Use of estimates
The condensed financial statements are prepared in conformity with GAAP. This process requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Risk and uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of: the impact of COVID-19 on future clinical study results, the scope, timing, rate of progress, and expense of the Company’s ongoing as well as any additional preclinical studies, clinical studies, and other research and development activities, clinical study enrollment rate or design, the manufacturing of the Company’s product candidates, significant and changing government regulation, and the timing and receipt of any regulatory approvals.
A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. On March 27, 2020, the Company suspended patient enrollment for certain ongoing Phase 2 clinical studies, including its NYX-2925 studies in painful diabetic peripheral neuropathy and fibromyalgia and its NYX-483 study in Parkinson’s disease cognitive impairment. The Company has initiated some and may take additional temporary precautionary measures intended to help ensure the well-being of its employees and minimize business disruption. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2020. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to complete certain clinical studies and other efforts required to advance the development of its targets.
Significant accounting policies
The Company’s significant accounting policies are described in Note 3, “Summary of significant accounting policies,” in the Annual Report. There have been no material changes to the significant accounting policies during the three months ended March 31, 2020.
Recently issued accounting pronouncement
In February 2016, the FASB issued ASU No. 2016‑02, Leases (“ASU 2016‑02”), which requires a lessee to recognize assets and liabilities on the balance sheet for operating leases and changes many key definitions, including the definition of a lease. The new standard includes a short‑term lease exception for leases with a term of 12 months or less, as part of which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance. The new standard will be effective for the Company beginning after December 15, 2020, and early adoption is permitted. The Company anticipates that the adoption of this standard will have an impact on its balance sheet due to the recognition of right-of-use assets and lease liabilities; however, the Company is currently evaluating the impact that the adoption of ASU 2016-02 may have on its condensed financial statements.
3. Supplemental financial information
Cash, cash equivalents and restricted cash
Cash and cash equivalents consist of cash and, if applicable, highly liquid investments with an original maturity of three months or less when purchased. The following table provides a reconciliation of cash, cash equivalents, and
The Company has determined that the option fee is representative of standalone selling price and concluded that it will recognize revenue for the option fee at a point in time, on the date of exercise, due to the significant uncertainty of whether or not Allergan would exercise the option. The Company recognizes the option fee at a point in time because control of the underlying intellectual property transfers to the customer, and the customer is able to use and benefit from the license. The Company has no further rights, interests, or remaining performance obligations associated with any optioned compound, once exercised.
During the three months ended March 31, 2020 and 2019, the Company recorded expenses of $1.6 million and $1.8 million for certain development activities in accordance with the terms of the RCA, of which 50% was reimbursed by Allergan. The Company received reimbursements of $0.8 million and $0.9 million during the three months ended March 31, 2020 and 2019. Such reimbursements were reported within collaboration revenue in the condensed statements of operations. All of the Company’s accounts receivable as of both March 31, 2020 and December 31, 2019 relate to amounts owed by Allergan under the RCA.
5. Fair value measurements
ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:
|
·
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
·
|
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
|
|
·
|
|
Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying values reported in the Company’s balance sheets for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses are reasonable estimates of their fair values due to the short-term nature of these items.
Assets measured at fair value as of March 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds, included in cash and cash equivalents
|
|
$
|
120,424
|
|
$
|
120,424
|
|
$
|
—
|
|
$
|
—
|
Money market funds, included in restricted cash
|
|
|
179
|
|
|
179
|
|
|
—
|
|
|
—
|
Money market funds, included in other assets
|
|
|
166
|
|
|
166
|
|
|
—
|
|
|
—
|
|
|
$
|
120,769
|
|
$
|
120,769
|
|
$
|
—
|
|
$
|
—
|
Non-cash restricted stock unit award expense recognized in the accompanying condensed statements of operations was $0.4 million and $0.0 million for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there was $2.0 million of unrecognized compensation related to 966,600 unvested restricted stock units that will be recognized as expense over a weighted-average period of 1.13 years.
8. Net loss per share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows for the three months ended March 31, 2020 and 2019 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(14,710)
|
|
$
|
(16,711)
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding—basic and diluted
|
|
|
43,835
|
|
|
33,390
|
|
Net loss per share attributable to common stockholders—basic and diluted
|
|
$
|
(0.34)
|
|
$
|
(0.50)
|
|
The following common stock equivalents outstanding as of March 31, 2020 and 2019, were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti‑dilutive (in thousands):
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
Stock options issued and outstanding
|
|
6,419
|
|
4,610
|
Unvested restricted stock
|
|
967
|
|
104
|
Total
|
|
7,386
|
|
4,714
|
9. Income taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, including its net operating losses. Based on its history of operating losses, the Company believes that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of March 31, 2020 and December 31, 2019.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the United States. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Previously, NOLs generated after December 31, 2017 were limited to 80% of taxable income in future years. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The NOL carryback provision of the CARES Act had no impact on the Company due to its tax losses generated during all prior years.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our condensed financial statements and accompanying footnotes appearing elsewhere in this Quarterly Report on Form 10‑Q and our audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2019, or Annual Report, filed with the Securities and Exchange Commission, or the SEC, on March 30, 2020.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10‑Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Because of many factors, including those factors set forth in the “Risk Factors” section of our Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Overview
We are a clinical‑stage biopharmaceutical company focused on the discovery, development, and commercialization of novel, proprietary, synthetic small molecules for the treatment of brain and nervous system disorders. Our compounds target and modulate N‑methyl‑D‑aspartate receptors, or NMDArs, which are vital to normal and effective function of the brain and nervous system. We believe leveraging the therapeutic advantages of the differentiated modulatory mechanism of our compounds will drive a paradigm shift in the treatment of disorders of the brain and nervous system. We are advancing a pipeline of distinct product candidates derived from our NMDAr modulator discovery platform, or the discovery platform. To date, we have advanced three product candidates from our NMDAr modulator discovery platform into human clinical studies in the areas of post-traumatic stress disorder, or PTSD, chronic pain, and cognitive impairment. The table below depicts the current Phase of development of our pipeline of clinical-stage novel NMDAr modulators.
NYX-2925 is in Phase 2 clinical development for the treatment of chronic pain. NYX-2925 is being evaluated in two Phase 2b studies in two chronic pain conditions: one evaluating the efficacy and safety in approximately 200 patients with painful diabetic peripheral neuropathy, or painful DPN, and the other evaluating the efficacy and safety in approximately 300 patients with fibromyalgia. Due to challenges to patient recruitment, screening, and randomization introduced by the COVID-19 pandemic, on March 27, 2020, we temporarily suspended the enrollment of new patients in these two Phase 2 studies, with patients already enrolled permitted to continue as per the protocol.
NYX-783 is in Phase 2 clinical development for the treatment of PTSD. We are currently enrolling an exploratory first-in-patient Phase 2 study to evaluate safety, tolerability, and signals of efficacy of NYX-783 in approximately 150 patients with PTSD. To date, we have been able to manage and mitigate site-level disruptions to this study caused by the COVID-19 pandemic and over 90% of the study’s target enrollment has been achieved.
NYX-458 is in Phase 2 clinical development for the treatment of mild cognitive impairment associated with Parkinson’s disease. We initiated an initial exploratory Phase 2 study of NYX-458 in patients with mild cognitive impairment associated with Parkinson’s disease in December 2019. Due to challenges to patient recruitment, screening, and randomization introduced by the COVID-19 pandemic, on March 27, 2020, we temporarily suspended enrollment of new patients in this study. Patients already enrolled in this study may continue as per the protocol.
The continued spread of the COVID-19 pandemic has already and could further adversely impact our clinical and/or preclinical studies. In addition, COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, and business shutdowns. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms or at all. See “Risk Factors—Risks related to our business, financial position, and need for additional capital—COVID-19 may materially and adversely affect our business and our financial results” in our Annual Report. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the severity of COVID-19 and the effectiveness of actions to contain and treat COVID-19. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, including to our ongoing and planned clinical studies. Any such shutdowns or other business interruptions could result in material and negative effects to our ability to conduct our business in the manner and on the timelines presently planned, which could have a material adverse impact on our business, results of operation, and financial condition.
Since our inception in June 2015, we have never generated revenue from the sale of our products and have incurred significant net losses. Our nominal revenues have been primarily derived from a research collaboration agreement with Allergan plc, or Allergan, a development services agreement with Allergan, and research and development grants from the U.S. government. While these revenues offset a small portion of the costs associated with our early stage research and discovery efforts, we do not rely on these revenues to fund our operations.
From our inception through March 31, 2020, we have raised an aggregate of $135 million of gross proceeds from sales of our convertible preferred stock, $117.8 million of gross proceeds from our initial public offering, or IPO and $35.1 million of gross proceeds from our follow-on public offering. See “Liquidity and capital resources.” Our net losses were $57.4 million and $53.3 million for the years ended December 31, 2019 and 2018, respectively, and $14.7 million and $16.7 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020 we had an accumulated deficit of $177.7 million. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will continue to increase in connection with our ongoing activities.
We believe that our available funds will be sufficient to fund our operations for at least the next twelve months. 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. We do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate, which we expect will take a number of years and the outcome of which is uncertain, or enter into collaborative agreements with third parties, the timing of which is largely beyond our control and may never occur. To fund our current and future operating plans, we will need additional capital, which we may obtain through one or more equity offerings, debt financings, or other third‑party funding, including potential strategic alliances and licensing or collaboration arrangements. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all, including as a result of COVID-19. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates, or any additional product candidates, if developed. The amount and timing of our future funding requirements will depend on many factors, including the impacts of COVID-19, our ability to timely and successfully
enroll subjects in our clinical studies, and the pace and results of our preclinical and clinical development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Financial operations overview
Revenues
We have not generated any revenue from product sales. We are unable to predict when, if ever, material net cash inflows will commence from sales of our products, if approved. Our revenue to date has been primarily derived from a research collaboration agreement with Allergan; a development services agreement with Allergan, which was put in place to continue certain development activities for a pre-determined period of time following Allergan's acquisition of Naurex Inc., and research and development grants from the U.S. government that have no repayment or royalty obligations.
Operating expenses
Research and development expenses
Research and development activities account for a significant portion of our operating expenses. We expense research and development costs as incurred. Research and development expenses consist of costs incurred in connection with the development of our product candidates, including:
|
·
|
|
fees paid to consultants, sponsored researchers, contract manufacturing organizations, or CMOs, and contract research organizations, or CROs, including in connection with our preclinical and clinical studies, and other related clinical study fees, such as for investigator grants, patient screening, laboratory work, clinical study database management, and statistical compilation and analysis;
|
|
·
|
|
costs related to acquiring and maintaining preclinical and clinical study materials and facilities;
|
|
·
|
|
costs related to compliance with regulatory requirements; and
|
|
·
|
|
costs related to salaries, bonuses, and other compensation for employees in research and development functions.
|
At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the development of our product candidates. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty related to:
|
·
|
|
the impacts of COVID-19;
|
|
·
|
|
future clinical study results; the scope, rate of progress, and expense of our ongoing as well as any additional preclinical studies, clinical studies and other research and development activities;
|
|
·
|
|
clinical study enrollment rate or design;
|
|
·
|
|
the manufacturing of our product candidates;
|
|
·
|
|
our ability to obtain and maintain intellectual property protection for our product candidates;
|
|
·
|
|
significant and changing government regulation;
|
|
·
|
|
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers, developing and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
|
|
·
|
|
the timing and receipt of regulatory approvals, if any; and
|
|
·
|
|
the risks disclosed in the section entitled “Risk Factors” of our Annual Report.
|
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs, timing, and viability associated with the development of that product candidate.
We expect our research and development expenses to increase over the next several years as we continue to implement our business strategy, which includes advancing our product candidates into and through clinical development, expanding our research and development efforts, seeking regulatory approvals for any product candidates for which we successfully complete clinical studies, accessing and developing additional product candidates, and hiring additional
personnel to support our research and development efforts. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical studies. As such, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation. General and administrative expenses also include rent as well as professional fees for legal, consulting, accounting, and audit services.
In the future, we expect that our general and administrative expenses will increase as we continue to support our research and development and the potential commercialization of our product candidates, if approved. We also anticipate that we will incur increased accounting, audit, legal, tax, regulatory, compliance, and director and officer insurance costs, as well as investor and public relations expenses associated with maintaining compliance with exchange listing and SEC requirements.
Other income
Other income consists primarily of the interest income earned on our cash and cash equivalents.
Results of operations
Comparison of the three months ended March 31, 2020 and 2019
The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
|
|
ended March 31,
|
|
Increase
|
|
|
2020
|
|
2019
|
|
(Decrease)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$
|
818
|
|
$
|
890
|
|
$
|
(72)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,055
|
|
|
12,490
|
|
|
(1,435)
|
General and administrative
|
|
|
4,899
|
|
|
5,725
|
|
|
(826)
|
Total operating expenses
|
|
|
15,954
|
|
|
18,215
|
|
|
(2,261)
|
Loss from operations
|
|
|
(15,136)
|
|
|
(17,325)
|
|
|
(2,189)
|
Other income
|
|
|
426
|
|
|
614
|
|
|
(188)
|
Net loss and comprehensive loss
|
|
$
|
(14,710)
|
|
$
|
(16,711)
|
|
$
|
(2,001)
|
Collaboration revenue
Collaboration revenue was $0.8 million and $0.9 million for the three months ended March 31, 2020 and 2019 and is attributable to the research collaboration with Allergan.
Research and development expenses
The following table summarizes our research and development expenses incurred during the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
|
|
ended March 31,
|
|
Increase
|
|
|
2020
|
|
2019
|
|
(Decrease)
|
NYX-2925
|
|
$
|
4,607
|
|
$
|
2,694
|
|
$
|
1,913
|
NYX-783
|
|
|
1,820
|
|
|
2,353
|
|
|
(533)
|
NYX-458
|
|
|
1,451
|
|
|
1,599
|
|
|
(148)
|
Preclinical research and discovery programs
|
|
|
1,078
|
|
|
1,717
|
|
|
(639)
|
Personnel and related costs
|
|
|
2,099
|
|
|
4,127
|
|
|
(2,028)
|
Total research and development expenses
|
|
$
|
11,055
|
|
$
|
12,490
|
|
$
|
(1,435)
|
Research and development expenses were $11.1 million for the three months ended March 31, 2020, compared to $12.5 million for the three months ended March 31, 2019. The decrease of $1.4 million was primarily due to the following:
|
·
|
|
approximately $1.9 million increase for clinical, regulatory, and drug product costs related to NYX-2925, as a result of activities relating to the initiation of two Phase 2b chronic pain studies, offset by the completion of our enrollment efforts for our Phase 2 clinical study in patients with painful DPN and enrollment efforts for our Phase 2 clinical study in patients with fibromyalgia;
|
|
·
|
|
approximately $0.5 million decrease for clinical, regulatory, and drug product costs related to the ongoing development of NYX-783 for the treatment of PTSD;
|
|
·
|
|
approximately $0.1 million decrease for clinical, regulatory, and drug product costs related to the ongoing development of NYX-458 for the treatment of Parkinson’s disease cognitive impairment;
|
|
·
|
|
approximately $0.6 million decrease for costs associated with our preclinical research efforts with external research organizations; and
|
|
·
|
|
approximately $2.0 million decrease for personnel and related support costs.
|
General and administrative expenses
General and administrative expenses were $4.9 million for the three months ended March 31, 2020, compared to $5.7 million for the three months ended March 31, 2019. The decrease of $0.8 million was primarily driven by decreased legal costs associated with patent-related matters.
Other income
We recorded $0.4 million and $0.6 million of other income for the three months ended March 31, 2020 and 2019. This decrease was primarily driven by a decrease to interest income earned on our cash and cash equivalents.
Liquidity and capital resources
From our inception through March 31, 2020, we have incurred significant operating losses and have funded our operations to date through proceeds from collaborations, grants, sales of convertible preferred stock, IPO and follow-on public offering. We have generated limited revenue to date from a research collaboration agreement with Allergan, a development services agreement with Allergan, and research and development grants from the U.S. government.
On June 25, 2018, we completed our IPO, pursuant to which we issued and sold 7,359,998 shares of our common stock at a price of $16.00 per share, which included 959,999 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares. We received $106.5 million of proceeds, net of underwriting discounts and commissions and other offering expenses.
On July 1, 2019, we entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), 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 $50.0 million through Cowen as sales agent. Cowen may sell 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 Global Select Market or any other existing trade market for the 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. Cowen will be entitled to receive 3.0% of the gross sales price per share of common stock sold under the Sales Agreement. As of March 31, 2020, no shares of common stock have been issued and sold pursuant to the Sales Agreement.
On January 14, 2020, we completed a follow-on public offering of our common stock pursuant to an effective registration statement on Form S-3. We sold an aggregate of 11,691,666 shares of common stock, which included the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $3.00 per share. Net proceeds from the offering were approximately $33.3 million after deducting underwriting discounts and commissions as well as other offering expenses.
As of March 31, 2020, we had cash and cash equivalents of $121.0 million. We invest our cash equivalents in liquid money market accounts.
Funding requirements
Our primary uses of capital are, and we expect will continue to be, research and development services, compensation and related expenses, product manufacturing, laboratory and related supplies, legal, and other regulatory expenses, patent prosecution filing and maintenance costs for our licensed intellectual property, and general overhead costs. We expect to continue incurring significant expenses and operating losses for the foreseeable future. In addition, since the closing of our IPO, we have incurred, and expect to incur, additional costs associated with operating as a public company. We anticipate that our expenses will increase in connection with our ongoing activities, as we:
|
·
|
|
seek to address and recover from impacts of the COVID-19 pandemic, including delays to our product development timelines;
|
|
·
|
|
advance the clinical development of our lead product candidates;
|
|
·
|
|
continue to improve the manufacturing process for our product candidates and manufacture clinical supplies as our development progresses;
|
|
·
|
|
continue the research and development of our preclinical product candidates;
|
|
·
|
|
seek to identify and develop additional product candidates;
|
|
·
|
|
maintain, expand, and protect our intellectual property portfolio; and
|
|
·
|
|
improve our operational, financial, and management systems to support our clinical development and other operations.
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Outlook
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our cash and cash equivalents as of March 31, 2020 will be sufficient to fund our operations for at least the next 12 months. 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.
We do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate, which we expect will take a number of years and the outcome of which is uncertain, or enter into collaborative agreements with third parties, the timing of which is largely beyond our control and may never occur. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future, which we may obtain through one or more equity offerings, debt financings, or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all, including as a result of the COVID-19 pandemic. Our failure to raise capital or enter into such other arrangements as
and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates, or any additional product candidates, if developed. The amount and timing of our future funding requirements will depend on many factors, including the effects of the COVID-19 pandemic, our ability to timely and successfully enroll subjects in our clinical studies and the pace and results of our preclinical and clinical development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Cash flows
The following table summarizes our sources and uses of cash for each of the three months ended March 31, 2020 and 2019 (in thousands):
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Three months ended
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March 31,
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2020
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2019
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Net cash provided by (used in):
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Operating activities
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$
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(11,553)
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$
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(14,143)
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Investing activities
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(11)
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—
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Financing activities
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33,735
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86
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Net increase (decrease) in cash, cash equivalents and restricted cash
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$
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22,171
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$
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(14,057)
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Operating activities
For the three months ended March 31, 2020, compared to the same period in 2019, the $2.6 million decrease in net cash used in operating activities was primarily due to the decreased net loss during this period of $2.0 million, which, in turn, was driven by decreases in research and development costs and general and administrative costs.
Investing activities
For the three months ended March 31, 2020, compared to the same period in 2019, the less than $0.1 million increase in net cash used in investing activities was primarily due to a purchase of a leasehold improvement.
Financing activities
For the three months ended March 31, 2020, compared to the same period in 2019, the $33.6 million increase in net cash provided by financing activities was primarily due to $33.5 million of net proceeds received from our January 2020 follow-on public offering, net of underwriting discounts and commissions and other offering expenses.
Critical accounting policies and significant judgments and estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with United States generally accepted accounting principles. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report. There were no material changes to our critical accounting policies through March 31, 2020 from those discussed in our Annual Report.
Recent accounting pronouncements
See Note 2 to our condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Contractual obligations and other commitments
For a discussion of contractual obligations and other commitments affecting us, see the discussion under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations – Contractual obligations and other commitments” included in our Annual Report.
There have been not been any material changes since December 31, 2019 to the Company’s contractual obligations and other commitments.
JOBS Act accounting election
Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, an “emerging growth company” can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We intend to rely on this exemption. There are other exemptions and reduced reporting requirements provided by the JOBS Act that we are currently evaluating. For example, as an “emerging growth company,” we are exempt from Sections 14A(a) and (b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would otherwise require us to (1) submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “golden parachutes;” and (2) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our chief executive officer’s compensation to our median employee compensation. We also intend to rely on an exemption from the rule requiring us to provide an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002. We will continue to remain an “emerging growth company” until the earliest of the following: (1) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (2) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.07 billion; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information requested by this Item 3. Quantitative and Qualitative Disclosures about Market Risk is not applicable as we are electing scaled disclosure requirements available to smaller reporting companies with respect to this Item.
Item 4. Controls and Procedures.
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at the reasonable assurance level as of March 31, 2020.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of March 31, 2020, we have not experienced any material impact to our internal control over financial reporting due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.