,667,877
|
|
|
|
-
|
|
|
|
11,667,877
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,382,558
|
|
|
$
|
6,916,978
|
|
|
$
|
14,465,580
|
|
|
$
|
-
|
|
|
|
December 31,
|
|
|
Fair value measurements at reporting date using
|
|
|
|
2016
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds
|
|
$
|
2,920,577
|
|
|
$
|
2,920,577
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government notes
|
|
|
7,471,054
|
|
|
|
3,752,350
|
|
|
|
3,718,704
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds, notes and commercial paper
|
|
|
13,808,516
|
|
|
|
-
|
|
|
|
13,808,516
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,200,147
|
|
|
$
|
6,672,927
|
|
|
$
|
17,527,220
|
|
|
$
|
-
|
|
The following methods and assumptions were used to
determine the fair value of each class of assets and liabilities recorded at fair value in the balance sheets:
Cash equivalents: Cash equivalents primarily consist
of highly rated money market funds and commercial paper with original maturities to the Company of three months or less, and are
purchased daily at par value with specified yield rates. Cash equivalents related to money market funds are classified within Level
1 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar assets.
Cash equivalents related to commercial paper are classified within Level 2 of the fair value hierarchy because they are valued
using broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable inputs.
Government bonds and notes: The Company uses a third-party
pricing service to value these investments. United States Treasury bonds and notes are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices in active markets for identical assets and reportable trades. Other
United States government agency bonds are classified within Level 2 of the fair value hierarchy because they are valued using broker/dealer
quotes, bids and offers, benchmark yields and credit spreads and other observable inputs.
Corporate bonds, notes, and commercial paper: The
Company uses a third-party pricing service to value these investments. The pricing service utilizes broker/dealer quotes, bids
and offers, benchmark yields and credit spreads and other observable inputs.
The Company’s accounting policy is to recognize
transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
There were no transfers into or out of Level 1 or Level 2 for the three and nine months ended September 30, 2017.
|
(5)
|
Restructuring Charges
|
Restructuring charges relate
to our initiative to restructure operations which was approved by the board of directors on July 13, 2016. Under the July 2016
restructuring, the Company reduced its workforce by eight positions, constituting 33% of the Company’s workforce. The reduction
in workforce involved all functional disciplines including general and administrative employees, sales and marketing and research
and development personnel. Additionally, the Board approved a further restructuring in October 2016 whereby the Company reduced
its workforce by an additional two positions in the sales and marketing functions. The restructurings that occurred in 2016 are
jointly referred to as the 2016 Restructuring Plan.
The Company did not recognize
any charges related to the 2016 Restructuring Plan during the three and nine months ended September 30, 2017 and 2016. The activity
for the nine months ended September 30, 2017 for restructuring charges is as follows:
|
|
September 30,
|
|
|
|
2017
|
|
Accrued restructuring charges payable at December 31, 2016
|
|
$
|
239,573
|
|
Restructuring expenses in 2017
|
|
|
-
|
|
Restructuring payments in 2017
|
|
|
(216,404
|
)
|
Accrued restructuring charges payable at September 30, 2017
|
|
$
|
23,169
|
|
The tax provision for interim periods is determined
using an estimate of the Company’s effective tax rate for the full year adjusted for discrete items, if any, that are taken
into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the
estimated tax rate changes, the Company makes a cumulative adjustment.
At September 30, 2017 and December 31, 2016,
the Company had a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax
liabilities, as it believes it is more likely than not that these benefits will not be realized.
|
(7)
|
Contractual Agreements
|
|
(a)
|
Abbott Products, Inc.
|
On March 29, 2012, the Company terminated its collaborative
agreement with Solvay Pharmaceuticals, Inc. (later acquired by Abbott Products, Inc.) for TLANDO. As part of the termination, the
Company reacquired the rights to the intellectual property from Abbott. All obligations under the prior license agreement have
been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1.0 million
in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate
amount. If generic versions of any such product are introduced, then royalties are reduced by 50%. The Company did not incur any
royalties during the three and nine months ended September 30, 2017 and 2016.
|
(b)
|
Contract Research and Development
|
The Company has entered into agreements with various
contract organizations that conduct preclinical, clinical, analytical and manufacturing development work on behalf of the Company
as well as a number of independent contractors, primarily clinical researchers, who serve as advisors to the Company. The Company
incurred expenses of $1.4 million and $938,000 for the three months ended September 30, 2017 and 2016, and $7.3 million and $4.7
million for the nine months ended September 30, 2017 and 2016 under these agreements and has recorded these expenses in research
and development expenses.
On August 6, 2004, the Company assumed a non-cancelable
operating lease for office space and laboratory facilities in Salt Lake City, Utah. On May 6, 2014, the Company modified and extended
the lease through February 28, 2018. Additionally, on December 28, 2015, the Company entered into an operating lease for office
space in Lawrenceville, New Jersey through January 31, 2018. Future minimum lease payments under non-cancellable operating leases
(with initial or remaining lease terms in excess of one year) as of September 30, 2017 are:
|
|
Operating
|
|
|
|
leases
|
|
Year ending December 31:
|
|
|
|
|
2017
|
|
|
97,346
|
|
2018
|
|
|
58,903
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
156,249
|
|
The Company’s rent expense
was $95,000 and $95,000 for the three months ended September 30, 2017 and 2016, and $285,000 and $279,000 for the nine months ended
September 30, 2017 and 2016.
|
(a)
|
Issuance of Common Stock
|
In March 2017, the Company entered into a Controlled
Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), to
sell shares of our common stock, with aggregate gross sales proceeds of up to $20.0 million, from time to time, through an “at
the market,” (“ATM”), equity offering program, under which Cantor acts as sales agent. The shares of common stock
to be sold under the Sales Agreement will be sold and issued pursuant to the Company’s Registration Statement on Form S-3
(File No. 333-199093) (the “Existing Form S-3”), which was previously declared effective by the Securities and Exchange
Commission, and the related prospectus and one or more prospectus supplements. As of September 30, 2017, we had sold an aggregate
of 2,518,109 shares at a weighted-average sales price of $4.40 per share under the ATM for aggregate gross proceeds of $11.1 million
and net proceeds of $10.6 million, after deducting sales agent commission and discounts and our other offering costs.
On October 13, 2017, the Company filed a Form S-3
(File No. 333-220942) (the “New Form S-3”) to replace the Existing Form S-3. The New Form S-3 has not yet been
declared effective by the Securities and Exchange Commission. The New Form S-3, when effective, will register the sale of
up to $150.0 million of any combination of common stock, preferred stock, debt securities, warrants and units pursuant to a shelf
registration statement. The New Form S-3 also contains a prospectus pursuant to which we may sell, from time to time, shares
of our common stock having an aggregate offering price of up to $25.0 million through Cantor as our sales agent, pursuant to the
Sales Agreement. Pursuant to Rule 415(a)(6) of the Securities Act of 1933, as amended, the offering of securities on the
Existing Form S-3 will be deemed terminated as of the date of effectiveness of the New Form S-3.
On November 13, 2015, the Company and American Stock
Transfer & Trust Company, LLC, as Rights Agent, entered into a Rights Agreement. Also on November 12, 2015, the board of directors
of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a “Right”
and collectively, the “Rights”) for each outstanding share of common stock of the Company. The dividend was payable
to stockholders of record as of the close of business on November 30, 2015 and entitles the registered holder to purchase from
the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company
at a price of $63.96 per one-thousandth share (the “Purchase Price”). The Rights will generally become exercisable
upon the earlier to occur of (i) 10 business days following a public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person (as defined below) or (ii) 10 business days (or such later date as may be determined by
action of the board of directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation
of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company.
Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person” upon
acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company.
In general, in the event a person becomes an Acquiring
Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right’s
then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with
a market value of twice the Purchase Price.
In addition, if after any person has become an Acquiring
Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more of the Company’s assets,
or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more
transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and
associates and certain transferees thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring
corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation which at the time of such
transaction would have a market value of twice the Purchase Price.
The Company will be entitled to redeem the Rights
at $0.001 per Right at any time prior to the time an Acquiring Person becomes such. The terms of the Rights are set forth in the
Rights Agreement, which is summarized in the Company's Current Report on Form 8-K dated November 13, 2015. The rights plan will
expire on November 12, 2018, unless the rights are earlier redeemed or exchanged by the Company.
The Company recognizes stock-based compensation
expense for grants of stock option awards, restricted stock units and restricted stock under the Company’s Incentive Plan
to employees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards.
The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service
period. In addition, the Company grants stock options to nonemployee consultants from time to time in exchange for services performed
for the Company. Equity instruments granted to nonemployees are subject to periodic revaluation over their vesting terms.
The Company uses the Black-Scholes model to compute
the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to
(i) expected volatility of the Company’s common stock price, (ii) the periods of time over which employees and
members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected dividend
yield on the Common Stock, and (iv) risk-free interest rates. Stock-based compensation expense also includes an estimate,
which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation cost that has been expensed in
the statements of operations amounted to $939,000 and $460,000 for the three months ended September 30, 2017 and 2016, and $2.2
million and $1.9 million for the nine months ended September 30, 2017 and 2016, allocated as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
196,869
|
|
|
$
|
147,769
|
|
|
$
|
620,881
|
|
|
$
|
477,068
|
|
General and administrative
|
|
|
742,411
|
|
|
|
260,954
|
|
|
|
1,596,828
|
|
|
|
1,405,924
|
|
Restructuring costs
|
|
|
-
|
|
|
|
51,266
|
|
|
|
-
|
|
|
|
51,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
939,280
|
|
|
$
|
459,989
|
|
|
$
|
2,217,709
|
|
|
$
|
1,934,258
|
|
The Company did not issue any stock options during
the three months ended September 30, 2017 and 2016, and issued 50,000 and 602,000 stock options during the nine months ended September
30, 2017 and 2016. Additionally, the Company issued 287,000 restricted stock units during the nine months ended September 30, 2017
and did not issue any restricted stock units during the nine months ended September 30, 2016 or the three months ended September
30, 2017 and 2016.
Key assumptions used in the determination of the
fair value of stock options granted are as follows:
Expected Term
: The expected term represents
the period that the stock-based awards are expected to be outstanding. Due to limited historical experience of similar awards,
the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (“SAB”)
No. 107,
Share-Based Payment,
for awards with stated or implied service periods. The simplified method defines the
expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions,
and that have the contractual term to satisfy the performance condition, the contractual term was used.
Risk-Free Interest Rate
: The risk-free interest
rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term.
Expected Dividend
: The expected dividend
assumption is based on management’s current expectation about the Company’s anticipated dividend policy. The Company
does not anticipate declaring dividends in the foreseeable future.
Expected Volatility
: Since the Company did
not have sufficient trading history, the volatility factor was based on the average of similar public companies through August
2014. When selecting similar companies, the Company considered the industry, stage of life cycle, size, and financial leverage.
Beginning in August 2014, the volatility factor was based on a combination of the Company's trading history since March 2014 and
the average of similar public companies.
For options granted during the nine months ended
September 30, 2017 and 2016, the Company calculated the fair value of each option grant on the respective dates of grant using
the following weighted average assumptions:
|
|
2017
|
|
|
2016
|
|
Expected term
|
|
|
5.85 years
|
|
|
|
5.83 years
|
|
Risk-free interest rate
|
|
|
1.96
|
%
|
|
|
1.68
|
%
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
Expected volatility
|
|
|
85.56
|
%
|
|
|
82.33
|
%
|
FASB ASC 718,
Stock Compensation,
requires
the Company to recognize compensation expense for the portion of options that are expected to vest. Therefore, the Company applied
estimated forfeiture rates that were derived from historical employee termination behavior. If the actual number of forfeitures
differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
As of September 30, 2017, there was $2.1 million
of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s
stock plans. That cost is expected to be recognized over a weighted average period of 1.60 years and will be adjusted for subsequent
changes in estimated forfeitures. Additionally as of September 30, 2017, there was $736,000 of total unrecognized compensation
cost related to unvested restricted stock units that have performance vesting.
In April 2014, the board of directors adopted the
2014 Stock and Incentive Plan ("2014 Plan") subject to shareholder approval which was received in June 2014. The 2014
Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units,
restricted stock and dividend equivalents. An aggregate of 1,000,000 shares are authorized for issuance under the 2014 Plan. Additionally,
271,906 remaining authorized shares under the 2011 Equity Incentive Plan ("2011 Plan") were issuable under the 2014 Plan
at the time of the 2014 Plan adoption. Upon receiving shareholder approval in June 2016, the 2014 Plan was amended and restated
to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan
from 1,271,906 to 2,471,906. The board of directors, on an option-by-option basis, determines the number of shares, exercise price,
term, and vesting period. Options granted generally have a ten-year contractual life. The Company issues shares of common stock
upon the exercise of options with the source of those shares of common stock being either newly issued shares or shares held in
treasury. An aggregate of 2,471,906 shares are authorized for issuance under the 2014 Plan, with 896,020 shares remaining available
for grant as of September 30, 2017.
A summary of stock option activity is as follows:
|
|
Outstanding stock options
|
|
|
|
Number of
shares
|
|
|
Weighted average
exercise price
|
|
Balance at December 31, 2016
|
|
|
2,225,850
|
|
|
$
|
6.12
|
|
Options granted
|
|
|
50,000
|
|
|
|
3.83
|
|
Options exercised
|
|
|
(190,383
|
)
|
|
|
2.81
|
|
Options forfeited
|
|
|
-
|
|
|
|
-
|
|
Options cancelled
|
|
|
(17,500
|
)
|
|
|
13.84
|
|
Balance at September 30, 2017
|
|
|
2,067,967
|
|
|
|
6.31
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2017
|
|
|
1,501,446
|
|
|
|
6.36
|
|
The following table summarizes information about
stock options outstanding and exercisable at September 30, 2017:
Options outstanding
|
|
|
Options exercisable
|
|
Number
outstanding
|
|
|
Weighted
average
remaining
contractual
life
(Years)
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
Number
exerciseable
|
|
|
Weighted
average
remaining
contractual
life
(Years)
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,067,967
|
|
|
|
6.42
|
|
|
$
|
6.31
|
|
|
$
|
867,905
|
|
|
|
1,501,446
|
|
|
|
5.46
|
|
|
$
|
6.36
|
|
|
$
|
735,625
|
|
The intrinsic value for stock options is defined
as the difference between the current market value and the exercise price. The total intrinsic value of stock options exercised
during the nine months ended September 30, 2017 and 2016 was $202,000 and $22,000. There were 190,383 and 5,445 stock options exercised
during the nine months ended September 30, 2017 and 2016.
|
(e)
|
Restricted Stock Units
|
A summary of restricted stock unit activity is as
follows:
|
|
Number of
unvested restricted
stock units
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
-
|
|
Granted
|
|
|
287,000
|
|
Vested
|
|
|
(15,000
|
)
|
Cancelled
|
|
|
-
|
|
Balance at September 30, 2017
|
|
|
272,000
|
|
|
(10)
|
Commitments and Contingencies
|
Litigation
The Company is involved in various lawsuits, claims
and other legal matters from time to time that arise in the ordinary course of conducting business. The Company records a liability
when a particular contingency is probable and estimable. The Company has not accrued for any contingency at September 30, 2017
as the Company does not consider any contingency to be probable nor estimable. While complete assurance cannot be given to the
outcome of these proceedings, management does not currently believe that any of these matters, individually or in the aggregate,
will have a material adverse effect on our financial condition, liquidity or results of operations.
Guarantees and Indemnifications
In the ordinary course of business, the Company
enters into agreements, such as lease agreements, licensing agreements, clinical trial agreements, and certain services agreements,
containing standard guarantee and / or indemnifications provisions. Additionally, the Company has indemnified its directors and
officers to the maximum extent permitted under the laws of the State of Delaware.
On July 23, 2013, the Company entered into an
assignment/license and a services agreement with Spriaso, a related-party that is majority-owned by certain current and former
directors of Lipocine Inc. and their affiliates. Under the license agreement, the Company assigned and transferred to Spriaso all
of the Company’s rights, title and interest in its intellectual property to develop products for the cough and cold field.
In addition, Spriaso received all rights and obligations under the Company’s product development agreement with a third-party.
In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso, up to a maximum of $10.0
million. Spriaso also granted back to the Company an exclusive license to such intellectual property to develop products outside
of the cough and cold field. Under the service agreement, the Company provided facilities and up to 10 percent of the services
of certain employees to Spriaso for a period of 18 months which expired January 23, 2015. Effective January 23, 2015, the Company
entered into an amended services agreement with Spriaso in which the Company agreed to continue providing up to 10 percent of the
services of certain employees to Spriaso at a rate of $230/hour for a period of six months. The agreement was further amended on
July 23, 2015, on January 23, 2016, on July 23, 2016, on January 23, 2017, and again on July 23, 2017 to extend the term of the
agreement for an additional six months. The agreement may be extended upon written agreement of Spriaso and the Company. The Company
did not receive any reimbursements for the three months ended September 30, 2017 and 2016 and received reimbursements of $31,000
and $3,100 for the nine months ended September 30, 2017 and 2016. Spriaso filed its first NDA and, as an affiliated entity of the
Company, it used up the one-time waiver for user fees for a small business submitting its first human drug application to the FDA.
Spriaso is considered a variable interest entity under the FASB ASC Topic 810-10,
Consolidations
; however, the Company is
not the primary beneficiary and has therefore not consolidated Spriaso.
|
(12)
|
Recent Accounting Pronouncements
|
Accounting Pronouncements Not Yet Adopted
In May 2017, the FASB issued Accounting Standards
Update (“ASU”) 2017-09,
Compensation-Stock Compensation (Topic 718): Scope Modification Accounting
. This update
provides guidance about which changes to the terms or conditions of a share-based payment awards require an entity to apply modification
accounting. This update is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption
is permitted. The Company plans to adopt this pronouncement effective January 1, 2018 and does not believe it will have a material
effect on the Company's financial position or results of operations.
In August 2016, the FASB issued ASU 2016-15,
Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. This update addresses how certain cash
inflows and outflows are classified in the statement of cash flows to eliminate existing diversity in practice. This update is
effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company
plans to adopt this pronouncement effective January 1, 2018 and does not believe it will have a material effect on the Company's
financial position or results of operations.
In June 2016, the FASB issued ASU 2016-13,
Financial
Instruments - Credit Losses
. The new standard amends guidance on reporting credit losses for assets held at amortized cost
basis and available-for-sale debt securities.
ASU 2016-13 is effective for interim and annual reporting periods beginning
after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018.
Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning
of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company plans to
adopt this pronouncement effective January 1, 2019 and does not believe it will have a material effect on the Company's financial
position or results of operations.
In
February 2016, FASB issued ASU 2016-02
,
Leases,
which provides new guidance for lease accounting including recognizing
most leases on-balance sheet. The standard becomes effective for annual and interim periods in fiscal years beginning after December
15, 2018. ASU 2016-02 mandates a modified retrospective transition method for all entities.
The
Company currently does not have any lease that extends beyond December 31, 2018 but will continue to evaluate the effect that ASU
2016-02 will have on our consolidated financial statements and related disclosures if we enter into new leases that extend beyond
December 31, 2018. The Company plans to adopt this pronouncement effective January 1, 2019 and does not believe it will have a
material effect on the Company's financial position or results of operations.
In
January 2016, FASB issued
ASU 2
016-01,
Financial Instruments,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which provides new guidance for the recognition,
measurement, presentation, and disclosure of financial assets and liabilities. The standard becomes effective for the Company beginning
in the first quarter of our fiscal year ended December 31, 2018 and early adoption is permitted.
The Company plans to adopt
this pronouncement effective January 1, 2018 and does not believe it will have a material effect on the Company's financial position
or results of operations.
Accounting Pronouncements Recently Adopted
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
with amendments in 2015 (ASU 2015-14) and 2016 (ASU 2016-8, ASU 2016-10,
ASU 2016-12 and ASU 2016-20)
.
The updated standard is a new comprehensive revenue recognition model that requires revenue
to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration
expected to be received in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB voted to approve
the deferral of the effective date of ASU 2014-09 by one year. Therefore, ASU 2014-09 will become effective for the Company in
the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted, but not earlier than the first
quarter of the Company's fiscal year ending December 31, 2017. The Company adopted this pronouncement effective January 1,
2017 and it did not have any effect on the Company's financial position or results of operations as no revenue was recognized during
the three and six months ended June 30, 2017 and 2016.
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock
Compensation (Topic 718)
. The pronouncement was issued to simplify several aspects of the accounting for share-based payment
transactions, including immediate recognition of all excess tax benefits and deficiencies in the income statement, classification
of awards as either equity or liabilities and classification on the statement of cash flows, and application for forfeitures. The
Company adopted ASU 2016-09 on January 1, 2017 prospectively (prior periods have not been restated). There
was no impact of adoption of this pronouncement as the Company did not have any excess tax benefits as of January 1, 2017. The
Company elected to apply the change in classification for excess tax benefits in the statement of cash flows on a prospective basis,
and elected to continue estimating stock-based compensation award forfeitures in determining the amount of compensation cost to
be recognized each period. No other provisions of ASU 2016-09 had a material impact on the Company’s financial statements
or disclosures.
All other issued and effective
accounting standards during 2017 were not relevant to the Company.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion of our financial
condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the
related notes thereto and other financial information included elsewhere in this report. For additional context with which to understand
our financial condition and results of operations, see the management’s discussion and analysis included in our Form 10-K,
filed with the SEC on March 6, 2017 as well as the financial statements and related notes contained therein.
As used in the discussion below, “we,”
“our,” and “us” refers to Lipocine.
Forward-Looking Statements
This section and other parts of this report
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements provide current
expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical
or current fact. Forward-looking statements may refer to such matters as products, expected product benefits, pre-clinical and
clinical development timelines, results and timelines of ongoing or future studies, clinical and regulatory expectations and plans,
anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services,
anticipated market performance, future expectations for liquidity and capital resources needs and similar matters. Such words as
“may”, “will”, “expect”, “continue”, “estimate”, “project”,
“potential”, “ anticipate”, “believe”, “could”, “plan”, “predict”,
“should”, “would” and “intend” and similar terms and expressions are intended to identify forward-looking
statements. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited
to, those discussed in Part II, Item 1A (Risk Factors) of this Form 10-Q, Item 1A (Risk Factors) of our Form 10-Q for
the quarter ended June 30, 2017 filed with the SEC on August 7, 2017, Item 1A (Risk Factors) of our Form 10-Q for the quarter
ended March 31, 2017 filed with the SEC on May 8, 2017 or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the
SEC on March 6, 2017. Except as required by applicable law, we assume no obligation to revise or update any forward-looking statements
for any reason.
Overview of Our Business
We are a specialty pharmaceutical company focused on applying
our oral drug delivery technology for the development of pharmaceutical products in the area of men’s and women’s health.
Our proprietary delivery technologies are designed to improve patient compliance and safety through orally available treatment
options. Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs. We have a portfolio
of proprietary product candidates designed to produce favorable pharmacokinetic (“PK”) characteristics and facilitate
lower dosing requirements, bypass first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal interactions
that limit bioavailability. Our lead product candidate, TLANDO™ or LPCN 1021, is an oral testosterone replacement therapy
(“TRT”) and is currently under review by the United States Food and Drug Administration (“FDA”) with a
Prescription Drug User Fee Act (“PDUFA”) action goal date of February 8, 2018. The FDA has deemed the resubmission
a complete response to its June 2016 Complete Response Letter (“CRL”) that requested additional information related
to the dosing algorithm for the proposed label. The TLANDO New Drug Application (“NDA”) is based on the results of
the Dosing Validation (“DV”
)
study. The DV study confirmed the efficacy of TLANDO with a fixed dose regimen
without need for dose adjustment. TLANDO was well tolerated upon 52-week exposure with no reports of drug related Serious Adverse
Events (“SAEs”). Additionally, the Bone, Reproductive and Urologic Drugs Advisory Committee (“BRUDAC”)
of the FDA plans to discuss the NDA for TLANDO on January 10, 2018. Although there is no guarantee of approval of TLANDO, we believe
the results from the DV study confirm the validity of a fixed dose approach without the need for dose titration to orally administering
LPCN 1021. Additional pipeline candidates include LPCN 1111, a next generation oral testosterone therapy product with the potential
for once daily dosing, that is currently in Phase 2 testing, and LPCN 1107, which has the potential to become the first oral hydroxyprogesterone
caproate product indicated for the prevention of recurrent preterm birth, and has completed an End-of-Phase 2 meeting with the
FDA.
To date, we have funded our operations primarily
through the sale of equity securities and convertible debt and through up-front payments, research funding and milestone payments
from our license and collaboration arrangements. We have not generated any revenues from product sales and we do not expect to
generate revenue from product sales unless and until we obtain regulatory approval of TLANDO or other products.
We have incurred losses in most years since
our inception. As of September 30, 2017, we had an accumulated deficit of $121.1 million. Income and losses fluctuate year to year,
primarily depending on the timing of recognition of revenues from our license and collaboration agreements. Our net loss was $15.7
million for the nine months ended September 30, 2017, compared to $16.0 million for the nine months ended September 30, 2016. Substantially
all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our
research activities and general and administrative costs associated with our operations.
We expect to continue to incur significant
expenses and operating losses for the foreseeable future as we:
|
•
|
prepare for an FDA Advisory Committee meeting;
|
|
•
|
conduct further development of our other product candidates, including LPCN 1111 and LPCN 1107;
|
|
•
|
continue our research efforts;
|
|
•
|
maintain, expand and protect our intellectual property portfolio;
|
|
•
|
expand our marketing and sales efforts as we perform pre-commercialization activities; and
|
|
•
|
provide general and administrative support for our operations.
|
To fund future long-term operations, we
will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including
capital market conditions, regulatory requirements and outcomes related to TLANDO, regulatory requirements related to our other
development programs, the timing and results of our ongoing development efforts, the potential expansion of our current development
programs, potential new development programs, the pursuit of various potential commercial activities and strategies associated
with our development programs and related general and administrative support. We anticipate that we will seek to fund our operations
through public or private equity or debt financings or other sources, such as potential license, partnering and collaboration agreements.
In March 2017, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald
& Co. (“Cantor”) pursuant to which we may issue and sell, from time to time, shares of our common stock having
an aggregate offering price of up to $20.0 million through Cantor as our sales agent (the “ATM Offering”). Through
September 30, 2017, we have sold 2,518,109 shares for net proceeds of $10.6 million in the aggregate through the ATM Offering.
However, even with the ATM Offering, we cannot be certain that anticipated additional financing will be available to us on favorable
terms, or at all. Although we have previously been successful in obtaining financing through public and private equity securities
offerings and our license and collaboration agreements, there can be no assurance that we will be able to do so in the future.
If we are unable to raise sufficient capital to fund our planned business operations and the continued development of our product
candidates, we will have to reduce operations and expenses to conserve cash.
Our Product Candidates
Our current portfolio, shown below, includes
our lead product candidate, TLANDO, an oral testosterone replacement therapy that is currently under review by the FDA with a PDUFA
goal date of February 8, 2018. Additionally, we are in the process of establishing our pipeline of other clinical candidates including
a next generation potential once daily oral testosterone replacement therapy, LPCN 1111, and an oral therapy for the prevention
of preterm birth, LPCN 1107.
Our Development Pipeline
Product Candidate
|
|
Indication
|
|
Status
|
|
Next Expected Milestone(s)
|
Men’s Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TLANDO
|
|
Testosterone Replacement
|
|
NDA Filed
|
|
Advisory Committee meeting (January 10, 2018)
PDUFA goal date (February 8, 2018)
|
|
|
|
|
|
|
|
LPCN 1111
|
|
Testosterone Replacement
|
|
Phase 2
|
|
Meeting with FDA (1Q 2018)
|
|
|
|
|
|
|
|
Women’s Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPCN 1107
|
|
Prevention of Preterm Birth
|
|
Phase 2
|
|
CMC: process characterization and scale-up completed (Dec 2017)
|
These products are based on our proprietary
Lip’ral promicellar drug delivery technology platform. Lip’ral promicellar technology is a patented technology based
on lipidic compositions which form an optimal dispersed phase in the gastrointestinal environment for improved absorption of insoluble
drugs. The drug loaded dispersed phase presents the solubilized drug efficiently at the absorption site (gastrointestinal tract
membrane) thus improving the absorption process and making the drug less dependent on physiological variables such as dilution,
gastro-intestinal pH and food effects for absorption. Lip’ral based formulation enables improved solubilization and higher
drug-loading capacity, which can lead to improved bioavailability, reduced dose, faster and more consistent absorption, reduced
variability, reduced sensitivity to food effects, improved patient compliance, and targeted lymphatic delivery where appropriate.
LPCN 1021: An Oral Product Candidate for Testosterone
Replacement Therapy
Our lead product, TLANDO, is an oral formulation
of the chemical, testosterone undecanoate (“TU”), an eleven carbon side chain attached to testosterone. TU is an ester
prodrug of testosterone. An ester is chemically formed by bonding an acid and an alcohol. Upon the cleavage, or breaking, of the
ester bond, testosterone is formed. TU has been approved for use outside the United States for many years for delivery via intra-muscular
injection and in oral dosage form and recently TU has received regulatory approval in the United States for delivery via intra-muscular
injection. We are using our proprietary technology to facilitate steady gastrointestinal solubilization and absorption of TU. Proof
of concept was initially established in 2006, and subsequently LPCN 1021 was licensed in 2009 to Solvay Pharmaceuticals, Inc. which
was then acquired by Abbott Products, Inc. (“Abbott”). Following a portfolio review associated with the spin-off of AbbVie
by Abbott in 2011, the rights to LPCN 1021 were reacquired by us. All obligations under the prior license agreement have been completed
except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1 million in the first
two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate amount.
If generic versions of any such product are introduced, then royalties are reduced by 50%.
NDA Resubmission
We resubmitted our NDA to the FDA in August
2017 based on the results of the DV study. The DV study confirmed the efficacy of TLANDO with a fixed dose regimen without need
for dose adjustment. TLANDO was well tolerated upon 52-week exposure with no reports of drug related Serious Adverse Events (“SAEs”).
The FDA accepted our NDA as a complete response to their CRL and assigned a PDUFA goal date of February 8, 2018 for completion
of the review. Additionally, the BRUDAC of the FDA plans to discuss the NDA for TLANDO on January 10, 2018. Previously on June
28, 2016, we received a CRL from the FDA on our original NDA submission. A CRL is a communication from the FDA that informs companies
that an application cannot be approved in its present form. The CRL identified deficiencies related to the dosing algorithm for
the label. Specifically, the proposed titration scheme for clinical practice was significantly different from the titration scheme
used in the Phase 3 trial leading to discordance in titration decisions between the Phase 3 trial and real-world clinical practice.
In response to the CRL, we met with the FDA in a Post Action meeting, and proposed a dosing regimen to the FDA based on analyses
of existing data. The FDA noted that while the proposed dosing regimen might be acceptable, validation in a clinical trial would
be needed prior to resubmission. The DV study was in response to the FDA’s request. Prior to initiating the DV study, the
FDA reviewed the DV study protocol through a Special Protocol Assessment (“SPA”). Lipocine received the FDA’s
initial feedback on the protocol submitted via SPA prior to initiating the DV study in December 2016. We also initiated the Dosing
Flexibility (“DF”) study to assess TLANDO in hypogonadal males on a fixed daily dose of 450 mg divided into three equal
doses. Although there is no guarantee of FDA approval of TLANDO, we believe the results from the DV study confirm the validity
of a fixed dose approach without the need for dose titration to orally administering TLANDO.
Results from DV and DF Studies
The DV and DF studies were both an open-label,
fixed dose (no titration), single treatment clinical study of oral TRT in hypogonadal males with low testosterone (T) (< 300
ng/dL) that assessed TLANDO in hypogonadal males on a fixed daily dose of 450 mg divided into two equal doses (“BID”)
in the DV study and into three equal doses (“TID”) in the DF study. In total, 95 and 100 subjects were enrolled into
DV and DF studies, respectively, with 94 and 98 subjects completing the DV and DF studies, respectively.
On June 19, 2017, we announced top-line
results of the DV and DF studies. Although there is no guarantee of FDA approval of LPCN 1021, we believe the results from the
DV study confirm the validity of a fixed dose approach without the need for dose titration to orally administering LPCN 1021. The
DV study will be considered our pivotal efficacy clinical study for the NDA resubmission. TLANDO successfully met the FDA primary
efficacy guidelines in the DV study safety statistical analysis set (“SS”) where 80% of the subjects achieved average
testosterone levels (“Cavg”) within the normal range with a lower bound confidence interval (“CI”) of 72%.
The DF study restored 70% of the subjects’ average testosterone levels within the normal range (Cavg) confirming that twice
daily (“BID”) dosing is the appropriate dosing regimen for TLANDO and was the basis for resubmission. The safety set
is defined as any subject that was randomized into the study and took at least one dose (N=95 subjects in the DV study and N=100
in the DF study). A baseline carried forward approach was used to account for missing data as a result of subject discontinuation.
The primary efficacy endpoint is the percentage
of subjects with Cavg within the normal range, which is defined as 300-1080 ng/dL. The FDA guidelines for primary efficacy success
is that at least 75% of the subjects on active treatment achieve a testosterone Cavg within the normal range; and the lower bound
of the 95% CI must be greater than or equal to 65%.
The adverse event profile of TLANDO in both
the DV and DF studies was consistent with the previously conducted 52-week Phase 3 Study of Androgen Replacement (“SOAR”)
clinical trial. All drug related adverse events (“AEs”) were either mild or moderate in intensity and none were severe.
To date, the safety database of TLANDO includes ~525 unique hypogonadal men demonstrating a profile consistent with other TRT products.
The secondary endpoints assessed the maximum
total testosterone concentration (“Cmax”) post dosing using predetermined limits developed by the FDA for transdermals.
The FDA guidelines for secondary efficacy success is that at least 85% of the subjects achieve Cmax less than 1500 ng/dL; no greater
than 5% of the subjects have Cmax between 1800 ng/dl and 2500 ng/dL; and zero percent of the subjects have Cmax greater than 2500
ng/dL.Consistent with the definition of Cmax and the pharmacokinetic profile of multiple times a day dosing, two pre-specified
analyses were performed, Cmax per dose and Cmax per day.
In the DV study SS Cmax per dose analysis,
the percentage of subjects with Cmax less than 1500 ng/dL and between 1800 ng/dL and 2500 ng/dL were 85% and 7%, respectively.
Deviations from the predetermined limits in the DV study were observed in the Cmax per day dose analysis for these thresholds.
Only one subject, who was a major protocol violator, exceeded the 2500 ng/dL limit independent of per dose or per day dose analyses.
The DF study SS met all Cmax thresholds
in per dose and per day dose analyses.
Prior to conducting the DV study and the
DF study, we completed our SOAR pivotal Phase 3 clinical study evaluating efficacy and 52-week safety of LPCN 1021. The SOAR study
is considered our pivotal safety clinical study for the NDA resubmission.
Results from SOAR
SOAR was a randomized, open-label, parallel-group,
active-controlled, Phase 3 clinical study of LPCN 1021 in hypogonadal males with low testosterone (< 300 ng/dL). In total, 315
subjects at 40 active sites were assigned, such that 210 were randomized to LPCN 1021 and 105 were randomized to the active control,
Androgel 1.62%®, for 52 weeks of treatment. The active control is included for safety assessment. LPCN 1021 subjects were started
at 225 mg TU (equivalent to ~ 142 mg of T) twice daily (“BID”) with a standard meal and then dose titrated, if needed,
based on average T levels during the day, Cavg, and peak serumT levels, Cmax, up to 300 mg TU BID or down to 150 mg TU BID based
on serum testosterone measured at weeks 3 and 7 based on PK profile with multiple blood samples drawn at each time period. The
mean age of the subjects in the trial was ~53 years with ~91% of the patients < 65 years of age.
Primary statistical analysis was conducted
using the Efficacy Population Set (“EPS”). The EPS is defined as subjects randomized into the study with at least one
PK profile and no significant protocol deviations and includes imputed missing data by last observation carried forward, N=151.
Further analysis was performed using the full analysis set (“FAS”) (any subject randomized into the study with at least
one post-baseline efficacy variable response, N=193) and the SS (any subject that was randomized into the study and took at least
one dose, N=210).
Safety
The safety component of the SOAR trial was
completed the last week of April 2015. The safety extension phase was designed to assess safety based on information such as metabolites,
biomarkers, laboratory values, serious adverse events (“SAEs”) and AEs, with subjects on their stable dose regimen in
both the treatment arm and the active control arm. TLANDO treatment was well tolerated in that there were no hepatic, cardiac or
drug related SAEs.
TLANDO safety highlights include:
|
·
|
TLANDO was well tolerated during 52 weeks of dosing;
|
|
·
|
Overall AE profile for TLANDO was comparable to the active control;
|
|
·
|
Cardiac AE profiles were consistent between treatment groups and none of the observed cardiac AEs occurred in greater than
1.0% of the subjects in the TLANDO arm and none were classified as severe; and
|
|
·
|
All observed adverse drug reactions (“ADRs”) were classified as mild or moderate in severity and no serious ADRs
occurred during the 52-week treatment period.
|
Food Effect Study
We also completed our labeling “food
effect” study in May 2015. Results from the labeling “food effect” study indicate that bioavailability of testosterone
from TLANDO is not affected by changes in meal fat content. The results demonstrate comparable testosterone levels between the
standard fat meal (similar to the meal instruction provided in the Phase 3 clinical study) and both the low and high fat meals.
The labeling “food effect” study was conducted per the FDA requirement and we submitted preliminary results from this
study to the FDA in the second quarter of 2015 prior to submitting the NDA.
Other Safety Requirements
Based on our meetings with the FDA, we do
not expect to be required to conduct a heart attack and stroke risk study or any additional safety studies prior to the potential
approval of our NDA for LPCN 1021. We may, however, be required to conduct a heart attack and stroke risk study on our own or with
a consortium of sponsors that have an approved TRT product subsequent to the potential approval of TLANDO.
Competition Update
On October 20,
2017, Antares Pharma, Inc. announced that it had received a CRL from the FDA regarding its NDA for XYOSTED™ (testosterone
enanthate) injection. The CRL indicated that the FDA cannot approve the Antares NDA in its present form and identified two deficiencies
related to clinical data. Based on findings in two clinical studies, the FDA is concerned XYOSTED could cause a clinically meaningful
increase in blood pressure. Additionally, the CRL also raised a concern regarding the occurrence of depression and suicidality.
On June 26, 2017,
Clarus Therapeutics, Inc. (“Clarus”) announced that it had completed its Phase 3 clinical trial for Jatenzo® (formerly
Rextoro® and CLR-610), a twice-daily oral softgel capsule of TU, and submitted an NDA to the FDA. If Jatenzo is approved by
the FDA before LPCN 1021, Clarus may be in a position to commercially launch Jatenzo before we can commercially launch TLANDO.
Additionally,
o
n July 6, 2017, Acrux confirmed that a generic version of Axiron® Topical Solution, 30
mg/1.5 mL (Testosterone Topical Solution, 30 mg/1.5 mL). has been launched in the United States by Perrigo Company plc. Acrux also
confirmed the availability of an Authorized Generic version of Axiron in the United States, through a marketing and distribution
agreement between Eli Lilly and Company and a leading authorized generics company.
LPCN 1111: A Next-Generation Oral Product Candidate for
TRT
LPCN 1111 is a next-generation, novel ester
prodrug of testosterone which uses the Lip’ral technology to enhance solubility and improve systemic absorption. We completed
a Phase 2b dose finding study in hypogonadal men in the third quarter of 2016. The primary objectives of the Phase 2b clinical
study were to determine the starting Phase 3 dose of LPCN 1111 along with safety and tolerability of LPCN 1111 and its metabolites
following oral administration of single and multiple doses in hypogonadal men. The Phase 2b clinical trial was a randomized, open
label, two-period, multi-dose PK study that enrolled hypogonadal males into five treatment groups. Each of the 12 subjects in a
group received treatment for 14 days. Results of the Phase 2b study suggest that the primary objectives were met, including identifying
the dose expected to be tested in a Phase 3 study. Good dose-response relationship was observed over the tested dose range in the
Phase 2b study. Additionally, the target Phase 3 dose met primary and secondary end points. Overall, LPCN 1111 was well tolerated
with no drug-related severe or serious adverse events reported in the Phase 2b study.
Additionally in October 2014, we completed
a Phase 2a proof-of-concept study in hypogonadal men. The Phase 2a open-label, dose-escalating single and multiple dose study enrolled
12 males. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with LPCN 1111 in hypogonadal
men and a good dose response. Additionally, the study confirmed that steady state is achieved by day 14 with consistent inter-day
performance observed on day 14, 21 and 28. No subjects exceeded Cmax of 1500 ng/dL at any time during the 28-day dosing period
on multi-dose exposure. Overall, LPCN 1111 was well tolerated with no serious AE’s reported.
We have completed the preclinical toxicology
study with LPCN 1111 which demonstrated that the overall toxicological profile, including off target effects, of LPCN 111 are closely
aligned with general androgenic class pharmacology based on a preliminary evaluation. Additionally, we have been granted a FDA
meeting to discuss the Phase 3 clinical study and path forward for LPCN 1111. Based on the results of the FDA meeting in the first
quarter of 2018, the FDA may require additional pre-clinical or clinical trials before a Phase 3 clinical study can be initiated.
LPCN 1107: An Oral Product Candidate for the Prevention
of Preterm Birth
We believe LPCN 1107 has the potential to
become the first oral hydroxyprogesterone caproate (“HPC”) product indicated for the reduction of risk of preterm birth
(“PTB”) in women with singleton pregnancy who have a history of singleton spontaneous PTB. Prevention of PTB is a significant
unmet need as ~11.7% of all U.S. pregnancies result in PTB (delivery less than 37 weeks), a leading cause of neonatal mortality
and morbidity.
We have completed a multi-dose PK dose selection
study in pregnant women. The objective of the multi-dose PK selection study was to assess HPC blood levels in order to identify
the appropriate LPCN 1107 Phase 3 dose. The multi-dose PK dose selection study was an open-label, four-period, four-treatment,
randomized, single and multiple dose, PK study in pregnant women of three dose levels of LPCN 1107 and the injectable intramuscular
("IM") HPC (Makena®). The study enrolled 12 healthy pregnant women (average age of 27 years) with a gestational age
of approximately 16 to 19 weeks. Subjects received three dose levels of LPCN 1107 (400 mg BID, 600 mg BID, or 800 mg BID) in a
randomized, crossover manner during the first three treatment periods and then received five weekly injections of HPC during the
fourth treatment period. During each of the LPCN 1107 treatment periods, subjects received a single dose of LPCN 1107 on Day 1
followed by twice daily administration from Day 2 to Day 8. Following completion of the three LPCN 1107 treatment periods
and a washout period, all subjects received five weekly injections of HPC. Results from this study demonstrated that average steady
state HPC levels (C
avg
0-24) were comparable or higher for all three LPCN 1107 doses than for injectable HPC. Additionally,
HPC levels as a function of daily dose were linear for the three LPCN 1107 doses. Also unlike the injectable HPC, steady state
exposure was achieved for all three LPCN 1107 doses within seven days. We have also completed a proof-of-concept Phase 1b clinical
study of LPCN 1107 in healthy pregnant women in January 2015 and a proof-of-concept Phase 1a clinical study of LPCN 1107 in healthy
non-pregnant women in May 2014. These studies were designed to determine the PK and bioavailability of LPCN 1107 relative to an
IM HPC, as well as safety and tolerability.
A traditional pharmacokinetics/pharmacodynamics
(“PK/PD”) based Phase 2 clinical study in the intended patient population is not expected to be required prior to entering
into Phase 3. Therefore, based on the results of our multi-dose PK study we had an End-of-Phase 2 meeting with the FDA as well
as other guidance meetings with the FDA to define a Phase 3 development plan for LPCN 1107. During the End-of-Phase 2 meeting and
subsequent guidance meetings, the FDA agreed to a randomized, open-label, two-arm clinical study to include a LPCN 1107 arm and
a comparator IM arm with treatment up to 23 weeks. The FDA also provided preliminary feedback on other critical Phase 3 study design
considerations including: positive feedback on the proposed 800 mg BID Phase 3 dose and dosing regimen; confirmation of the use
of a surrogate primary endpoint focusing on rate of delivery less than 37 weeks gestation rather on clinical infant outcomes; acknowledged
that the use of a gestational age endpoint would likely lead to any FDA approval, if granted, being a Subpart H approval; and,
recommended a non-inferiority study margin of 7% with interim analyses. A standard statistical design for a NI study based on the
FDA feedback, a NI margin of 7% for the primary endpoint may require ~1,100 subjects per treatment arm with a 90% power. However,
based on the FDA’s suggestion of including an interim analysis in the NI design, an adaptive study design is under consideration
that may allow for fewer subjects. We submitted the initial LPCN 1107 Phase 3 protocol to the FDA via a SPA in June 2017 and have
received FDA’s feedback. Agreement with the FDA on the Phase 3 protocol via SPA has not occurred and may not occur until
results from a planned food-effect study with LPCN 1107 are reviewed by the FDA. Final agreement with the FDA on the Phase 3 protocol,
if reached, may or may not confirm the FDA’s preliminary feedback on the Phase 3 design. Additionally, manufacturing scale-up
work for LPCN 1107 is on-going and must occur before the start of the Phase 3 clinical study for LPCN 1107.
The FDA has granted
orphan drug designation to LPCN 1107 based on a major contribution to patient care. Orphan designation qualifies Lipocine for various
development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user fee when
we file our NDA.
Financial Operations Overview
Revenue
To date, we have not generated any revenues
from product sales and do not expect to do so until one of our product candidates receives approval from the FDA. Revenues to date
have been generated substantially from license fees, milestone payments and research support from our licensees. Since our inception
through September 30, 2017, we have generated $27.5 million in revenue under our various license and collaboration arrangements
and from government grants. We may never generate revenues from TLANDO or any of our other clinical or preclinical development
programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these product
candidates.
Research and Development Expenses
Research and development expenses consist
primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers
such as contract research organizations and contract manufacturing organizations, contractual obligations for clinical development,
clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug supplies, and expenses
associated with regulatory submissions. Research and development expenses also include an allocation of indirect costs, such as
those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct labor hours for research
and development personnel to total direct labor hours for all personnel. We expense research and development expenses as incurred.
Since our inception, we have spent approximately $95.4 million in research and development expenses through September 30, 2017.
We expect to incur approximately $2.5 million
in additional research and developments costs for TLANDO as we complete on-going manufacturing activities and as we prepare for
the FDA Advisory Committee meeting. However, these expenditures are subject to numerous uncertainties regarding timing and cost
to completion.
Approval, if ever, of TLANDO will require
approval by the FDA or the resubmitted NDA, and we expect to continue to incur significant costs as we seek approval of TLANDO.
In general, the cost of clinical trials
may vary significantly over the life of a project as a result of uncertainties in clinical development, including, among others:
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•
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the number of sites included in the trials;
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•
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the length of time required to enroll suitable subjects;
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•
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the duration of subject follow-ups;
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•
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the length of time required to collect, analyze and report trial results;
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•
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the cost, timing and outcome of regulatory review; and
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•
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potential changes by the FDA in clinical trial and NDA filing requirements for testosterone replacement therapies.
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We also incurred significant manufacturing
costs to prepare launch supplies for TLANDO, and expect to incur additional manufacturing costs related to TLANDO. However, these
expenditures are subject to numerous uncertainties regarding timing and cost to completion, including, among others:
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the timing and outcome of regulatory filings and FDA reviews and actions for TLANDO;
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•
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our dependence on third-party manufacturers for the production of satisfactory finished product for registration and launch
should regulatory approval be obtained;
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•
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the potential for future license or co-promote arrangements for TLANDO, when such arrangements will be secured, if at all,
and to what degree such arrangements would affect our future plans and capital requirements; and
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•
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the effect on our product development activities of actions taken by the FDA or other regulatory authorities.
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A change of outcome for any of these variables
with respect to the development of TLANDO could mean a substantial change in the costs and timing associated with these efforts,
will require us to raise additional capital, and may require us to reduce operations.
Given the stage of clinical development
and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process,
we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1111, LPCN 1107 and other product
candidates. Clinical development timelines, the probability of success and development costs can differ materially from expectations
and results from our clinical trials may not be favorable. If we are successful in progressing LPCN 1111, LPCN 1107 or other
product candidates into later stage development, we will require additional capital. The amount and timing of our future research
and development expenses for these product candidates will depend on the preclinical and clinical success of both our current development
activities and potential development of new product candidates, as well as ongoing assessments of the commercial potential of such
activities.
Summary of Research and Development Expense
We are conducting on-going research and
development with all three of our product candidates. Additionally, we incur costs for our other research programs. The following
table summarizes our research and development expenses:
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Three Months Ended September 30,
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Nine Months Ended September 30,
|
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|
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2017
|
|
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2016
|
|
|
2017
|
|
|
2016
|
|
External service provider costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPCN 1021
|
|
$
|
953,289
|
|
|
$
|
829,165
|
|
|
$
|
6,334,585
|
|
|
$
|
2,837,552
|
|
LPCN 1111
|
|
|
134,335
|
|
|
|
44,461
|
|
|
|
310,760
|
|
|
|
1,559,123
|
|
LPCN 1107
|
|
|
335,458
|
|
|
|
56,637
|
|
|
|
698,683
|
|
|
|
256,255
|
|
Other product candidates
|
|
|
-
|
|
|
|
7,500
|
|
|
|
-
|
|
|
|
22,500
|
|
Total external service provider costs
|
|
|
1,423,082
|
|
|
|
937,763
|
|
|
|
7,344,028
|
|
|
|
4,675,430
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Internal personnel costs
|
|
|
514,065
|
|
|
|
425,901
|
|
|
|
1,564,146
|
|
|
|
1,639,606
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Other research and development costs
|
|
|
109,386
|
|
|
|
142,917
|
|
|
|
328,995
|
|
|
|
432,637
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Total research and development
|
|
$
|
2,046,533
|
|
|
$
|
1,506,581
|
|
|
$
|
9,237,169
|
|
|
$
|
6,747,673
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|
We expect research and development expenses
to increase in the future when and if we initiate Phase 3 clinical trials for LPCN 1111 and LPCN 1107.
General and Administrative Expenses
General and administrative expenses consist
primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development,
marketing, sales and support functions. Other general and administrative expenses include rent and utilities, travel expenses,
professional fees for auditing, tax and legal services, market research and market analytics.
They also include expenses for the cost
of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related
claims.
We expect that general and administrative
expenses will increase materially as we mature as a public company. These increases will likely include legal and consulting fees,
accounting and audit fees, director fees, increased directors’ and officers’ insurance premiums, fees for investor
relations services and enhanced business and accounting systems, litigation costs, professional fees and other costs. However,
outside spend on sales and marketing pre-commercialization activities will be consistent with spend during the three months ended
September 30, 2017 until we receive clarity on the regulatory path forward for TLANDO. If the FDA approves TLANDO, we will increase
our outside spend on pre-commercialization and commercialization activities substantially and will need to raise additional capital
to fund these expenses.
Other Income, Net
Other income, net consists primarily of
interest earned on our cash, cash equivalents and marketable investment securities.
Results of Operations
Comparison of the Three Months Ended September 30, 2017
and 2016
The following table summarizes our results
of operations for the three months ended September 30, 2017 and 2016:
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Three Months Ended September 30,
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|
|
|
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2017
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|
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2016
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|
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Variance
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Research and development expenses
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|
$
|
2,046,533
|
|
|
$
|
1,506,581
|
|
|
|
539,952
|
|
General and administrative expenses
|
|
|
2,719,526
|
|
|
|
1,394,406
|
|
|
|
1,325,120
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Restructuring costs
|
|
|
-
|
|
|
|
385,233
|
|
|
|
(385,233
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)
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Other income, net
|
|
|
(65,811
|
)
|
|
|
(50,735
|
)
|
|
|
(15,076
|
)
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Research and Development Expenses
The increase in research and development
expenses during the three months ended September 30, 2017 was primarily due to an increase in contract research organization costs
of $261,000 for TLANDO for the conduct of the DV and DF clinical studies and an increase in contract manufacturing costs of $318,000
for TLANDO and LPCN 1107. This was offset by a decrease of $42,000 in travel and other allocated overhead costs.
General and Administrative Expenses
The increase in general and administrative
expenses during the three months ended September 30, 2017 was primarily due to an increase of $664,000 for market research and
pre-commercialization activities related to TLANDO and an increase of $768,000 associated with severance benefits under an employee
agreement to a terminated employee which included salary and accelerated vesting of stock options and restricted stock units offset
by $124,000 in decreased personnel costs as a result of the restructurings that took place in July 2016 and October 2016.
Other Income, Net
The increase in other income, net, primarily
reflects increased interest rates on average balances in cash, cash equivalents and marketable investment securities in 2017 as
compared to 2016.
Comparison of the Nine Months Ended September 30, 2017
and 2016
The following table summarizes our results
of operations for the nine months ended September 30, 2017 and 2016:
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Nine months ended September 30,
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|
|
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2017
|
|
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2016
|
|
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Variance
|
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Research and development expenses
|
|
|
9,237,169
|
|
|
|
6,747,673
|
|
|
|
2,489,496
|
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General and administrative expenses
|
|
|
6,578,423
|
|
|
|
9,038,837
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|
|
|
(2,460,414
|
)
|
Restructuring costs
|
|
|
-
|
|
|
|
385,233
|
|
|
|
(385,233
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)
|
Other income, net
|
|
|
(165,018
|
)
|
|
|
(167,403
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)
|
|
|
2,385
|
|
Income tax expense
|
|
|
700
|
|
|
|
700
|
|
|
|
-
|
|
Research and Development Expenses
The increase in research and development
expenses in the nine months ended September 30, 2017 was primarily due to an increase in contract research organization costs of
$4.0 million for TLANDO for the conduct of the DV and DF clinical studies offset by a decrease in technical batch manufacturing
costs for TLANDO of $1.2 million, decreased personnel costs of $75,000, decreased outside services of $118,000, and reduced travel
and other allocated overhead costs of $80,000.
General and Administrative Expenses
The decrease in general and administrative
expenses during the nine months ended September 30, 2017 was primarily due to a decrease of $1.4 million for business development,
market research and pre-commercialization activities related to TLANDO, a decrease of $719,000 for legal fees related to patent
litigation, and a decrease of $314,000 in personnel costs. Personnel costs decreased as a result of the restructurings that took
place in July 2016 and October 2016 by $1.1 million offset by an increase in personnel cost of $768,000 associated with severance
benefits under an employee agreement to a terminated employee which included salary and accelerated vesting of stock options and
restricted stock units.
Other Income, Net
The decrease in other income, net, primarily
reflects decreased interest earned on lower average balances in cash, cash equivalents and marketable investment securities in
2017 as compared to 2016.
Liquidity and Capital Resources
Since our inception, our operations have
been primarily financed through sales of our equity and payments received under our license and collaboration arrangements. We
have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical
development activities. We have incurred operating losses in most years since our inception and we expect to continue to incur
operating losses into the foreseeable future as we seek to advance our lead product candidate, TLANDO, and further clinical development
of LPCN 1111, LPCN 1107 and our other programs and continued research efforts.
As of September 30, 2017, we had $25.7
million of cash, cash equivalents and marketable investment securities compared to $26.8 million at December 31, 2016.
On March 6, 2017, we entered into the Sales
Agreement with Cantor pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate
offering price of up to $20.0 million through Cantor as our sales agent. Cantor may sell our common stock by any method permitted
by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales
made directly on or through the Nasdaq Capital Market or any other existing trade market for our common stock, in negotiated transactions
at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted
by law.
The shares of our common stock to be sold
under the Sales Agreement will be sold and issued pursuant to the Company’s Registration Statement on Form S-3 (File No.
333-199093) (the “Existing Form S-3”), which was previously declared effective by the Securities and Exchange Commission,
and the related prospectus and one or more prospectus supplements. Cantor will use its commercially reasonable efforts consistent
with its normal trading and sales practices and applicable law and regulations to sell these shares. We will pay Cantor 3.0% of
the aggregate gross proceeds from each sale of shares under the Sales Agreement. We have also provided Cantor with customary indemnification
rights.
On October 13, 2017, we filed a Form S-3
(File No. 333-220942) (the “New Form S-3”) to replace the Existing Form S-3. The New Form S-3 has not yet been
declared effective by the Securities and Exchange Commission. The New Form S-3, when effective, will register the sale of
up to $150,000,000 of any combination of common stock, preferred stock, debt securities, warrants and units pursuant to a shelf
registration statement. The New Form S-3 also contains a prospectus pursuant to which we may sell, from time to time, shares
of our common stock having an aggregate offering price of up to $25 million through Cantor as our sales agent, pursuant to the
Sales Agreement that we currently have in place with Cantor. The other terms of the Sales Agreement that are described
above will apply to the up to $25 million “at the market offering” anticipated to be made pursuant to the prospectus
in the New Form S-3. Pursuant to Rule 415(a)(6) of the Securities Act of 1933, as amended, the offering of securities on
the Existing Form S-3 will be deemed terminated as of the date of effectiveness of the New Form S-3.
We are not obligated to make any sales
of our common stock under the Sales Agreement. The offering of our common stock pursuant to the Sales Agreement will terminate
upon the termination of the Sales Agreement as permitted therein. We and Cantor may each terminate the Sales Agreement at any time
upon ten days’ prior notice.
As of September 30, 2017, we have sold
2,518,109 shares of our common stock resulting in net proceeds of approximately $10.6 million under the Sales Agreement which is
net of $260,000 commissions paid to Cantor in connection with these sales.
We believe that our existing capital resources,
together with interest thereon, will be sufficient to meet our projected operating requirements through September 30, 2018. While
we believe we have sufficient liquidity and capital resources to fund our projected operating requirements through September 30,
2018, we will need to raise additional capital at some point, either before or after September 30, 2018, to support our operations,
long-term research and development and commercialization of our product candidates if we receive approval of TLANDO from the FDA.
We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner
than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and
capital requirements for product development, regulatory compliance, clinical trials and pre-commercialization activities sooner
than planned. We may consume our capital resources more rapidly if the FDA approval for TLANDO is delayed or denied, or if we elect
to pursue the build out of an internal sales force as part of our commercialization launch plan if our product candidates receive
approval from the FDA. Conversely, our capital resources could last longer if we reduce expenses and the number of activities currently
contemplated under our operating plan.
We currently have no credit facility or
committed sources of debt capital. We can raise capital pursuant to the Sales Agreement in the ATM Offering but may choose not
to issue common stock if our market price is too low to justify such sales in our discretion. There are numerous risks and uncertainties
associated with the development and, subject to approval by the FDA, commercialization of our product candidates. There are numerous
risks and uncertainties impacting our ability to enter into collaborations with third parties to participate in the development
and potential commercialization of our product candidates. We are unable to precisely estimate the amounts of increased capital
outlays and operating expenditures associated with our anticipated or unanticipated clinical studies and ongoing development and
pre-commercialization efforts. All of these factors affect our need for additional capital resources. To fund future operations,
we will need to ultimately raise additional capital and our requirements will depend on many factors, including the following:
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further clinical development requirements, if any, or other requirements of the FDA related to approval of TLANDO;
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•
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the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities;
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•
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the scope of clinical and other work required to obtain approval of TLANDO and our other product candidates;
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•
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the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products
that we may develop;
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•
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the cost and timing of establishing sales, marketing and distribution capabilities;
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•
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the terms and timing of any collaborative, licensing and other arrangements that we may establish;
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•
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the number and characteristics of product candidates that we pursue;
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•
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the cost, timing and outcomes of regulatory approvals;
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•
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the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;
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•
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the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
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•
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the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments
or agreements relating to any of these types of transactions; and
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•
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the extent to which we grow significantly in the number of employees or the scope of our operations.
|
Funding may not be available to us on acceptable
terms, or at all. Also, market conditions may prevent us from accessing the debt and equity capital markets, including sales of
our common stock through the ATM Offering. If we are unable to obtain adequate financing when needed, we may have to delay, reduce
the scope of or suspend one or more of our clinical studies, research and development programs or, if any of our product candidates
receive approval from the FDA, commercialization efforts. We may seek to raise any necessary additional capital through a combination
of public or private equity offerings, including the ATM Offering, debt financings, collaborations, strategic alliances, licensing
arrangements and other marketing and distribution arrangements. These arrangements may not be available to us or available on terms
favorable to us. To the extent that we raise additional capital through marketing and distribution arrangements, other collaborations,
strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates,
future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If
we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders
will be diluted, and the terms of these securities may include liquidation or other preferences, warrants or other terms that adversely
affect our stockholders’ rights or further complicate raising additional capital in the future. If we raise additional capital
through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we are unable, for any reason, to raise needed capital,
we will have to reduce costs, delay research and development programs, liquidate assets, dispose of rights, commercialize products
or product candidates earlier than planned or on less favorable terms than desired or reduce or cease operations.
Sources and Uses of Cash
The following table provides a summary
of our cash flows for the nine months ended September 30, 2017 and 2016:
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash used in operating activities
|
|
$
|
(12,405,063
|
)
|
|
$
|
(15,734,870
|
)
|
Cash provided by investing activities
|
|
|
4,935,310
|
|
|
|
399,601
|
|
Cash provided by financing activities
|
|
|
11,179,860
|
|
|
|
34,249
|
|
Net Cash Used in Operating Activities
During the nine months ended September
30, 2017 and 2016, net cash used in operating activities was $12.4 million and $15.7 million, respectively.
Net cash used in operating activities
during the nine months ended September 30, 2017 and 2016 was primarily attributable to cash outlays to support on-going operations,
including research and development expenses and general and administrative expenses. During 2017, we were performing activities
required to resubmit the TLANDO NDA, including conducting our DV study and DF study for TLANDO. Additionally, we were conducting
our preclinical toxicity study with LPCN 1111 and we were drafting our protocol for LPCN 1107 as well as conducting manufacturing
scale-up activities for LPCN 1107. During 2016, we had our TLANDO NDA under review with the FDA, we were building out our commercial
infrastructure and capabilities leading up to our PDUFA date of June 28, 2016 with TLANDO, we were analyzing data from a multi-dose
PK study with LPCN 1107 and we were conducting a Phase 2b clinical study with LPCN 1111.
Net Cash Provided by Investing Activities
During the nine months ended September
30, 2017 and 2016, net cash provided by investing activities was $4.9 million and $400,000, respectively.
Net cash provided by investing activities
during 2017 and 2016 was primarily the result of utilizing marketable investment securities, net, of $4.9 million and $400,000,
respectively, to fund operations. There were no capital expenditures for the nine months ended September 30, 2017 and capital expenditures
for the nine months ended September 30, 2016 were $60,000.
Net Cash Provided by Financing Activities
During the nine months ended September
30, 2017 and 2016 net cash provided by financing activities was $11.2 million and $34,000, respectively.
Net cash provided by financing activities
during 2017 was primarily attributable to the net proceeds from the sale of 2,518,109 shares of common stock pursuant to the ATM
Offering resulting in net proceeds of $10.6 million as well as proceeds from the exercise of stock options.
Net cash provided by financing activities
during 2016 was primarily attributable to proceeds from the exercise of stock options.
Employee stock
option exercises provided approximately $535,000 and $34,000 of cash during the nine months ended September 30, 2017 and 2016,
respectively. Proceeds from the exercise of employee stock options vary from period to period based upon, among other factors,
fluctuations in the market price of our common stock relative to the exercise price of such options.
Contractual Commitments and Contingencies
Purchase Obligations
We enter into contracts and issue purchase
orders in the normal course of business with clinical research organizations for clinical trials and clinical and commercial supply
manufacturing and with vendors for preclinical research studies, research supplies and other services and products for operating
purposes. These contracts generally provide for termination on notice and are cancellable obligations.
Operating Leases
In August 2004, we entered into an agreement
to lease our facility in Salt Lake City, Utah consisting of office and laboratory space which serves as our corporate headquarters.
On May 6, 2014, we modified and extended the lease through February 28, 2018. Our remaining commitment through 2018 under this
lease is $128,000. Additionally, on December 28, 2015, we entered into an agreement to lease office space in Lawrenceville, New
Jersey which has an occupancy date of February 1, 2016 and an end date of January 31, 2018. Our remaining commitment through 2018
under this lease is $28,000.
Other Contractual Obligations
We enter into contracts in the normal course
of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical
research studies, research supplies and other services and products for operating purposes. These contracts generally provide for
termination on notice, and are cancellable obligations.
JOBS Act Accounting Election
We are an “emerging growth company,”
as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards
issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably
elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the
same new or revised accounting standards as other public companies that are not emerging growth companies.
Critical Accounting Policies and Significant Judgments and
Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our financial statements which we have prepared in accordance
with U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our estimates
are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no
significant and material changes in our critical accounting policies during the three and nine months ended September 30, 2017,
as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical
Accounting Policies and Significant Judgments and Estimates” in our Form 10-K filed March 6, 2017.
New Accounting Standards
Refer to Note 12, in “Notes to Unaudited
Condensed Consolidated Financial Statements” for a discussion of accounting standards not yet adopted.
Off-Balance Sheet Arrangements
None.