|
ITEM 1.
|
FINANCIAL STATEMENTS
|
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,802,806
|
|
|
$
|
3,210,749
|
|
Restricted cash
|
|
|
5,000,000
|
|
|
|
-
|
|
Marketable investment securities
|
|
|
12,077,016
|
|
|
|
18,257,321
|
|
Accrued interest income
|
|
|
29,892
|
|
|
|
23,067
|
|
Litigation insurance recovery
|
|
|
-
|
|
|
|
3,319,927
|
|
Prepaid and other current assets
|
|
|
728,482
|
|
|
|
408,227
|
|
Total current assets
|
|
|
22,638,196
|
|
|
|
25,219,291
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $1,120,256 and $1,121,080, respectively
|
|
|
23,442
|
|
|
|
75,070
|
|
Other assets
|
|
|
23,753
|
|
|
|
30,753
|
|
Total assets
|
|
$
|
22,685,391
|
|
|
$
|
25,325,114
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
239,922
|
|
|
$
|
598,070
|
|
Litigation settlement payable
|
|
|
-
|
|
|
|
4,250,000
|
|
Accrued expenses
|
|
|
488,632
|
|
|
|
1,497,056
|
|
Debt - current portion
|
|
|
2,341,054
|
|
|
|
-
|
|
Total current liabilities
|
|
|
3,069,608
|
|
|
|
6,345,126
|
|
|
|
|
|
|
|
|
|
|
Debt - non-current portion
|
|
|
7,853,844
|
|
|
|
-
|
|
Total liabilities
|
|
|
10,923,452
|
|
|
|
6,345,126
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 5 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; 21,340,017 and 21,270,249 issued and 21,334,307 and 21,264,539 outstanding
|
|
|
2,134
|
|
|
|
2,127
|
|
Additional paid-in capital
|
|
|
146,638,736
|
|
|
|
145,423,012
|
|
Treasury stock at cost, 5,710 shares
|
|
|
(40,712
|
)
|
|
|
(40,712
|
)
|
Accumulated other comprehensive loss
|
|
|
(3,853
|
)
|
|
|
(4,616
|
)
|
Accumulated deficit
|
|
|
(134,834,366
|
)
|
|
|
(126,399,823
|
)
|
Total stockholders' equity
|
|
|
11,761,939
|
|
|
|
18,979,988
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
22,685,391
|
|
|
$
|
25,325,114
|
|
See accompanying notes to unaudited condensed consolidated financial
statements
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
and Comprehensive Loss
(Unaudited)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
428,031
|
|
|
$
|
-
|
|
Total revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
428,031
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,422,919
|
|
|
|
2,046,533
|
|
|
|
4,282,823
|
|
|
|
9,237,169
|
|
General and administrative
|
|
|
930,137
|
|
|
|
2,719,526
|
|
|
|
4,299,659
|
|
|
|
6,578,423
|
|
Total operating expenses
|
|
|
2,353,056
|
|
|
|
4,766,059
|
|
|
|
8,582,482
|
|
|
|
15,815,592
|
|
Operating loss
|
|
|
(2,353,056
|
)
|
|
|
(4,766,059
|
)
|
|
|
(8,154,451
|
)
|
|
|
(15,815,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and investment income
|
|
|
112,561
|
|
|
|
65,811
|
|
|
|
343,145
|
|
|
|
165,018
|
|
Interest expense
|
|
|
(218,577
|
)
|
|
|
-
|
|
|
|
(622,537
|
)
|
|
|
-
|
|
Total other income (expense), net
|
|
|
(106,016
|
)
|
|
|
65,811
|
|
|
|
(279,392
|
)
|
|
|
165,018
|
|
Loss before income tax expense
|
|
|
(2,459,072
|
)
|
|
|
(4,700,248
|
)
|
|
|
(8,433,843
|
)
|
|
|
(15,650,574
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(700
|
)
|
|
|
(700
|
)
|
Net loss
|
|
$
|
(2,459,072
|
)
|
|
$
|
(4,700,248
|
)
|
|
$
|
(8,434,543
|
)
|
|
$
|
(15,651,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.12
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
21,266,639
|
|
|
|
20,890,580
|
|
|
|
21,265,247
|
|
|
|
19,666,131
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.12
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
21,266,639
|
|
|
|
20,890,580
|
|
|
|
21,265,247
|
|
|
|
19,666,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,459,072
|
)
|
|
$
|
(4,700,248
|
)
|
|
$
|
(8,434,543
|
)
|
|
$
|
(15,651,274
|
)
|
Net unrealized gain on available-for-sale securities
|
|
|
7,756
|
|
|
|
79
|
|
|
|
763
|
|
|
|
7,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(2,451,316
|
)
|
|
$
|
(4,700,169
|
)
|
|
$
|
(8,433,780
|
)
|
|
$
|
(15,643,314
|
)
|
See accompanying notes to unaudited condensed consolidated financial
statements
LIPOCINE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,434,543
|
)
|
|
$
|
(15,651,274
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
14,150
|
|
|
|
21,278
|
|
Loss on disposition of property and equipment
|
|
|
37,478
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
1,124,970
|
|
|
|
2,217,709
|
|
Non-cash interest expense
|
|
|
194,898
|
|
|
|
-
|
|
Amortization of discount on marketable investment securities
|
|
|
(159,226
|
)
|
|
|
(56,530
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest income
|
|
|
(6,825
|
)
|
|
|
29,687
|
|
Prepaid and other current assets
|
|
|
(320,255
|
)
|
|
|
(123,898
|
)
|
Accounts payable
|
|
|
(358,148
|
)
|
|
|
557,904
|
|
Litigation insurance recovery
|
|
|
3,319,927
|
|
|
|
-
|
|
Litigation settlement payable
|
|
|
(4,250,000
|
)
|
|
|
-
|
|
Accrued expenses
|
|
|
(1,008,424
|
)
|
|
|
600,061
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(9,845,998
|
)
|
|
|
(12,405,063
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refund of rental deposit
|
|
|
7,000
|
|
|
|
-
|
|
Purchases of marketable investment securities
|
|
|
(20,698,650
|
)
|
|
|
(24,746,690
|
)
|
Maturities of marketable investment securities
|
|
|
27,038,944
|
|
|
|
29,682,000
|
|
|
|
|
|
|
|
|
|
|
Cash provided by investing activities
|
|
|
6,347,294
|
|
|
|
4,935,310
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
10,000,000
|
|
|
|
-
|
|
Proceeds from stock option exercises
|
|
|
-
|
|
|
|
534,977
|
|
Net proceeds from common stock offering
|
|
|
90,761
|
|
|
|
10,644,883
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
10,090,761
|
|
|
|
11,179,860
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents, and restricted cash
|
|
|
6,592,057
|
|
|
|
3,710,107
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
3,210,749
|
|
|
|
5,560,716
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period
|
|
$
|
9,802,806
|
|
|
$
|
9,270,823
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
427,639
|
|
|
$
|
-
|
|
Income taxes paid
|
|
|
700
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Net unrealized gain on available-for-sale securities
|
|
$
|
763
|
|
|
$
|
7,960
|
|
Accrued final payment charge on debt
|
|
|
194,898
|
|
|
|
-
|
|
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, 2018 are not necessarily indicative
of the results that may be expected for any future period or for the year ended December 31, 2018.
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, 2017.
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.
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, 2018 and 2017:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Basic loss per share attributable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,459,072
|
)
|
|
$
|
(4,700,248
|
)
|
|
$
|
(8,434,543
|
)
|
|
$
|
(15,651,274
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted avg. common shares outstanding
|
|
|
21,266,639
|
|
|
|
20,890,580
|
|
|
|
21,265,247
|
|
|
|
19,666,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.12
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,459,072
|
)
|
|
$
|
(4,700,248
|
)
|
|
$
|
(8,434,543
|
)
|
|
$
|
(15,651,274
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted avg. common shares outstanding
|
|
|
21,266,639
|
|
|
|
20,890,580
|
|
|
|
21,265,247
|
|
|
|
19,666,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.12
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.80
|
)
|
The computation of diluted loss per share for the three
and nine months ended September 30, 2018 and 2017 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,
|
|
|
|
2018
|
|
|
2017
|
|
Stock options
|
|
|
2,208,228
|
|
|
|
2,067,967
|
|
Unvested restricted stock units
|
|
|
164,623
|
|
|
|
272,000
|
|
|
(3)
|
Marketable Investment Securities
|
The Company has classified its marketable investment
securities as available-for-sale securities, all of which are debt securities. Debt 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, 2018 and December 31, 2017 were as follows:
September 30, 2018
|
|
Amortized
Cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Aggregate
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds and notes
|
|
$
|
1,994,757
|
|
|
$
|
-
|
|
|
$
|
(447
|
)
|
|
$
|
1,994,310
|
|
Corporate bonds, notes and commercial paper
|
|
|
10,086,112
|
|
|
|
-
|
|
|
|
(3,406
|
)
|
|
|
10,082,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,080,869
|
|
|
$
|
-
|
|
|
$
|
(3,853
|
)
|
|
$
|
12,077,016
|
|
December 31, 2017
|
|
Amortized
Cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Aggregate
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds and notes
|
|
$
|
4,744,566
|
|
|
$
|
-
|
|
|
$
|
(2,876
|
)
|
|
$
|
4,741,690
|
|
Corporate bonds, notes and commercial paper
|
|
|
13,517,371
|
|
|
|
-
|
|
|
|
(1,740
|
)
|
|
|
13,515,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,261,937
|
|
|
$
|
-
|
|
|
$
|
(4,616
|
)
|
|
$
|
18,257,321
|
|
Maturities of debt securities classified
as available-for-sale securities at September 30, 2018 are as follows:
September 30, 2018
|
|
Amortized
Cost
|
|
|
Aggregate
fair value
|
|
Due within one year
|
|
$
|
12,080,869
|
|
|
$
|
12,077,016
|
|
There were no sales of marketable investment securities
during the three and nine months ended September 30, 2018 and 2017 and therefore no realized gains or losses. Additionally, $10.4
million and $8.4 million of marketable investment securities matured during the three months ended September 30, 2018 and 2017,
respectively. Also, $27.0 million and $29.7 million of marketable investment securities matured during the nine months ended September
30, 2018 and 2017, respectively. The Company determined there were no other-than-temporary impairments for the three and nine months
ended September 30, 2018 and 2017.
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, 2018 and December 31, 2017:
|
|
September 30,
|
|
|
Fair value measurements at reporting date using
|
|
|
|
2018
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds, corporate bonds, treasury bills, and treasury bonds
|
|
$
|
4,345,681
|
|
|
$
|
3,845,786
|
|
|
$
|
499,895
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds and notes
|
|
|
1,994,310
|
|
|
|
1,994,310
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds, notes and commercial paper
|
|
|
10,082,706
|
|
|
|
-
|
|
|
|
10,082,706
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,422,697
|
|
|
$
|
5,840,096
|
|
|
$
|
10,582,601
|
|
|
$
|
-
|
|
|
|
December 31,
|
|
|
Fair value measurements at reporting date using
|
|
|
|
2017
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds
|
|
$
|
2,171,814
|
|
|
$
|
2,171,814
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds and notes
|
|
|
4,741,690
|
|
|
|
4,741,690
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds, notes and commercial paper
|
|
|
13,515,631
|
|
|
|
-
|
|
|
|
13,515,631
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,429,135
|
|
|
$
|
6,913,504
|
|
|
$
|
13,515,631
|
|
|
$
|
-
|
|
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, commercial paper and treasury bills 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 and treasury
bills 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, 2018.
|
(5)
|
Loan and Security Agreement
|
On January 5, 2018, the Company entered into a Loan and
Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) pursuant to which
SVB agreed to lend the Company $10.0 million. The principal borrowed under the Loan and Security Agreement bears a fixed interest
rate equal to the Prime Rate, as reported in the money rates section of The Wall Street Journal or any successor publication representing
the rate of interest per annum then in effect, plus one percent per annum, which interest is payable monthly. The loan matures
on December 1, 2021. The Company is only required to make monthly interest payments until December 31, 2018, following which the
Company will be required to also make equal monthly payments of principal and interest for the remainder of the term. The Company
will also be required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).
The Final Payment Charge will be due on the scheduled maturity date and is being recognized as an increase to the principal balance
with a corresponding charge to interest expense over the term of the facility using the effective interest method. At its option,
the Company may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest and the
Final Payment Charge), subject to a prepayment charge if the loan has been outstanding for less than two years, which prepayment
charge is determined based on the date the loan is prepaid.
In connection with the Loan and Security Agreement, the
Company granted to SVB a security interest in substantially all of the Company’s assets now owned or hereafter acquired,
excluding intellectual property and certain other assets. In addition, as TLANDO was not approved by the FDA prior to May 31, 2018,
the Company maintains $5.0 million of cash collateral at SVB as required under the Loan and Security Agreement until such time
as TLANDO is approved by the FDA.
While any amounts are outstanding under the Loan and
Security Agreement, the Company is subject to a number of affirmative and negative covenants, including covenants regarding dispositions
of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among
other customary covenants. The credit facility also includes events of default, the occurrence and continuation of which could
cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with
the right to exercise remedies against the Company and the collateral securing the credit facility, including foreclosure against
the property securing the credit facilities, including its cash. These events of default include, among other things, any failure
by the Company to pay principal or interest due under the credit facility, a breach of certain covenants under the credit facility,
the Company’s insolvency, a material adverse change, and one or more judgments against the Company in an amount greater than
$100,000 individually or in the aggregate.
Principal payments on debt at September
30, 2018, are as follows:
Years Ending December 31,
|
|
Amount
(in thousands)
|
|
2018
|
|
$
|
—
|
|
2019
|
|
|
3,144
|
|
2020
|
|
|
3,330
|
|
2021
|
|
|
3,526
|
|
Thereafter
|
|
|
—
|
|
|
|
$
|
10,000
|
|
The following table provides a reconciliation of cash,
cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such
amounts shown in the statement of cash flows.
|
|
September 30,
|
|
|
|
2018
|
|
Cash and cash equivalents
|
|
$
|
4,802,806
|
|
Restricted cash
|
|
|
5,000,000
|
|
Cash , cash equivalents, and restricted cash shown in the statement of cash flows
|
|
$
|
9,802,806
|
|
Amounts included in restricted cash represent those
required to be set aside by the Loan and Security Agreement. The restriction will lapse if and when TLANDO is approved by the FDA.
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, 2018 and December 31, 2017, 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 or nine months ended September 30, 2018 and 2017.
|
(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 $887,000 and $1.4 million, respectively, for the three months ended September 30, 2018 and 2017 and $2.5 million
and $7.3 million, respectively, for the nine months ended September 30, 2018 and 2017 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. On February 8, 2018, the Company extended the lease through February 28, 2019. Additionally,
on December 28, 2015, the Company entered into an operating lease for office space in Lawrenceville, New Jersey through January
31, 2018. The Company vacated the Lawrenceville, New Jersey office on 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, 2018 are:
|
|
Operating
|
|
|
|
leases
|
|
Year ending December 31:
|
|
|
|
|
2018
|
|
|
80,190
|
|
2019
|
|
|
53,460
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
133,650
|
|
The Company’s rent expense
was $80,000 and $95,000 for the three months ended September 30, 2018 and 2017, respectively, and $243,000 and $285,000 for the
nine months ended September 30, 2018 and 2017, respectively.
|
(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 were originally sold and issued pursuant to the Company’s Registration Statement on
Form S-3 (File No. 333-199093) (the “Prior Form S-3”), which was previously declared effective by the Securities and
Exchange Commission, and the related prospectus and one or more prospectus supplements. 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
been declared effective by the Securities and Exchange Commission, and the Prior Form S-3 has been terminated. The New Form
S-3 registered 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. On September 20, 2018, the Company filed a prospectus supplement in which
the Company disclosed that as a result of the limitations of General Instruction I.B.6. of Form S-3, and in accordance with the
terms of the Sales Agreement, the amount of shares of our common stock available for sale under the New Form S-3 is now limited
to $10.8 million over any rolling 12-month period.
As of September 30, 2018, we had sold an aggregate of
2,587,877 shares at a weighted-average sales price of $4.32 per share under the ATM for aggregate gross proceeds of $11.2 million
and net proceeds of $10.7 million, after deducting sales agent commission and discounts and our other offering costs. During the
three and nine months ended September 30, 2018, we sold an aggregate of 69,768 shares at a weighted-average sales price of $1.40
per share under the ATM for aggregate gross proceeds of $98,000 and $91,000 in net proceeds. During the three months ended September
30, 2017, we sold an aggregate of 531,400 shares at a weighted-average sales price of $4.34 per share under the ATM for aggregate
gross proceeds of $2.3 million and $2.3 million in net proceeds. During the nine months ended September 30, 2017, we 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 $10.6 million in net proceeds.
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 was originally
set to expire on November 12, 2018; however, on November 5, 2018 our Board of Directors approved an extension of the expiration
date to November 5, 2021, 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 $244,000 and $939,000, respectively, for the three months ended September 30, 2018 and
2017 and $1.1 million and $2.2 million, respectively, for the nine months ended September 30, 2018 and 2017, allocated as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
151,580
|
|
|
$
|
196,869
|
|
|
$
|
451,662
|
|
|
$
|
620,881
|
|
General and administrative
|
|
|
91,956
|
|
|
|
742,411
|
|
|
|
673,308
|
|
|
|
1,596,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
243,536
|
|
|
$
|
939,280
|
|
|
$
|
1,124,970
|
|
|
$
|
2,217,709
|
|
The Company did not issue any stock options during the
three months ended September 30, 2018 and 2017, and the Company issued 80,000 and 50,000 stock options during the nine months ended
September 30, 2018 and 2017, respectively. 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 three and nine months ended September 30, 2018
or the three months ended September 30, 2017.
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 is based on a combination of the Company's trading history since March 2014 and the average
of similar public companies. Beginning in July 2017, the volatility factor is based solely on the Company’s trading history
since March 2014.
For options granted during the three and nine months
ended September 30, 2018 and 2017, the Company calculated the fair value of each option grant on the respective dates of grant
using the following weighted average assumptions:
|
|
2018
|
|
|
2017
|
|
Expected term
|
|
|
5.50 years
|
|
|
|
5.85 years
|
|
Risk-free interest rate
|
|
|
2.72
|
%
|
|
|
1.96
|
%
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
Expected volatility
|
|
|
77.29
|
%
|
|
|
85.56
|
%
|
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, 2018, there was $1.2 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 1.52 years and will be adjusted for subsequent
changes in estimated forfeitures. Additionally, as of September 30, 2018, there was $594,000 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. Additionally, upon receiving shareholder approval in June 2018, the 2014 Plan was further 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 2,471,906 to 3,221,906. 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 3,221,906 shares are authorized for issuance under the 2014 Plan, with 1,528,704 shares
remaining available for grant as of September 30, 2018.
A summary of stock option activity is as follows:
|
|
Outstanding stock options
|
|
|
|
Number of
shares
|
|
|
Weighted average
exercise price
|
|
Balance at December 31, 2017
|
|
|
2,374,449
|
|
|
$
|
5.64
|
|
Options granted
|
|
|
80,000
|
|
|
|
1.33
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
Options forfeited
|
|
|
(198,581
|
)
|
|
|
4.04
|
|
Options cancelled
|
|
|
(47,640
|
)
|
|
|
6.61
|
|
Balance at September 30, 2018
|
|
|
2,208,228
|
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2018
|
|
|
1,607,693
|
|
|
|
6.29
|
|
The following table summarizes information about stock
options outstanding and exercisable at September 30, 2018:
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,208,228
|
|
|
6.37
|
|
|
$
|
5.60
|
|
|
$
|
4,000
|
|
|
|
1,607,693
|
|
|
|
5.41
|
|
|
$
|
6.29
|
|
|
$
|
-
|
|
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, 2018 and 2017 was zero and $202,000, respectively. There were no stock options exercised during
the nine months ended September 30, 2018 and 190,383 stock options were exercised during the nine months ended September 30, 2017.
|
(e)
|
Restricted Stock Units
|
A summary of restricted stock unit activity is as follows:
|
|
Number of
unvested restricted
shares
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
203,998
|
|
Granted
|
|
|
-
|
|
Vested
|
|
|
-
|
|
Cancelled
|
|
|
(39,375
|
)
|
Balance at September 30, 2018
|
|
|
164,623
|
|
|
(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.
On July 2, 2018 the court signed a final order approving
the parties’ agreement to settle the purported securities class action litigation captioned
In re Lipocine Inc. Securities
Litigation, 2:17CV00182 DB (D. Utah)
which was originally filed against the Company on July 1, 2016. The final order issued
by the court specifically finds that the settlement set forth in the parties’ stipulation is fair, reasonable, adequate,
and in the best interests of the Class, and resolves all of the claims that were or could have been brought in the action being
settled. The Company maintains insurance for claims of this nature. When the Company signed the memorandum of understanding to
settle the purported securities class action litigation, the potential liability became probable and estimable. The Company recorded
a litigation settlement liability for $4.3 million as of December 31, 2017. Additionally, the Company recorded a litigation insurance
settlement recovery receivable of $3.6 million as of December 31, 2017 which represented the estimated insurance claims proceeds
from our insurance carrier in excess of the Company’s retention. As of September 30, 2018, the Company and the insurance
carrier have remitted the full balance of the litigation settlement and, as such, the litigation settlement liability and litigation
insurance receivable have zero balances.
Beyond
In re Lipocine Inc. Securities Litigation,
2:17CV00182 DB (D. Utah)
, management does not currently believe that any other matter, 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, on July 23, 2017 on January 23, 2018 and again on July 23, 2018 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, 2018 and 2017 and received reimbursements
of zero and $31,000 for the nine months ended September 30, 2018 and 2017, respectively. Additionally, during the three months
ended September 30, 2018 and 2017, the Company did not receive any royalty payments from Spriaso and during the nine months ended
September 30, 2018 and 2017, the Company received approximately $428,000 and zero, respectively, in royalty payments from Spriaso.
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 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 does not have any lease that extends beyond December 31, 2018 other than its facility lease that was extended in February
2018 for a period of one-year until February 28, 2019. 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.
|
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 12, 2018 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, 2018 filed with the SEC on August 7, 2018, Item 1A (Risk Factors) of our Form 10-Q for the quarter
ended March 31, 2018 filed with the SEC on May 7, 2018 or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the
SEC on March 12, 2018. 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 most advanced product candidate, TLANDO™, is an oral testosterone replacement therapy (“TRT”).
On May 8, 2018 TLANDO received a Complete Response Letter ("CRL") from the United States Food and Drug Administration
("FDA") regarding its New Drug Application ("NDA"). A CRL is a communication from the FDA that informs companies
that an application cannot be approved in its present form. The CRL identified four deficiencies which include the following: determining
the extent, if any, of any clinically meaningful ex vivo conversion of testosterone undecanoate (“TU”) to testosterone
(“T”) in serum blood collection tubes to confirm the reliability of T data; obtaining definitive evidence pre-approval
via an ambulatory blood pressure monitoring (“ABPM”) study as to whether TLANDO causes a clinically meaningful increase
in blood pressure in hypogonadal men; verifying the reliability of Cmax data and providing justification for non-applicability
of the agreed-upon and prespecified Cmax secondary endpoints for TLANDO; and, determining the appropriate stopping criteria that
can reproducibly and accurately identify those patients who should discontinue use of TLANDO. The CRL also identified additional
comments that are not considered approvability issues. On July 19, 2018, we completed a Post Action Meeting with the FDA in which
the deficiencies raised in the CRL were discussed and a path forward for NDA resubmission for the potential approval of TLANDO
was clarified. We are currently conducting an ABPM clinical study and have completed enrollment of 138 subjects with a four-month
treatment duration. We expect results in the first quarter of 2019. Additionally, we expect results from a definitive phlebotomy
study evaluating the extent, if any, of clinically meaningful ex vivo conversion of TU to T in the fourth quarter of 2018. Previously
in June 2016, TLANDO received an initial CRL from the FDA that requested additional information related to the dosing algorithm
for the proposed label. We conducted the Dosing Validation (“DV”) study to confirm 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”). Additional pipeline candidates include LPCN 1144, an oral prodrug of bioidentical
testosterone for the treatment of non-alcoholic steatohepatitis (“NASH”), LPCN 1111, a next generation oral testosterone
therapy product with the potential for once daily dosing which is currently in Phase 2 testing and LPCN 1107, potentially the first
oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth which 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, debt and convertible debt and through up-front payments, research funding and royalty 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, 2018, we had an accumulated deficit of $134.8 million. Income and losses fluctuate year to year,
primarily depending on the nature and timing of research and development occurring on our product candidates. Our net loss was
$8.4 million for the nine months ended September 30, 2018, compared to $15.7 million for the nine months ended September 30, 2017.
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:
|
•
|
conduct the ABPM clinical study, definitive phlebotomy
study or any other pre or post-approval clinical studies required in support of TLANDO;
|
|
•
|
prepare to resubmit our NDA for TLANDO;
|
|
•
|
conduct further development of our other product candidates,
including LPCN 1111, LPCN 1107 and LPCN 1144;
|
|
•
|
continue our research efforts;
|
|
•
|
research new products or new uses for our existing
products;
|
|
•
|
maintain, expand and protect our intellectual property
portfolio; 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 including our ABPM clinical study, 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, our ability to license our products to third parties, 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. 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.
Our Product Candidates
Our current portfolio includes our most advanced
product candidate, TLANDO, an oral testosterone replacement. Additionally, we are in the process of establishing our pipeline of
other clinical candidates including an oral androgen therapy for the treatment of NASH, LPCN 1144, 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
TLANDO: An Oral Product Candidate for Testosterone Replacement
Therapy
Our most advanced product, TLANDO, is an oral
formulation of the chemical, TU, an eleven carbon side chain attached to T. TU is an ester prodrug of T. An ester is chemically
formed by bonding an acid and an alcohol. Upon the cleavage, or breaking, of the ester bond, T 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 TLANDO 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
TLANDO 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”).
On May 8, 2018 TLANDO received a CRL from the FDA regarding its NDA. A CRL is a communication from the FDA that informs companies
that an application cannot be approved in its present form. The CRL identified four deficiencies which include the following: determining
the extent, if any, of ex vivo conversion of TU to T in serum blood collection tubes to confirm the reliability of T data; obtaining
definitive evidence pre-approval via an ABPM study as to whether TLANDO causes a clinically meaningful increase in blood pressure
in hypogonadal men; verifying the reliability of Cmax data and providing justification for non-applicability of the agreed-upon
and prespecified Cmax secondary endpoints for TLANDO; and, determining the appropriate stopping criteria that can reproducibly
and accurately identify those patients who should discontinue use of TLANDO. The CRL also identified additional comments that are
not considered approvability issues. On July 19, 2018, we completed a Post Action Meeting with the FDA in which the deficiencies
raised in the CRL were discussed and a path forward for NDA resubmission for the potential approval of TLANDO was clarified. The
FDA provided specific feedback on potential resolution of each deficiency, including clinical design elements where appropriate.
We are currently conducting an ABPM clinical study in which we enrolled 138 subjects. We expect results during the first quarter
of 2019. Subsequent to our Advisory Committee meeting for TLANDO on January 10, 2018, we conducted a pilot phlebotomy study to
assess whether ex vivo conversion of TU to T in serum blood collection tubes occurs post collection. We are currently conducting
a definitive phlebotomy study based on FDA study design feedback to exclude any potential clinically meaningful ex vivo TU to T
conversion post collection. We expect results from the definitive phlebotomy study by the end of the year. Finally, we are performing
additional analyses of existing data in order to address the Cmax deficiency and dose stopping criteria deficiency identified by
the FDA. Although there is no guarantee that TLANDO will ever be approved by the FDA, we believe the data analyses we have performed
to date together with the results from the on-going ABPM clinical study and the definitive phlebotomy study should address the
deficiencies identified by the FDA in its CRL. Assuming results from the APBM clinical study and the definitive phlebotomy study
support resubmission of the TLANDO NDA, we expect resubmission to occur in the first half of 2019 and a six-month review by the
FDA.
Previously on June 28, 2016, we received a CRL
from the FDA on our original NDA submission. The CRL identified a deficiency 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. 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.
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 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. 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 TLANDO. 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 TLANDO 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 TLANDO and 105 were randomized to the active control,
AndroGel 1.62%®, for 52 weeks of treatment. The active control is included for safety assessment. TLANDO 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. The discontinuation rate for
TLANDO was 38% compared to 32% for AndroGel 1.62%.
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 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 prior to the potential approval of TLANDO. 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.
Recent Competition Update
On September 29, 2018, Antares Pharma, Inc.’s
product XYOSTED™, a testosterone enanthate auto-injector administered subcutaneously once each week, was approved by the
FDA. Although the FDA approved XYOSTED™, there is no guarantee that TLANDO will ever be approved.
LPCN 1144: An Oral Androgen Product Candidate for the Treatment
of NASH
We
are currently evaluating LPCN 1144, an oral prodrug of bioidentical testosterone
,
for the
treatment of NASH. NASH is a more advanced state of non-alcoholic fatty liver disease (“NAFLD”) and can progress to
a cirrhotic liver and eventually hepatocellular carcinoma or liver cancer. Twenty to thirty percent of the U.S. population is estimated
to suffer from NAFLD and fifteen to twenty percent of this group progress to NASH, which is a substantially large population that
lacks effective therapy. NAFLD/NASH is becoming more common due to its strong correlation with obesity and metabolic syndrome,
including components of metabolic syndrome such as diabetes, cardiovascular disease and high blood pressure. In men, especially
with comorbidities associated with NAFLD/NASH, testosterone deficiency has been associated with an increased accumulation of visceral
adipose tissue and insulin resistance, which are factors contributing to NAFLD/NASH.
Preclinical and clinical studies in the literature
have shown the prevalence of testosterone deficiency across the NAFLD/NASH histological spectrum wherein low testosterone was independently
associated with NAFLD/NASH with an inverse relationship between testosterone and NAFLD/NASH.
Post hoc analyses of
our existing clinical trials in subjects with comorbidities typically associated with NASH indicate that oral androgen therapy
significantly and consistently reduces elevated levels of key serum biomarkers (liver function enzymes and serum triglyceride)
generally associated with NAFLD/NASH. We are further evaluating this indication potential in a Proof-Of-Concept (“POC”)
study in a biopsy-confirmed NASH
in-vivo
pre-clinical model as well as in a POC clinical study to assess liver fat changes
in hypogonadal men at risk of developing NASH using magnetic resonance imaging, proton density fat fraction (“MRI-PDFF”)
technique. We expect results from the biopsy-confirmed in-vivo POC study and the POC liver imaging study in the first quarter of
2019. Completion of enrollment of 36 subjects in the POC liver study occurred in the fourth quarter of 2018. Additionally, LPCN
1144 results have been selected to be a part of the late-breaker session of The Liver Meeting® 2018. The presentation will
highlight data from multiple clinical trials of LPCN 1144 in potential NAFLD/NASH patients.
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 also completed a preclinical toxicology
study with LPCN 1111 in dogs. In February 2018 we had a meeting with the FDA to discuss these preclinical results and to discuss
the Phase 3 clinical study and path forward for LPCN 1111. Based on the results of this FDA meeting, additional pre-clinical and
clinical trials may be required before a Phase 3 clinical study can be initiated. Additionally, the FDA requested that an ABPM
clinical study be conducted as part of the Phase 3 clinical study. Based on our capital resources and the clinical status of our
product candidates, we will primarily focus our efforts in 2018 on TLANDO. We do not anticipate the initiation of a Phase 3 study
with LPCN 1111 to occur in 2018 unless and until additional capital is secured or the product candidate is out-licensed.
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 multiple rounds of FDA’s feedback. Agreement with the FDA on the Phase 3 protocol via SPA has not occurred and will
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 has been completed. Based on our capital resources and the clinical status of our product
candidates, we plan to primarily focus our efforts in 2018 on TLANDO. We do not anticipate the initiation of a Phase 3 study with
LPCN 1107 to occur in 2018 unless and until additional capital is secured or the product candidate is out-licensed. We are exploring
the possibility of licensing LPCN 1107 to a third party, although no licensing agreement has been entered into by the Company.
No assurance can be given that any license agreement will be completed, or, if an agreement is completed, that such an agreement
would be on acceptable terms.
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, royalty and milestone payments and research support from our licensees. Since
our inception through September 30, 2018, we have generated $27.9 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 commercialize 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 $101.4 million in research and development expenses through September 30, 2018.
We expect to incur approximately $4.7 million
in additional research and developments costs for TLANDO as we conduct and complete the ABPM and definitive phlebotomy clinical
studies. However, these expenditures are subject to numerous uncertainties regarding timing and cost to completion.
We expect to continue to incur significant
costs as we seek approval of TLANDO and as we develop other product candidates.
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:
|
•
|
the number of sites included in the trials;
|
|
•
|
the length of time required to enroll suitable subjects;
|
|
•
|
the duration of subject follow-ups;
|
|
•
|
the length of time required to collect, analyze and
report trial results;
|
|
•
|
the cost, timing and outcome of regulatory review;
and
|
|
•
|
potential changes by the FDA in clinical trial and
NDA filing requirements for testosterone replacement therapies.
|
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:
|
•
|
the timing and outcome of regulatory filings and FDA
reviews and actions for TLANDO;
|
|
•
|
our dependence on third-party manufacturers for the
production of satisfactory finished product for registration and launch should regulatory approval be obtained;
|
|
•
|
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
|
|
•
|
the effect on our product development activities of
actions taken by the FDA or other regulatory authorities.
|
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, LPCN 1144 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, LPCN 1144 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 clinical and regulatory
activities with all of our product candidates Additionally, we incur costs for our other research programs. The following table
summarizes our research and development expenses:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
External service provider costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TLANDO
|
|
$
|
821,219
|
|
|
$
|
953,289
|
|
|
$
|
2,061,560
|
|
|
$
|
6,334,585
|
|
LPCN 1111
|
|
|
28,897
|
|
|
|
134,335
|
|
|
|
80,708
|
|
|
|
310,760
|
|
LPCN 1107
|
|
|
2,000
|
|
|
|
335,458
|
|
|
|
297,264
|
|
|
|
698,683
|
|
LPCN 1144
|
|
|
35,100
|
|
|
|
-
|
|
|
|
35,100
|
|
|
|
-
|
|
Total external service provider costs
|
|
|
887,216
|
|
|
|
1,423,082
|
|
|
|
2,474,632
|
|
|
|
7,344,028
|
|
Internal personnel costs
|
|
|
422,917
|
|
|
|
514,065
|
|
|
|
1,400,591
|
|
|
|
1,564,146
|
|
Other research and development costs
|
|
|
112,786
|
|
|
|
109,386
|
|
|
|
407,600
|
|
|
|
328,995
|
|
Total research and development
|
|
$
|
1,422,919
|
|
|
$
|
2,046,533
|
|
|
$
|
4,282,823
|
|
|
$
|
9,237,169
|
|
We expect research and development expenses
to increase in the future as we complete the ABPM clinical study and definitive phlebotomy clinical study for TLANDO, as we complete
the biopsy-confirmed
in-vivo
POC clinical study and the POC liver imaging study for LPCN 1144 and 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, litigation settlement and 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 continue to increase 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 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 Expense (Income), Net
Other expense (income), net consists primarily
of interest income earned on our cash, cash equivalents and marketable investment securities and interest expense incurred on our
outstanding Loan and Security Agreement.
Results of Operations
Comparison of the Three Months Ended September 30, 2018 and
2017
The following table summarizes our results
of operations for the three months ended September 30, 2018 and 2017:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Variance
|
|
Research and development expenses
|
|
$
|
1,422,919
|
|
|
$
|
2,046,533
|
|
|
|
623,614
|
|
General and administrative expenses
|
|
|
930,137
|
|
|
|
2,719,526
|
|
|
|
1,789,389
|
|
Other expense (income), net
|
|
|
106,016
|
|
|
|
(65,811
|
)
|
|
|
(171,827
|
)
|
Research and Development Expenses
The decrease in research and development expenses
during the three months ended September 30, 2018 was primarily due to reduced contract manufacturing organization costs of $954,000
for TLANDO and LPCN 1107 and reduced personnel costs of $91,000. This was offset by increased contract research organization costs
for TLANDO of $461,000 for the ABPM study. We expect research and development costs to increase through the first quarter of 2019
while we conduct the ABPM study for TLANDO and complete the POC liver imaging study for LPCN 1144.
General and Administrative Expenses
The decrease in general and administrative expenses
during the three months ended September 30, 2018 was primarily due to professional fees related to legal, intellectual property
and commercial activities being lower by $527,000 as well as decreased personnel costs of $1.3 million related to reduced headcount
resulting in lower stock compensation costs, bonus accrual, and salary and related benefit costs in 2018.
Other Expense (Income), Net
The increase in other expense, net, during the
three months ended September 30, 2018 was primarily due to interest expense of $219,000 on our Loan and Security Agreement (the
“Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) which was entered into January 2018. These
increases in other expense were offset by increased interest income due to higher interest rates on balances of cash, cash equivalents
and marketable investment securities in 2018 as compared to 2017.
Comparison of the Nine Months Ended September 30, 2018 and
2017
The following table summarizes our results
of operations for the nine months ended September 30, 2018 and 2017:
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Variance
|
|
License revenue
|
|
$
|
(428,031
|
)
|
|
$
|
-
|
|
|
|
428,031
|
|
Research and development expenses
|
|
|
4,282,823
|
|
|
|
9,237,169
|
|
|
|
4,954,346
|
|
General and administrative expenses
|
|
|
4,299,659
|
|
|
|
6,578,423
|
|
|
|
2,278,764
|
|
Other expense (income), net
|
|
|
279,392
|
|
|
|
(165,018
|
)
|
|
|
(444,410
|
)
|
Income tax expense
|
|
|
700
|
|
|
|
700
|
|
|
|
-
|
|
Revenue
License revenue was $428,000 during the nine
months ended September 30, 2018 compared to no license revenue during the nine months ended September 30, 2017. License revenue
relates to royalty payments received from Spriaso, LLC under a licensing agreement in the cough and cold field. We may or may not
receive royalty payments in the future from Spriaso, LLC.
Research and Development Expenses
The decrease in research and development expenses
during the nine months ended September 30, 2018 was primarily due to reduced contract research organization costs for TLANDO of
$4.1 million as the DV and DF studies were complete in 2017 while the ABPM study was being initiated in 2018, lower personnel costs
of $164,000, and lower contract manufacturing costs of $985,000 for LPCN 1107 offset by increased outside service and other costs
of $344,000 primarily related to the meeting of the Bone, Reproductive and Urologic Drugs Advisory Committee (“BRUDAC”)
of the FDA related to TLANDO that was held in January 2018.
General and Administrative Expenses
The decrease in general and administrative expenses
during the nine months ended September 30, 2018 was primarily due to decreased personnel costs of $1.6 million primarily related
to reduced headcount resulting in lower stock compensation costs, bonus accrual, and salary and related benefit costs in 2018.
Additionally, professional fees decreased $682,000 in 2018 related to legal, intellectual property, and commercial activities.
Other Expense (Income), Net
The increase in other expense, net, during the
nine months ended September 30, 2018 was primarily due to interest expense of $623,000 on our Loan and Security Agreement with
SVB which was entered into January 2018. These increases in other expense were offset by increased interest income due to higher
interest rates on balances of cash, cash equivalents and marketable investment securities in 2018 as compared to 2017.
Liquidity and Capital Resources
Since our inception, our operations have been
primarily financed through sales of our equity securities, debt and payments received under our license and collaboration arrangements.
In January 2018, we secured a term loan with SVB for $10.0 million. 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, LPCN 1144 and our other programs
and continued research efforts.
As of September 30, 2018, we had $16.9 million
of unrestricted cash, cash equivalents and marketable investment securities compared to $21.5 million at December 31, 2017.
Additionally, as of September 30, 2018 we had $5.0 million of restricted cash, which is required to be maintained as cash collateral
under the Loan and Security Agreement.
On January 5, 2018, we entered into the Loan
and Security Agreement with SVB pursuant to which SVB agreed to lend us $10.0 million. The principal borrowed under the Loan and
Security Agreement bears a fixed interest rate equal to the Prime Rate, as reported in money rates section of The Wall Street Journal
or any successor publication representing the rate of interest per annum then in effect, plus one percent per annum, which interest
is payable monthly. The loan matures on December 1, 2021. We are only required to make monthly interest payments until December
31, 2018, following which we will be required to also make equal monthly payments of principal and interest for the remainder of
the term. We will also be required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).
At our option, we may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest
and the Final Payment Charge), subject to a prepayment charge if the loan has been outstanding for less than two years, which prepayment
charge is determined based on the date the loan is prepaid. In connection with the Loan and Security Agreement, we granted to SVB
a security interest in substantially all of our assets now owned or hereafter acquired, excluding intellectual property and certain
other assets. In addition, as TLANDO was not approved by the FDA by May 31, 2018, we are required to maintain $5.0 million of cash
collateral at SVB until such time as TLANDO is approved by the FDA. While any amounts are outstanding under the Loan and Security
Agreement, we are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property,
business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary
covenants. The credit facility also includes events of default, the occurrence and continuation of which could cause interest to
be charged at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise
remedies against us and the collateral securing the credit facility, including foreclosure against the property securing the credit
facilities, including its cash. These events of default include, among other things, any failure by us to pay principal or interest
due under the credit facility, a breach of certain covenants under the credit facility, the Company’s insolvency, a material
adverse change, and one or more judgments against us in an amount greater than $100,000 individually or in the aggregate.
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 “Prior 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 Prior Form S-3. The New Form S-3 has been declared effective
by the Securities and Exchange Commission, and the Prior Form S-3 has been terminated. The New Form S-3 registered 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. On September 20, 2018, the Company filed a prospectus supplement in which the Company disclosed that
as a result of the limitations of General Instruction I.B.6. of Form S-3, and in accordance with the terms of the Sales Agreement,
the amount of shares of our common stock available for sale under the New Form S-3 is now limited to $10.8 million over any rolling
12-month period.
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, 2018, we have sold 2,587,877
shares of our common stock resulting in net proceeds of approximately $10.7 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, 2019. While
we believe we have sufficient liquidity and capital resources to fund our projected operating requirements through September 30,
2019, we will need to raise additional capital at some point, either before or after September 30, 2019, to support our operations,
on-going clinical studies, compliance with regulatory requirements and long-term research and development and commercialization
of TLANDO, 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. Additional clinical studies may be required
to obtain approval of TLANDO and these studies would put additional demands on our limited capital resources. 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 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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•
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further clinical development requirements or other
requirements of the FDA related to approval of TLANDO;
|
|
•
|
the scope, rate of progress, results and cost of our
clinical studies, preclinical testing and other related activities;
|
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•
|
the scope of clinical and other work required to obtain
approval of TLANDO and our other product candidates;
|
|
•
|
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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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.
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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, 2018 and 2017:
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Nine Months Ended September 30,
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|
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2018
|
|
|
2017
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Cash used in operating activities
|
|
$
|
(9,845,998
|
)
|
|
$
|
(12,405,063
|
)
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Cash provided by investing activities
|
|
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6,347,294
|
|
|
|
4,935,310
|
|
Cash provided by financing activities
|
|
|
10,090,761
|
|
|
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11,179,860
|
|
Net Cash Used in Operating Activities
During the nine months ended September 30,
2018 and 2017, net cash used in operating activities was $9.8 million and $12.4 million, respectively.
Net cash used in operating activities during
the nine months ended September 30, 2018 and 2017 was primarily attributable to cash outlays to support ongoing operations, including
research and development expenses and general and administrative expenses. During 2018, we were performing activities related to
the BRUDAC meeting for TLANDO on January 10, 2018 as well as conducting the ABPM clinical study for TLANDO. Additionally, we completed
manufacturing scale-up activities for LPCN 1107. During 2017, we were conducting our DV study and DF study for TLANDO, 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.
Net Cash Provided by Investing Activities
During the nine months ended September 30,
2018 and 2017, net cash provided by investing activities was $6.3 million and $4.9 million, respectively.
Net cash provided by investing activities
during the nine months ended September 30, 2018 and 2017 was primarily the result of utilizing marketable investment securities,
net, of $6.3 and $4.9 million, respectively, to fund operations.
Net Cash Provided by Financing Activities
During the nine months ended September 30,
2018 and 2017 net cash provided by financing activities was $10.1 million and $11.2 million, respectively.
Net cash provided by financing activities
during 2018 was attributable to $10.0 million in proceeds from the SVB Loan and Security Agreement and net proceeds from the sale
of 69,768 shares of common stock pursuant to the ATM Offering resulting in net proceeds of $91,000.
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.
Employee stock option
exercises provided approximately zero and $535,000 of cash during the nine months ended September 30, 2018 and 2017, 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 February 9, 2018, we modified and extended the lease through February 28, 2019. Additionally, on December 28, 2015, we entered
into an agreement to lease office space in Lawrenceville, New Jersey which had an occupancy date of February 1, 2016 and an end
date of January 31, 2018. We vacated the Lawrenceville, New Jersey office on January 31, 2018.
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.
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, 2018,
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 12, 2018.
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.