Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1. Nature of Business
The Company
Onconova Therapeutics, Inc. (the "Company")
was incorporated in the State of Delaware on December 22, 1998 and commenced operations on January 1, 1999. The Company's headquarters
are located in Newtown, Pennsylvania. The Company is a clinical-stage biopharmaceutical company focused on discovering and developing
novel small molecule product candidates primarily to treat cancer. The Company has proprietary targeted cancer agents designed
to work against specific cellular pathways that are important to cancer cells. In August 2020, the Company terminated its Phase
3 INSPIRE trial after the primary endpoint failed to demonstrate an improvement in survival compared to a control arm. The Company
is currently evaluating other compounds in its pipeline and potential compound in-licensing opportunities. The Company believes
that the product candidates in its pipeline have the potential to be efficacious in a variety of cancers. The Company currently
has the following two clinical-stage programs: 1. ON 123300 in solid tumors; and 2. oral rigosertib alone or in combination with
PD-1 inhibitors for treatment of KRAS-mutated solid tumors. During 2012, Onconova Europe GmbH was established as a wholly owned
subsidiary of the Company for the purpose of further developing business in Europe.
The Company has entered into several license
and collaboration agreements. In 2011, the Company entered into a license agreement, as subsequently amended, with SymBio Pharmaceuticals
Limited ("SymBio"), which grants SymBio certain rights to commercialize rigosertib in Japan and Korea. In December 2017,
the Company entered into a license and collaboration agreement with HanX for the further development, registration and commercialization
of ON 123300 in greater China. ON 123300 is a preclinical compound which the Company believes has the potential to overcome the
limitations of current generation CDK 4/6 inhibitors. Under the terms of the agreement, the Company received an upfront payment,
and will receive regulatory and commercial milestone payments, as well as royalties on Chinese sales. The key feature of the collaboration
is that HanX provides all funding required for Chinese IND enabling studies performed for Chinese Food and Drug Administration
IND approval. The Company and HanX also intended for these studies to comply with the FDA standards. Accordingly, such studies
may be used by the Company for an IND filing with the FDA. The Chinese IND was approved in January 2020. The Company anticipates
filing a US IND related to ON 123300 by the end of 2020. The Company maintains global rights outside of China. On March 2, 2018,
the Company entered into a License, Development and Commercialization Agreement (the “Pint License Agreement”) with
Pint International SA (which, together with its affiliate Pint Pharma GmbH, are collectively referred to as "Pint").
Under the terms of the agreement, the Company granted Pint an exclusive, royalty-bearing license, with the right to sublicense,
under certain Company patent rights and know-how, to develop and commercialize any pharmaceutical product containing rigosertib
in all uses of rigosertib in certain Latin American countries. In May 2019, the Company entered into a License and Collaboration
Agreement (the "HanX License Agreement") with HanX Biopharmaceuticals, Inc. ("HanX"). Under the terms of the
HanX License Agreement, the Company granted HanX an exclusive, royalty-bearing license, with the right to sublicense, under certain
Company patent rights and know-how, to develop and commercialize any pharmaceutical product (the "HanX Product") containing
rigosertib in all uses of rigosertib or the HanX Product in human therapeutic uses in the People's Republic of China, Hong Kong,
Macau and Taiwan (the "HanX Territory"). In connection with the HanX License Agreement, the Company also entered into
a Securities Purchase Agreement with each of HanX and Abundant New Investments Ltd. ("Abundant"), an affiliate of HanX
(each, a "Securities Purchase Agreement" and together, the "Securities Purchase Agreements"). HanX did not
fulfill its obligations under the HanX License Agreement and in January 2020, in accordance with the terms of the HanX License
Agreement, the HanX License Agreement was deemed to be void ab initio. Upon this termination, the rights to HanX Product in the
HanX Territory reverted to the Company in accordance with the terms of the HanX License Agreement. In addition, the Securities
Purchase Agreements terminated automatically effective upon the termination of the HanX License Agreement in accordance with the
Securities Purchase Agreements. In November 2019, the Company entered into a Distribution, License and Supply Agreement (the "Knight
License Agreement") with Knight Therapeutics Inc. ("Knight"). Under the terms of the Knight License Agreement, the
Company granted Knight (i) a non-exclusive, royalty-bearing license, with the right to sublicense, under certain Company patent
rights and know-how, to develop and manufacture any product (the "Knight Licensed Product") containing rigosertib for
Canada (and Israel, should Knight exercise its option as set forth in the Knight License Agreement) (the "Knight Territory")
and in human uses (the "Field"), and (ii) an exclusive, royalty-bearing license, with the right to sublicense, under
certain Company patent rights and know-how, to commercialize the Knight Licensed Product in the Knight Territory and in the Field.
Knight has also agreed to obtain from the Company all of its requirements of the Knight Licensed Products for the Knight Territory,
and the Company has agreed to supply Knight with all of its requirements of the Knight Licensed Products. In December 2019, the
Company entered into a Distribution, License and Supply Agreement (the "STA License Agreement") with Specialised Therapeutics
Asia Pte. Ltd. ("STA"). Under the terms of the STA License Agreement, the Company granted STA (i) a non-exclusive, royalty-bearing
license, with the right to sublicense, under certain Company patent rights and know-how, to develop and manufacture any product
(the "STA Licensed Product") containing rigosertib for Australia and New Zealand (the "STA Territory") and
in human uses (the "Field"), and (ii) an exclusive, royalty-bearing license, with the right to sublicense, under certain
Company patent rights and know-how, to commercialize the STA Licensed Product in the STA Territory and in the Field. STA has also
agreed to obtain from the Company all of its requirements of the STA Licensed Products for the STA Territory, and the Company has
agreed to supply STA with all of its requirements of the STA Licensed Products.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Liquidity
The Company has incurred recurring operating
losses since inception. For the nine months ended September 30, 2020, the Company incurred a net loss of $18,728,000 and as of
September 30, 2020 the Company had generated an accumulated deficit of $422,127,000. The Company anticipates operating losses to
continue for the foreseeable future due to, among other things, costs related to research, development of its product candidates
and its preclinical programs, strategic alliances and its administrative organization. At September 30, 2020, the Company had cash
and cash equivalents of $24,198,000. Following the unsuccessful conclusion of the INSPIRE trial, the Company has taken steps to
reduce its cash expenditures. In September 2020, six employees, representing 26% of staff, were terminated. These employees were
primarily associated with the NDA preparation for the use of rigosertib in higher risk MDS. On October 30, 2020, the Company notified
its landlord of its intention to not renew its office space lease which expires in February 2021. The Company is evaluating less
expensive space alternatives, including having some or all employees work remotely. The Company will require substantial additional
financing to fund its ongoing clinical trials and operations, and to continue to execute its strategy.
On September 25, 2019 the Company closed
on an offering of common stock to certain investors. The Company issued 2,198,938 shares of common stock and amended warrants for
the purchase of 2,198,938 shares of common stock. The investors, who were also holders of the Company's preferred stock warrants
issued in February 2018 and/or May 2018, received a warrant amendment under which a certain number of such investors' preferred
stock warrants received a reduction in exercise price and an extension of term. Net proceeds from the sale of common stock and
the amendment of preferred stock warrants were approximately $3.3 million. In November 2019, the Company closed on an offering
of units of common stock and warrants. The Company issued 30,250,000 shares of common stock, pre-funded warrants to purchase 24,750,000
shares of common stock, and common stock warrants to purchase 55,000,000 shares of common stock. Net proceeds were approximately
$9.7 million. On December 10, 2019, the Company closed on an offering of units of common stock and warrants. The Company issued
14,326,648 shares of common stock and common stock warrants to purchase 7,163,324 shares of common stock. Net proceeds were approximately
$4.4 million. On December 19, 2019, the Company also closed on an offering of units of common stock and warrants. The Company issued
13,878,864 shares of common stock and common stock warrants to purchase 6,939,432 shares of common stock. Net proceeds were approximately
$4.4 million. During 2019, pre-funded warrants were exercised for 23,720,784 shares of common stock and net proceeds were $35,000.
Also during 2019, common warrants were exercised for 21,014,378 shares of common stock and net proceeds were approximately $4.9
million.
On January 3, 2020, the Company closed
on an offering of common stock. The Company issued 27,662,518 shares of common stock and net proceeds were approximately $9.0 million.
In addition, during the nine months ended September 30, 2020; 45,718,397 warrants were exercised, resulting in proceeds of $10.0
million.
The Company has and may continue to delay,
scale-back, or eliminate certain of its research and development activities and other aspects of its operations until such time
as the Company is successful in securing additional funding. The Company is exploring various dilutive and non-dilutive sources
of funding, including equity financings, strategic alliances, business development and other sources. The future success of the
Company is dependent upon its ability to obtain additional funding. There can be no assurance, however, that the Company will be
successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. The Company currently
anticipates that current cash and cash equivalents will be sufficient to meet its anticipated cash requirements into the first
quarter of 2022.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
COVID-19
While the Company is not aware of a material
impact from the novel coronavirus disease ("COVID-19") pandemic through September 30, 2020, the full extent to which
COVID-19 will directly or indirectly impact the Company’s business, results of operations and financial condition, including
expenses and manufacturing, clinical trials and research and development costs, depends on future developments that are highly
uncertain at this time.
2. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements
are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim
financial information. Certain information and footnotes normally included in financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The financial statements include the consolidated accounts of the Company and its wholly-owned subsidiary, Onconova Europe GmbH.
All significant intercompany transactions have been eliminated.
Unaudited Interim Financial Information
The accompanying condensed consolidated
balance sheet as of September 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three
and nine months ended September 30, 2020 and 2019, the consolidated statements of stockholders’ equity (deficit) for the
three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months
ended September 30, 2020 and 2019 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared
on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as
of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019, and its cash
flows for the nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes
related to the three and nine months ended September 30, 2020 and 2019 are unaudited. The results for the three and nine months
ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any
other interim periods, or any future year or period. These unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31,
2019 included in the Company’s annual report on Form 10-K filed with the SEC on March 27, 2020.
Segment Information
Operating segments are defined as components
of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and
manages its business in one segment, which is the identification and development of oncology therapeutics.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
Significant Accounting Policies
The Company’s significant accounting
policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2019 included in the
Company’s annual report on Form 10-K filed with the SEC on March 27, 2020. Since the date of such financial statements,
there have been no changes to the Company’s significant accounting policies.
Fair Value Measurements
The carrying amounts reported in the accompanying
consolidated financial statements for cash and cash equivalents, accounts payable, and accrued liabilities approximate their respective
fair values because of the short-term nature of these accounts. The fair value of the warrant liability is discussed in Note 7,
“Fair Value Measurements.”
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
Recent
Accounting Pronouncements
In August 2018, the FASB issued guidance
which changes the disclosure requirements for fair value measurement. The guidance amends the disclosure requirements in ASC Topic
820 by adding, changing, or removing certain disclosures. The guidance is effective for fiscal years beginning after December 15,
2019. The Company adopted this guidance effective January 1, 2020. There was no impact to the Company’s financial position,
results of operations or financial statement disclosures as a result of the adoption.
In November 2018, the FASB issued
guidance, which clarifies the interaction between ASC Topic 808, Collaborative Arrangements , and ASC Topic 606,
Revenue from Contracts with Customers . The guidance, among other items, clarifies that certain transactions between collaborative
participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in
the context of a unit of account. The guidance is effective for fiscal years beginning after December 15, 2019. The Company
adopted this guidance effective January 1, 2020. There was no impact to the Company’s financial position and results
of operations as a result of the adoption.
In
June 2016, the FASB issued new guidance on the accounting for credit losses on financial instruments. The guidance was amended
in November 2019. The new guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss
model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance
to record estimated credit losses (and subsequent recoveries). The guidance is effective for fiscal years beginning after December
15, 2022, and interim periods within those years, for companies deemed to be smaller reporting companies as of November
15, 2019, with early adoption permitted. The Company is evaluating the impact of the adoption of the standard on its consolidated
financial statements.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
3. Revenue
The Company’s revenue during the
three and nine months ended September 30, 2020 and 2019 was from its license and collaboration agreements with SymBio and HanX.
|
|
Three
Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Symbio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upfront license fee recognition over time
|
|
$
|
56,000
|
|
|
$
|
57,000
|
|
|
$
|
169,000
|
|
|
$
|
170,000
|
|
Supplies and other
|
|
|
10,000
|
|
|
|
6,000
|
|
|
|
5,000
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HanX - rigosertib
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upfront license payment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,965,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,000
|
|
|
$
|
63,000
|
|
|
$
|
174,000
|
|
|
$
|
2,153,000
|
|
Deferred revenue is as follows:
|
|
|
|
|
|
Symbio
|
|
|
|
Upfront Payment
|
|
Deferred balance at December 31, 2019
|
|
$
|
3,921,000
|
|
Recognition to revenue
|
|
|
169,000
|
|
|
|
|
|
|
Deferred balance at September 30, 2020
|
|
$
|
3,752,000
|
|
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
4. Net Loss Per Share of Common Stock
The following potentially dilutive securities
outstanding at September 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding,
as they would be antidilutive (reflects the number of common shares as if the dilutive securities had been converted to common
stock):
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants
|
|
|
11,491,370
|
|
|
|
5,614,307
|
|
Stock options
|
|
|
1,003,990
|
|
|
|
409,788
|
|
|
|
|
12,495,360
|
|
|
|
6,024,095
|
|
5. Warrants
Common Stock warrants are accounted for
in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging — Contracts in Entity’s
Own Equity (ASC Topic 815), as either derivative liabilities or as equity instruments depending on the specific terms of the
warrant agreement. Some of the Company’s warrants are classified as liabilities because in certain circumstances they
could require cash settlement.
Warrants outstanding and warrant activity
(reflects the number of common shares as if the warrants were converted to common stock) for the nine months ended September 30,
2020 is as follows:
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Exercise
|
|
|
Expiration
|
|
December
31,
|
|
|
Warrants
|
|
|
Warrants
|
|
|
September
30,
|
|
Description
|
|
Classification
|
|
Price
|
|
|
Date
|
|
2019
|
|
|
Issued
|
|
|
Exercised
|
|
|
2020
|
|
Non-tradable
warrants
|
|
Liability
|
|
$
|
172.50
|
|
|
July
2021
|
|
|
6,456
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,456
|
|
Tradable
warrants
|
|
Liability
|
|
$
|
73.80
|
|
|
July 2021
|
|
|
212,801
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,801
|
|
Non-tradable
pre-funded warrants
|
|
Equity
|
|
$
|
0.15
|
|
|
July 2023
|
|
|
394
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
1.60
|
|
|
December
2022
|
|
|
392,834
|
|
|
|
-
|
|
|
|
-
|
|
|
|
392,834
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
14.10
|
|
|
March
2021
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
21.15
|
|
|
March
2021
|
|
|
8,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,333
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
7.7895
|
|
|
June 2021
|
|
|
15,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
Non-tradable
pre-funded warrants
|
|
Equity
|
|
$
|
0.15
|
|
|
none
|
|
|
52,834
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,834
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
1.600
|
|
|
December
2022
|
|
|
1,806,104
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,806,104
|
|
Non-tradable
pre-funded warrants
|
|
Equity
|
|
$
|
0.15
|
|
|
none
|
|
|
74,617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,617
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
2.00
|
|
|
September
2023
|
|
|
109,585
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109,585
|
|
Non-tradable
pre-funded warrants
|
|
Equity
|
|
$
|
0.0001
|
|
|
none
|
|
|
1,250,000
|
|
|
|
-
|
|
|
|
(1,250,000
|
)
|
|
|
-
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.20
|
|
|
November
2024
|
|
|
41,037,000
|
|
|
|
-
|
|
|
|
(33,499,500
|
)
|
|
|
7,537,500
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.250
|
|
|
November
2024
|
|
|
2,521,875
|
|
|
|
-
|
|
|
|
(2,521,875
|
)
|
|
|
-
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.287
|
|
|
December
2024
|
|
|
3,581,662
|
|
|
|
-
|
|
|
|
(3,581,662
|
)
|
|
|
-
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.43625
|
|
|
December
2024
|
|
|
716,332
|
|
|
|
-
|
|
|
|
(462,034
|
)
|
|
|
254,298
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.298
|
|
|
December
2024
|
|
|
3,469,716
|
|
|
|
-
|
|
|
|
(3,469,716
|
)
|
|
|
-
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.45030
|
|
|
December
2024
|
|
|
693,943
|
|
|
|
-
|
|
|
|
|
|
|
|
693,943
|
|
Non-tradable
warrants
|
|
Equity
|
|
$
|
0.45190
|
|
|
December
2023
|
|
|
-
|
|
|
|
1,383,126
|
|
|
|
(933,610
|
)
|
|
|
449,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,954,486
|
|
|
|
1,383,126
|
|
|
|
(45,718,397
|
)
|
|
|
11,619,215
|
|
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
6. Balance Sheet Detail
Prepaid expenses and other current assets:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
190,000
|
|
|
$
|
321,000
|
|
Manufacturing
|
|
|
94,000
|
|
|
|
25,000
|
|
Insurance
|
|
|
276,000
|
|
|
|
164,000
|
|
Other
|
|
|
197,000
|
|
|
|
140,000
|
|
|
|
$
|
757,000
|
|
|
$
|
650,000
|
|
Property and equipment:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Property and equipment
|
|
$
|
2,298,000
|
|
|
$
|
2,283,000
|
|
Accumulated depreciation
|
|
|
(2,242,000
|
)
|
|
|
(2,233,000
|
)
|
|
|
$
|
56,000
|
|
|
$
|
50,000
|
|
Accrued expenses and other current liabilities
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
1,917,000
|
|
|
$
|
2,016,000
|
|
Employee compensation
|
|
|
1,227,000
|
|
|
|
1,537,000
|
|
Professional fees
|
|
|
195,000
|
|
|
|
242,000
|
|
|
|
$
|
3,339,000
|
|
|
$
|
3,795,000
|
|
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
7. Fair Value Measurements
Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation hierarchy
for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad
levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3
inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is
significant to the fair value measurement.
On January 5, 2016, the Company entered
into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional investor providing
for the issuance and sale by the Company of 12,912 shares of Common Stock, at a purchase price of $142.50 per share and warrants
to purchase up to 6,456 shares of Common Stock (the “Warrants”) for aggregate gross proceeds of $1,840,000. The Company
has classified the warrants as a liability (see Note 5). The estimated fair value using the Black-Scholes pricing model was approximately
$0 at September 30, 2020 and December 31, 2019.
On July 29, 2016 the Company closed
on a Rights Offering, issuing 239,986 shares of Common Stock, 212,801 Tradable Warrants and 43,760 Pre-Funded Warrants. The Tradable
Warrants are exercisable for a period of five years for one share of Common Stock at an exercise price of $73.80 per share. After
the one-year anniversary of issuance, the Company may redeem the Tradable Warrants for $0.001 per Tradable Warrant if the volume
weighted average price of its Common Stock is above $184.50 for each of 10 consecutive trading days. The Company has classified
the Tradable Warrants as a liability (see Note 5). The Tradable Warrants have been listed on the Nasdaq Capital Market since
issuance and the Company regularly monitors the trading activity. The Company has determined that an active and orderly market
for the Tradable Warrants has developed and that the Nasdaq Capital Market price is the best indicator of fair value of the warrant
liability. The quoted market price was used to determine the fair value at December 31, 2019 and September 30, 2020.
The Company estimated the fair value of
the non-tradable warrant liability at September 30, 2020, using the Black-Scholes option pricing model with the following weighted-average
assumptions:
Risk-free interest rate
|
|
|
0.12
|
%
|
Expected volatility
|
|
|
121.82
|
%
|
Expected term
|
|
|
0.77 years
|
|
Expected dividend yield
|
|
|
0
|
%
|
Expected volatility is based on the historical
volatility of the Company’s Common Stock since its IPO in July 2013.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
7. Fair Value Measurements (Continued)
The following fair value hierarchy table
presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as
of September 30, 2020 and December 31, 2019:
|
|
Fair
Value Measurement as of:
|
|
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Balance
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Balance
|
|
Tradable warrants
liability
|
|
$
|
176,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
176,000
|
|
|
$
|
113,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
113,000
|
|
Non-tradable
warrants liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
176,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
176,000
|
|
|
$
|
113,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
113,000
|
|
There were no transfers between Level 1
and Level 2 in any of the periods reported.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
8. Stock-Based Compensation
The 2007 Equity Compensation Plan
as amended (the “2007 Plan”), amended, restated and renamed the Company’s 1999 Stock Based Compensation Plan
(the “1999 Plan”), which provided for the granting of incentive and nonqualified stock options and restricted stock
to its employees, directors and consultants at the discretion of the board of directors.
The 2013 Equity Compensation Plan (the
“2013 Plan”), amended, restated and renamed the 2007 Plan. Under the 2013 Plan, the Company may grant incentive stock
options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, deferred share awards,
performance awards and other equity-based awards to employees, directors and consultants. The Company initially reserved 40,718
shares of Common Stock for issuance, subject to adjustment as set forth in the 2013 Plan. The 2013 Plan included an evergreen provision,
pursuant to which the maximum aggregate number of shares that may be issued under the 2013 Plan is increased on the first day of
each fiscal year by the lesser of (a) a number of shares equal to four percent (4%) of the issued and outstanding Common Stock
of the Company, without duplication, (b) 13,333 shares and (c) such lesser number as determined by the Company’s
board of directors, subject to specified limitations.
The 2018 Omnibus Incentive Compensation
Plan (the “2018 Plan”) was unanimously approved by the Company’s Board of Directors on May 24, 2018 and
was approved by the Company’s stockholders on June 27, 2018. The 2018 Plan replaces the 2013 Plan. Upon stockholders’
approval of the 2018 Plan, no further awards will be made under the 2013 Plan. Awards granted under the 2013 Plan will continue
in effect in accordance with the terms of the applicable award agreement and the terms of the 2013 Plan in effect when the awards
were granted.
Under the 2018 Plan, the Company may grant
incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based
awards to employees, non-employee directors and consultants, and advisors. The maximum aggregate number of shares of the Company’s
common stock that may be issued under the 2018 Plan is 402,354, which is equal to the sum of (i) 400,000 shares of the Company’s
common stock, plus (ii) 2,354 shares, which is the number of shares of the Company common stock reserved for issuance under
the 2013 Plan that remained available as of the effective date of the 2018 Plan. In addition, the number of shares of common stock
subject to outstanding awards under the 2013 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered
without having been exercised, vested, or paid in shares under the 2013 Plan after the effective date of the 2018 Plan will be
available for issuance under the 2018 Plan.
The 2018 Plan was amended following unanimous
approval of the Company’s Board of Directors on April 24, 2019 and was approved by the Company’s shareholders
on June 17, 2019. The amended 2018 Plan (the “Amended Plan”) allowed for an additional 589,500 shares of
the Company’s common stock that may be issued under the Amended Plan with respect to awards made on and after June 17,
2019. At September 30, 2020, there were 50,194 shares available for future issuance.
Stock-based compensation expense includes
stock options granted to employees and non-employees and has been reported in the Company’s statements of operations and
comprehensive loss in either research and development expenses or general and administrative expenses depending on the function
performed by the optionee. No net tax benefits related to the stock-based compensation costs have been recognized since the Company’s
inception. The Company recognized stock-based compensation expense as follows for the three and nine months ended September 30,
2020 and 2019:
|
|
Three Months ended
September 30,
|
|
|
Nine Months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
General and administrative
|
|
$
|
51,000
|
|
|
$
|
64,000
|
|
|
$
|
142,000
|
|
|
$
|
670,000
|
|
Research and development
|
|
|
39,000
|
|
|
|
81,000
|
|
|
|
133,000
|
|
|
|
280,000
|
|
|
|
$
|
90,000
|
|
|
$
|
145,000
|
|
|
$
|
275,000
|
|
|
$
|
950,000
|
|
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
8. Stock-Based Compensation (Continued)
A summary of stock option activity for
the nine months ended September 30, 2020 is as follows:
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
Shares
Available
for Grant
|
|
|
|
Number of
Shares
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance, December 31, 2019
|
|
|
59,731
|
|
|
|
994,453
|
|
|
$
|
27.37
|
|
|
|
9.32
|
|
|
$
|
—
|
|
Authorized
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(68,250
|
)
|
|
|
68,250
|
|
|
$
|
0.366
|
|
|
|
9.54
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
58,713
|
|
|
|
(58,713
|
)
|
|
$
|
37.50
|
|
|
|
8.88
|
|
|
|
|
|
Balance, September 30, 2020
|
|
|
50,194
|
|
|
|
1,003,990
|
|
|
$
|
24.96
|
|
|
|
8.62
|
|
|
$
|
—
|
|
Vested or expected to vest, September 30, 2020
|
|
|
|
|
|
|
975,720
|
|
|
$
|
75.93
|
|
|
|
7.53
|
|
|
$
|
—
|
|
Exercisable at September 30, 2020
|
|
|
|
|
|
|
321,146
|
|
|
$
|
75.93
|
|
|
|
7.53
|
|
|
$
|
—
|
|
Information with respect to stock options
outstanding and exercisable at September 30, 2020 is as follows:
Exercise Price
|
|
Shares
|
|
|
Exercisable
|
|
$0.29 - $0.31
|
|
|
625,500
|
|
|
|
—
|
|
$3.39 – $3.72
|
|
|
45,539
|
|
|
|
45,539
|
|
$4.34 – $7.05
|
|
|
267,889
|
|
|
|
211,639
|
|
$16.35 – $97.50
|
|
|
47,888
|
|
|
|
46,808
|
|
$222.00 - $225.00
|
|
|
1,871
|
|
|
|
1,871
|
|
$348.00 – $597.00
|
|
|
4,801
|
|
|
|
4,800
|
|
$651.00 – $1,129.50
|
|
|
3,431
|
|
|
|
3,418
|
|
$1,992.00 - $2,268.00
|
|
|
6,736
|
|
|
|
6,736
|
|
$4,156.50 - $4,371.00
|
|
|
335
|
|
|
|
335
|
|
|
|
|
1,003,990
|
|
|
|
321,146
|
|
The Company uses the Black-Scholes option-pricing
model to estimate the fair value of stock options at the grant date. The Black-Scholes model requires the Company to make certain
estimates and assumptions, including estimating the fair value of the Company’s Common Stock, assumptions related to the
expected price volatility of the Common Stock, the period during which the options will be outstanding, the rate of return on risk-free
investments and the expected dividend yield for the Company’s stock.
As of September 30, 2020, there was $433,000
of unrecognized compensation expense related to the unvested stock options issued from April 24, 2013 through September 30,
2020, which is expected to be recognized over a weighted-average period of approximately 1.92 years.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
8. Stock-Based Compensation (Continued)
The weighted-average assumptions underlying
the Black-Scholes calculation of grant date fair value include the following:
|
|
Nine Months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Risk-free interest rate
|
|
|
0.44
|
%
|
|
|
2.27
|
%
|
Expected volatility
|
|
|
106.38
|
%
|
|
|
83.68
|
%
|
Expected term
|
|
|
6.00 years
|
|
|
|
6.25 years
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted average grant date fair value
|
|
$
|
0.25
|
|
|
$
|
12.60
|
|
|
|
|
|
|
|
|
|
|
The weighted-average valuation assumptions
were determined as follows:
|
·
|
Risk-free interest rate: The Company based the risk-free
interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate
with the assumed expected option term.
|
|
·
|
Expected term of options: Due to its lack of sufficient
historical data, the Company estimates the expected life of its employee stock options using the “simplified” method,
as prescribed in Staff Accounting Bulletin (SAB) No. 107, whereby the expected life equals the arithmetic average of the
vesting term and the original contractual term of the option.
|
|
·
|
Expected stock price volatility: Expected volatility
is based on the historical volatility of the Company’s Common Stock since its IPO in July 2013.
|
|
·
|
Expected annual dividend yield: The Company has never
paid, and does not expect to pay, dividends in the foreseeable future. Accordingly, the Company assumed an expected dividend
yield of 0.0%.
|
|
·
|
Estimated forfeiture rate: The Company’s estimated
annual forfeiture rate on stock option grants was 4.14% in 2020 and 2019, based on the historical forfeiture experience.
|
Grants of PSUs and SARs
On July 9, 2020, the compensation committee
of the board of directors and the board approved a cash bonus program of cash-settled stock appreciation right (“SAR”)
awards and cash-settled performance stock unit (“PSU”) awards to the Company’s employees. An aggregate of SAR
awards with respect to 3,850,700 shares of common stock and PSU awards with respect to 1,863,300 shares of common stock were granted
to the Company’s employees. The SAR awards will be settled in cash, vest 33% on the first anniversary of the date of grant,
and the remaining 67% monthly over the next 24 months, have a per-share base amount of $0.56, which was the closing sales price
of a share of the Company’s common stock on the grant date, and are in all cases subject to the terms and conditions of the
Company’s form of SAR award agreement. The PSU awards vest 50% upon the submission of a new drug application (“NDA”)
to the U.S. FDA for rigosertib in higher-risk myelodysplastic syndromes (“HR-MDS”) and 50% upon U.S. FDA approval of
rigosertib for HR-MDS. The PSU awards have a maximum value of $1.44 per share. The maximum price per share is the per-share value
based on the Company’s market capitalization at $250 million and the Company’s outstanding shares of common stock,
which was 174,177,448 shares on July 9, 2020. In all cases, the PSU awards are subject to the terms and conditions of the Company’s
form of PSU award agreement.
In addition, on July 9, 2020, based on
the recommendation of the compensation committee, the board approved a change in the non-employee director compensation
policy that would provide for an annual SAR award with respect to 125,000 shares of common stock for each of the
Company’s non-employee directors. No other changes to the non-employee director compensation policy were approved and,
on July 9, 2020, the Board approved the initial 125,000 SAR award to each of the non-employee directors, totaling 875,000 SARs.
The SAR awards vest on the first anniversary of grant subject to the director’s continued service and will be settled
in cash, have a per-share base amount of $0.56, and are in all cases subject to the terms and conditions of the
Company’s form of SAR award agreement.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
8. Stock-Based Compensation (Continued)
Each SAR subject to an SAR award represents
the right to a cash payment equal to the excess, if any, of (i) the fair market value of each underlying share of the Company’s
common stock, determined on the date of exercise of the SAR minus (ii) the base amount. Pursuant to the terms of the SAR awards,
in no event may the cash payment for each SAR exceed $0.88, which is the maximum price per share of $1.44, minus the base amount
of $0.56, subject to adjustment in accordance with the terms of the Stock Appreciation Right Award Agreement. The maximum price
per share is the per-share value based on the Company’s market capitalization at $250 million and the Company’s outstanding
shares of common stock, which was 174,177,448 shares on July 9, 2020.
The SAR and PSU awards are classified as
liability awards and are remeasured at fair value each reporting period until they are settled. The fair value of the SAR and PSU
awards were estimated using the Black-Scholes option pricing model. As of September 30, 2020, the total expense and liability recognized
related to the vested SAR awards was de-minimus. The performance conditions related to the PSU awards are not probable of achievement,
and accordingly, no compensation expense has been recognized to date for these awards.
At September 30, 2020, there was $111,000
unrecognized compensation costs related to the unvested SARs. These costs are expected to be recognized over a period of approximately
three years.
9. Research Agreements
The Company has entered into various licensing
and right-to-sublicense agreements with educational institutions for the exclusive use of patents and patent applications, as well
as any patents that may develop from research being conducted by such educational institutions in the field of anticancer therapy,
genes and proteins. Results from this research have been licensed to the Company pursuant to these agreements. Under one of these
agreements with Temple University (“Temple”), the Company is required to make annual maintenance payments to Temple
and royalty payments based upon a percentage of sales generated from any products covered by the licensed patents, with minimum
specified royalty payments. As no sales had been generated through September 30, 2020 under the licensed patents, the Company has
not incurred any royalty expenses related to this agreement. In addition, the Company is required to pay Temple a percentage of
any sublicensing fees received by the Company.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
10. License and Collaboration Agreement
HanX Rigosertib Agreement (terminated)
On May 10, 2019, the Company entered into
a License and Collaboration Agreement (the "HanX License Agreement") with HanX and two Securities Purchase Agreements
(the "HanX Securities Purchase Agreements"), one with HanX and the other with an affiliate of HanX.
Under the terms of the HanX License Agreement,
the Company granted HanX an exclusive, royalty-bearing license, with the right to sublicense, to study and commercialize rigosertib
in greater China (the "HanX Territory," including the People's Republic of China, Hong Kong, Macau and Taiwan).
In exchange for these rights, the agreement
required HanX to make upfront payments to the Company totaling $4 million, including a $2.0 million upfront fee and an investment
totaling $2.0 million to purchase shares of the Company at a premium to market. HanX was also required to dedicate $2.0 million
in local currency, to be placed in escrow, for clinical development expenses in the HanX Territory. In addition, the agreement
provided for potential payments to the Company for regulatory, development and sales-based milestone payments up to $45.5 million
and tiered royalties up to double digits on net sales in in the HanX Territory. The Company would supply rigosertib for sale in
the HanX Territory.
The HanX License Agreement also contained
certain provisions for termination by either party in the event of breach of the HanX License Agreement by the other party, subject
to a cure period, or bankruptcy of the other party.
Under the terms of the HanX Securities Purchase
Agreement, HanX and its affiliate agreed to make upfront equity investments in the Company at a specified premium to the Company's
share price. The common stock purchased by HanX and its affiliates is subject to certain lock-up restrictions and HanX and its
affiliates are entitled to certain registration and participation rights.
The Company assessed the HanX License Agreement
for revenue recognition in accordance with ASC 606 and determined that there are two distinct performance obligations: the license
and the supply of rigosertib for sale in the HanX Territory. The Company concluded that control of the license had been transferred
to HanX during the three months ended June 30, 2019 and recognized license revenue of $1.7 million, which is net of applicable
taxes withheld by the Chinese government, related to the $2.0 million upfront fee. The Company believes a portion of the tax being
withheld by the Chinese government may be recoverable at a later date and could be recognized as license revenue if and when recovered
by the Company. The $1.7 million was recorded as a receivable at June 30, 2019 and the payment was received in August 2019.
Pursuant to the HanX Securities Purchase
Agreements, closing of one of the upfront equity investments occurred on May 15, 2019 when an affiliate of HanX purchased 103,520
shares of common stock for $0.5 million. The total amount of the premium was $0.1 million and this amount was recognized as license
revenue during the three months ended June 30, 2019. The remaining upfront equity investments represent equity-classified forward
contracts for the purchase of the Company's equity at a pre-determined price. The premium of the future equity purchase from HanX
as of the contract date of $0.2 million was recognized as license revenue during the three months ended June 30, 2019 and was included
in other current assets, pending receipt of payment.
On July 9, 2019, the Company extended the
deadline for payments under the HanX License Agreement and the HanX Securities Purchase Agreements. On August 8, 2019 the Company
received the non-refundable license fee from HanX. On August 14, 2019, the Company further extended the deadline of HanX's remaining
upfront payments relating to its equity investment in the Company while HanX continued to seek Chinese regulatory approval for
such equity investment. In December 2019, the Company reassessed the likelihood of receiving the $0.2 million premium on the equity
investment previously recorded as revenue. The Company reversed the $0.2 million revenue in December 2019.
On January 16, 2020, the Company determined
HanX did not fulfill its obligations under the License Agreement and, in accordance with the terms of the License Agreement, the
License Agreement was deemed to be void ab initio. Upon this termination, the rights to Product in the Territory reverted to the
Company in accordance with the terms of the License Agreement. In addition, the Securities Purchase Agreements terminated automatically
effective upon the termination of the License Agreement in accordance with the Securities Purchase Agreements.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
11. Related-Party Transactions
The Company entered into a research agreement,
as subsequently amended, with the Mount Sinai School of Medicine (“Mount Sinai”), with which a former member of its
board of directors and a stockholder is affiliated. The agreement expired in June 2020 and was not renewed. The board member left
the Company’s board in August 2020. Mount Sinai performed research on behalf of the Company on the terms set forth in the
agreements. Mount Sinai, in collaboration with the Company, will prepare applications for patents generated from the research.
Results from all projects will belong exclusively to Mount Sinai, but the Company will have an exclusive option to license any
inventions, resulting therefrom. Payments to Mount Sinai under this research agreement for the three months ended September 30,
2020 and 2019 were $0 and $88,000, respectively, and for the nine months ended September 30, 2020 and 2019 were $201,000 and $263,000,
respectively. At September 30, 2020 and December 31, 2019, the Company had $77,000 and $150,000, respectively, payable to
Mount Sinai under this agreement.
The Company entered into a consulting agreement
with a member of its board of directors, which was cancelled in June 2020. The board member left the Company’s board in August
2020. The former board member provided consulting services to the Company on the terms set forth in the agreement. Payments to
this former board member for the three months ended September 30, 2020 and 2019 were $0 and $33,000, respectively, and for the
nine months ended September 30, 2020 and 2019 were $66,000 and $99,000, respectively. At September 30, 2020 and December 31,
2019, the Company had $0 and $33,000, respectively, payable under this agreement.
Onconova Therapeutics, Inc.
Notes to Condensed Consolidated Financial
Statements (Continued)
(Unaudited)
12. Securities Registrations and Sales Agreements
January 2020 Offering
On December 31, 2019, the Company entered
into definitive securities purchase agreements with institutional investors for the issuance and sale in a registered direct offering
of 27,662,518 shares of the Company's common stock at an offering price of $0.3615 per share.
Pursuant to a December 2019 engagement
letter with H. C. Wainwright & Co., HCW agreed to serve as exclusive placement agent for the offering. In connection with the
offering, the Company paid HCW an aggregate cash fee equal to 7.0% of the gross proceeds in the offering, management fee equal
to 1.0% of the gross proceeds raised in the offering, $85,000 for non-accountable expenses; and $10,000 for clearing fees. The
Company also issued to HCW or its designees placement agent warrants to purchase up to 1,383,126 shares of common stock at an exercise
price of $0.4519 per share. The placement agent warrants are immediately exercisable and will expire on December 31, 2023.
The net proceeds to the Company from the
offering, after deducting HCW's placement agent fees and expenses and other estimated offering expenses payable by the Company
were approximately $9.0 million and were received in January 2020.
The offering was pursuant to a prospectus
dated December 28, 2017, and a prospectus supplement dated as of December 31, 2019 to be filed in connection with a takedown from
the Company's shelf registration statement on Form S-3 (File No. 333-221684). The offering closed on January 3, 2020.