Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, or SEC, under the heading “Risk Factors”. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2021 appearing in our Annual Report on Form 10-K filed with the SEC on March 11, 2022.
Overview
We are a biopharmaceutical company focused on revolutionizing the delivery of therapies to the back of the eye through the suprachoroidal space, or SCS®. Our novel SCS injection platform, utilizing our proprietary SCS Microinjector®, enables an in-office, repeatable, non-surgical procedure for the targeted and compartmentalized delivery of a wide variety of therapies to the macula, retina or choroid to potentially preserve and improve vision in patients with sight-threatening eye diseases. Our SCS injection platform can be used in conjunction with existing drugs designed for delivery to the SCS, novel therapies and future therapeutic innovations. We believe our proprietary suprachoroidal administration platform has the potential to become a standard for delivery of therapies intended to treat chorioretinal diseases.
We are leveraging our SCS injection platform by building an internal research and development pipeline targeting retinal diseases and by creating external collaborations with other companies. We are developing our own pipeline of small molecule product candidates for administration via our SCS Microinjector, and we also strategically partner with companies developing other ophthalmic therapeutic innovations to be administered using our SCS injection platform. Our first product, XIPERE® (triamcinolone acetonide injectable suspension) for suprachoroidal use, was approved by the U.S. Food and Drug Administration, or the FDA, in October 2021. Approval of XIPERE was a significant milestone for us as it is the first approved therapeutic delivered into the SCS, the first commercial product developed by us and the first therapy for macular edema associated with uveitis.
We believe that we are creating a broad therapeutic platform for developing product candidates to treat serious eye diseases.
16
The current development status of our pipeline of internal product candidates and external collaborations is summarized in the chart below:
Internal Pipeline
XIPERE
Our first product, XIPERE, is a proprietary, preservative-free suspension of the corticosteroid triamcinolone acetonide, or TA, for suprachoroidal use. Corticosteroids are the standard of care in uveitis. They are effective at treating the inflammatory aspect of ocular disease, but when delivered locally, either topically as drops, intravitreally or by periocular injection, they have been associated with significant side effects, such as cataract formation or exacerbation and elevated intraocular pressure, or IOP, which can lead to glaucoma. XIPERE is delivered into the suprachoroidal space via a novel route of administration utilizing our SCS Microinjector. XIPERE is approved by the FDA for the treatment of macular edema associated with uveitis.
We are evaluating options for potential submissions to regulatory agencies to seek regulatory approval of XIPERE for the treatment of patients with macular edema associated with uveitis in additional territories outside of territories licensed by Arctic Vison and Bausch.
CLS-AX
CLS-AX, our most advanced product candidate, is our proprietary suspension of the tyrosine kinase inhibitor, or TKI, axitinib for suprachoroidal injection delivered via our SCS Microinjector. CLS-AX is an inhibitor of vascular endothelial growth factor receptor-1, -2 and -3 that we believe may benefit patients who respond sub optimally to current anti-VEGF therapies. We are developing CLS-AX for administration to the SCS as a long-acting therapy for retinal diseases.
In August 2020, we announced that the FDA had accepted our Investigational New Drug application, or IND, for CLS-AX. In January 2021, we announced that the first patients had been enrolled in our Phase 1/2a clinical trial of CLS-AX, known as OASIS. In OASIS, the primary endpoints were met in Cohorts 1 and 2. CLS-AX was well tolerated with no serious adverse events; there were no treatment emergent adverse events related to aflibercept, CLS-AX or the suprachoroidal injection procedure, no dispersion of drug into the vitreous, and no adverse events related to IOP, inflammation or vasculitis. In July 2022, we completed patient enrollment of OASIS and also completed dosing in Cohort 3 in which each patient received a dose of 0.5 mg, and in Cohort 4 in which each patient received a dose of 1.0 mg. Our extension study follows patients in Cohort 2, Cohort 3 and Cohort 4 for up to an additional three-month period.
We enrolled 27 patients in total in all four OASIS cohorts. All patients were highly treatment-experienced wet AMD patients with active disease at screening. Our enrollment allowed us to collect more CLS-AX patient data to help guide our selection of the most appropriate dosing protocol for our planned Phase 2 clinical trial. On November 9, 2022, we reported positive results that included final 3-month data from Cohorts 3 and 4, and interim data from the extension study. CLS-AX demonstrated a positive safety profile in all four cohorts. There were no serious adverse events and no treatment emergent adverse events related to aflibercept,
17
CLS-AX, or the suprachoroidal injection procedure. There were also no dose limiting toxicities. There were no adverse events related to inflammation, vasculitis or vascular occlusion, and there were no vitreous “floaters” or dispersion of CLS-AX into the vitreous.
In Cohorts 3 and 4, the data showed favorable durability with a meaningful reduction in treatment burden at the 3-month endpoint and to date in the extension study. Of the 16 patients in Cohorts 3 and 4, at the 3-month endpoint, 69% did not receive additional therapy, 92% did not receive additional therapy per protocol criteria, and there was at least a 73% reduction in treatment burden from the average monthly injections in the three months before CLS-AX administration. Of the 12 patients in the extension study, based on interim data as of October 27, 2022, 88% (7/8) of patients did not receive additional therapy to the 5-month endpoint and 75% (3/4) of patients did not receive additional therapy to the 6-month endpoint. Further, in the extension study, there was at least a 90% reduction in treatment burden from the average monthly injections in the six months before CLS-AX administration. In Cohorts 3 and 4, CLS-AX also showed an observable biologic effect with stable mean best corrected visual acuity, or BCVA, stable mean central subfield thickness, or CST, and anatomical signs of TKI biologic effect observed on Optical Coherence Tomography, or OCT, images.
We will continue to follow the patients in the extension study until they all reach the six-month endpoint, and we expect to report that data in the first quarter of 2023. We are actively planning for the initiation of a randomized, controlled Phase 2 clinical trial in the first quarter of 2023 in wet AMD and/or diabetic retinopathy.
CLS-301
We have initiated another small molecule program utilizing suprachoroidal administration of an integrin inhibitor suspension, which we refer to as CLS-301. Integrins are multi-functional cell-adhesion molecules that regulate critical cellular processes. Integrins play a role in pathologic processes, such as inflammation, angiogenesis and fibrosis. Integrin inhibition has had some recent preliminary validation in preclinical models and clinical studies of diabetic macular edema and macular degeneration conducted by others. We believe that integrin inhibition could potentially serve as primary therapy, adjunctive therapy to anti-VEGF agents or secondary therapy in refractory cases of diabetic macular edema and macular degeneration. Suprachoroidal delivery of an integrin inhibitor suspension could provide targeting, compartmentalization and durability advantages over topical or intravitreal delivery, similar to what we have observed in other preclinical studies of small molecule suspensions, such as triamcinolone acetonide and axitinib. Therefore, we are assessing ocular tolerability, distribution and pharmacokinetics of our integrin inhibitor suprachoroidal suspension in a series of preclinical studies. Our initial preclinical data has shown that the agent is well-tolerated with favorable ocular distribution targeting the chorio-retina, and we have seen encouraging initial signs of durability. We are optimizing the formulation and have initiated a second preclinical study. We expect to have results from this study by the end of 2022.
External Collaborations Pipeline
In addition to growing our internal pipeline, we are also focused on collaborating with other companies to provide access to the suprachoroidal space.
During the second half of 2019, we entered into three license and other agreements that we believe validate and expand the reach of our suprachoroidal injection platform. In October 2019, we announced that Bausch + Lomb, a division of Bausch Health Companies, Inc., or Bausch, acquired an exclusive license for the commercialization and development of XIPERE (triamcinolone acetonide injectable suspension) in the United States and Canada. Bausch launched XIPERE in the United States in the first quarter of 2022.
In October 2019, REGENXBIO Inc., or REGENXBIO, exercised its option to license our SCS Microinjector technology for in-office delivery of adeno-associated virus, or AAV-based therapeutics to the SCS to potentially treat AMD, diabetic retinopathy and certain other conditions for which chronic anti-VEGF treatment is currently the standard of care. REGENXBIO is currently conducting two multi-center, open-label, randomized, controlled, dose-escalation Phase 2 clinical trials evaluating the efficacy, safety and tolerability of suprachoroidal delivery of RGX-314 using our SCS Microinjector technology: a Phase 2 trial entitled AAVIATE for the treatment of wet AMD and a second Phase 2 trial entitled ALTITUDE for the treatment of diabetic retinopathy. REGENXBIO has reported positive initial data from both clinical trials and that it has completed patient enrollment in both ALTITUDE and AAVIATE. In October 2022, REGENXBIO announced that the interim results for AAVIATE continued to be positive. We expect REGENXBIO to disclose additional data from these trials by the end of 2022.
In July 2019, Aura Biosciences, or Aura, licensed our SCS Microinjector to deliver Aura’s proprietary drug candidates into the SCS for the potential treatment of certain ocular cancers, including choroidal melanoma. Aura is currently conducting a Phase 2 trial in choroidal melanoma comprised of an open-label, dose escalation phase and a randomized, masked dose expansion phase. Aura reported positive interim data on its Phase 2 clinical trial for the treatment of choroidal melanoma in October 2022.
In March 2020, we entered into a license agreement, or the Arctic Vision License Agreement, with Arctic Vision (Hong Kong) Limited, or Arctic Vision. Pursuant to the Arctic Vision License Agreement, we granted an exclusive license to Arctic Vision to develop, distribute, promote, market and commercialize XIPERE, subject to specified exceptions, in China, Hong Kong, Macau, Taiwan and South Korea, or the Arctic Territory. During 2021, we entered into amendments to the Arctic Vision License Agreement to expand the territories covered by the license to include India and the ASEAN Countries (Brunei, Cambodia, Indonesia, Laos,
18
Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and Australia and New Zealand. In December 2020, Arctic Vision announced approval of its IND for a Phase 3 clinical trial of ARVN001 (known as XIPERE in the U.S.) in China. Arctic Vision has branded ARVN001 as Arcatus. In November 2021, Arctic Vision announced dosing of the first patient in a Phase 3 clinical trial of ARVN001 for the treatment of macular edema associated with uveitis. In March 2022, Arctic Vision announced dosing of the first patient in a Phase 1 clinical trial of ARVN011 in China for the treatment of diabetic macular edema.
These partnerships enable us to expand the use of our suprachoroidal injection platform to other indications and geographies globally. Under these license agreements, we are eligible to receive up to an aggregate of more than $230 million in potential future development and sales milestones, as well as and royalties from net sales of covered products. On August 8, 2022, we entered into a Purchase and Sale Agreement pursuant to which we sold our rights to receive royalty and milestone payments due to us related to XIPERE and certain SCS Microinjector license agreements in exchange for up to $65 million, including an initial payment of $32.5 million. The rights to these payments revert to us under the terms and conditions specified in Note 5 to the financial statements.
We have incurred net losses since our inception. In recent years, our operations have consisted primarily of conducting preclinical studies and clinical trials, raising capital and undertaking other research and development initiatives. To date, we have not generated any revenue to sustain present activities, and we have primarily financed our operations through public offerings and private placements of our equity securities, issuances of convertible promissory notes, loan agreements and license agreements. As of September 30, 2022, we had an accumulated deficit of $278.8 million. We recorded net losses of $7.8 million and $4.9 million for the three months ended September 30, 2022 and 2021, respectively, and net losses of $23.3 million and $18.3 million for the nine months ended September 30, 2022 and 2021, respectively. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development for and obtaining regulatory approval of our product candidates, as well as discovering compounds and developing proprietary formulations to utilize with our SCS Microinjector.
We expect to continue to incur significant and increasing operating losses at least for the next several years. We do not expect to generate significant product or license and other revenue unless and until XIPERE is successfully commercialized by our licensees or until we successfully complete development of, obtain regulatory approval for and commercialize additional product candidates, either on our own or together with a third party. Our financial results may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We expect clinical trial expenses to increase during the remainder of 2022 and into 2023 as a result of our ongoing Phase 1/2a clinical trial of CLS-AX, the preparation of a Phase 2 clinical trial of CLS-AX, as well as continuing our pipeline development. We also will continue our efforts to seek to discover, research and develop additional product candidates. Based on our current research and development plans, we expect to have sufficient resources to fund our planned operations into 2024.
Impact of COVID-19 on Our Business
Our financial results for the three and nine months ended September 30, 2022 were not significantly impacted by COVID-19, and we currently do not expect any material impact on our financial results for the remainder of 2022.
Components of Operating Results
License and Other Revenue
We have not generated any revenue from the sale of XIPERE, and we do not expect to generate any until Bausch has reached the first $45 million of net sales (refer to Note 12 to our financial statements included in this Quarterly Report on Form 10-Q) or any other product revenue unless or until we obtain regulatory approval of and commercialize our other product candidates, either on our own or with a third party. The revenue received under the Bausch license agreement, as well as other certain payments from our licensees, will be recorded as non-cash revenue until we have fulfilled our obligations under the Purchase and Sale Agreement. Our revenue in recent years has been generated primarily from our license agreements. We are seeking to enter into additional license and other agreements with third parties to evaluate the potential use of our proprietary SCS Microinjector with the third party’s product candidates for the treatment of various eye diseases. These agreements may include payments to us for technology access, upfront license payments, regulatory and commercial milestone payments and royalties.
Research and Development
Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates, which include:
•employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;
•expenses incurred under agreements with contract research organizations, or CROs, as well as contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies;
•costs associated with nonclinical activities and development activities;
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•costs associated with submitting regulatory approval applications for our product candidates;
•costs associated with training physicians on the suprachoroidal injection procedure and educating and providing them with appropriate product candidate information;
•costs associated with technology and intellectual property licenses;
•costs for our research and development facility; and
•depreciation expense for assets used in research and development activities.
We expense research and development costs to operations as incurred. These costs include preclinical activities, such as manufacturing and stability and toxicology studies, that are supportive of a product candidate itself. In addition, there are expenses related to clinical trials and similar activities for each program, including costs associated with CROs. Clinical costs are recognized based on the terms of underlying agreements, as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations and additional information provided to us by our vendors about their actual costs occurred. Expenses related to activities that support more than one development program or activity, such as salaries, share-based compensation and depreciation, are not classified as direct preclinical costs or clinical costs and are separately classified as unallocated.
The following table shows our research and development expenses by program for the three and nine months ended September 30, 2022 and 2021 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
Nine Months Ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
XIPERE (uveitis program) |
|
$ |
118 |
|
|
$ |
771 |
|
|
$ |
315 |
|
|
$ |
2,646 |
|
CLS-AX (wet AMD program) |
|
|
1,529 |
|
|
|
1,341 |
|
|
|
4,308 |
|
|
|
3,382 |
|
CLS-301 (DME program) |
|
|
230 |
|
|
|
368 |
|
|
|
860 |
|
|
|
813 |
|
Total |
|
|
1,877 |
|
|
|
2,480 |
|
|
|
5,483 |
|
|
|
6,841 |
|
Unallocated |
|
|
2,760 |
|
|
|
2,667 |
|
|
|
9,120 |
|
|
|
7,856 |
|
Total research and development expense |
|
$ |
4,637 |
|
|
$ |
5,147 |
|
|
$ |
14,603 |
|
|
$ |
14,697 |
|
Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended under contracts with research institutions, consultants and CROs that conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we would modify our estimates of accrued expenses accordingly on a prospective basis.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our current or future product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that may include, among others:
•the costs associated with process development, scale-up and manufacturing of our product candidates including the SCS Microinjector for clinical trials and for requirements associated with regulatory filings;
•the number of trials required for approval and any requirement for extension trials;
•per patient trial costs;
•the number of patients that participate in the trials;
•the number of sites included in the trials;
•the countries in which the trials are conducted;
•the length of time required to enroll eligible patients;
•the number of doses that patients receive;
•the potential impact of the COVID-19 pandemic on the enrollment in, and timing of, our clinical trials;
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•the drop-out or discontinuation rates of patients;
•potential additional safety monitoring or other studies requested by regulatory agencies;
•the duration of patient follow-up; and
•the efficacy and safety profiles of the product candidates.
In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
General and Administrative
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative costs historically included commercial pre-launch preparations for XIPERE, and also include facility related costs not otherwise included in research and development expenses, as well as professional fees for legal, patent, consulting, and accounting and audit services.
Other Income
Other income consists of the gain on the extinguishment of the PPP Loan and accrued interest and interest income earned on our cash and cash equivalents. Interest income is not considered significant to our consolidated financial statements.
Non-cash Interest Expense on Liability Related to the Sales of Future Royalties
Non-cash interest expense on liability related to the sales of future royalties consists of imputed interest on the carrying value of the liability and the amortization of the related issuance costs.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the consolidated balance sheets and the reported amounts of expenses during the reporting periods. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the determination of share-based compensation and some of our research and development expenses. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. During the nine months ended September 30, 2022, there were no significant changes to our critical accounting policies disclosed in our audited financial statements for the year ended December 31, 2021, which are included in our Annual Report on Form 10-K, as filed with the SEC on March 11, 2022, other than the liability related to the sales of future royalties discussed in Note 2 to the financial statements.
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Results of Operations for the Three Months Ended September 30, 2022 and 2021
The following table sets forth our results of operations for the three months ended September 30, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
Period-to-Period |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(in thousands) |
|
License and other revenue |
|
$ |
266 |
|
|
$ |
3,074 |
|
|
$ |
(2,808 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
4,637 |
|
|
|
5,147 |
|
|
|
(510 |
) |
General and administrative |
|
|
2,353 |
|
|
|
2,816 |
|
|
|
(463 |
) |
Total operating expenses |
|
|
6,990 |
|
|
|
7,963 |
|
|
|
(973 |
) |
Loss from operations |
|
|
(6,724 |
) |
|
|
(4,889 |
) |
|
|
(1,835 |
) |
Other income |
|
|
194 |
|
|
|
2 |
|
|
|
192 |
|
Non-cash interest expense on liability related to the sales of future royalties |
|
|
(1,297 |
) |
|
|
— |
|
|
|
(1,297 |
) |
Net loss |
|
$ |
(7,827 |
) |
|
$ |
(4,887 |
) |
|
$ |
(2,940 |
) |
License and other revenue. In the three months ended September 30, 2022 and 2021, we recognized $0.3 million and $3.1 million, respectively, of revenue associated with our license agreements. License revenue for the three months ended September 30, 2021 was primarily a result of a $3.0 million milestone payment received from Arctic Vision.
Research and development. Research and development expense decreased by $0.5 million, from $5.1 million for the three months ended September 30, 2021 to $4.6 million for the three months ended September 30, 2022. This was primarily due to a $0.7 million decrease in costs related to the uveitis program as XIPERE was approved for commercial sales by the FDA in October 2021 and a $0.1 million decrease in costs related to the CLS-301 program. This was partially offset by an increase of costs of $0.2 million for the CLS-AX program, including costs for OASIS, a Phase 1/2a clinical trial of CLS-AX.
General and administrative. General and administrative expenses decreased by $0.5 million, from $2.8 million for the three months ended September 30, 2021 to $2.4 million for the three months ended September 30, 2022. This was primarily attributable to a $0.3 million decrease in employee related costs related to share based compensation and a $0.1 million decrease in professional fees.
Other income. Other income for the three months ended September 30, 2022 was comprised of interest income from cash and cash equivalents. Other income for the three months ended September 30, 2021 was primarily comprised of the gain on the extinguishment of debt from the forgiveness of the PPP Loan and accrued interest.
Non-cash interest expense from liability related to the sales of future royalties. Non-cash interest expense for the three months ended September 30, 2022 was comprised of imputed interest on the liability related to the sales of future royalties and the amortization of the associated issuance costs.
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
The following table sets forth our results of operations for the nine months ended September 30, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
Period-to-Period |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(in thousands) |
|
License and other revenue |
|
$ |
997 |
|
|
$ |
3,888 |
|
|
$ |
(2,891 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
14,603 |
|
|
|
14,697 |
|
|
|
(94 |
) |
General and administrative |
|
|
8,601 |
|
|
|
8,525 |
|
|
|
76 |
|
Total operating expenses |
|
|
23,204 |
|
|
|
23,222 |
|
|
|
(18 |
) |
Loss from operations |
|
|
(22,207 |
) |
|
|
(19,334 |
) |
|
|
(2,873 |
) |
Other income |
|
|
220 |
|
|
|
1,001 |
|
|
|
(781 |
) |
Non-cash interest expense on liability related to sales of future royalties |
|
|
(1,297 |
) |
|
|
— |
|
|
|
(1,297 |
) |
Net loss |
|
$ |
(23,284 |
) |
|
$ |
(18,333 |
) |
|
$ |
(4,951 |
) |
License and other revenue. In the nine months ended September 30, 2022 and 2021, we recognized $1.0 million and $3.9 million, respectively, of revenue associated with our license agreements. License revenue for the nine months ended September 30, 2021, was primarily a result of $3.8 million in milestone payments received from Arctic Vision.
Research and development. Research and development expense decreased by $94,000, from $14.7 million for the nine months ended September 30, 2021 to $14.6 million for the nine months ended September 30, 2022. This decrease is primarily a result of a $2.3 million decrease in costs related to the uveitis program as XIPERE was approved for commercial sales by the FDA in October 2021. The decrease was offset by a $0.9 million increase in the CLS-AX program, including costs for OASIS, a Phase 1/2a clinical
22
trial of CLS-AX and the OASIS Extension, a $0.3 million increase in costs of manufacturing the SCS Microinjector and a $0.6 million increase in employee related costs due to an increase in headcount including recruiting costs.
General and administrative. General and administrative expenses increased by $76,000 from $8.5 million for the nine months ended September 30, 2021 to $8.6 million for the nine months ended September 30, 2022. This was primarily attributable to a $0.2 million increase in patent costs offset by a $0.2 million decrease in employee related costs.
Other income. Other income for the nine months ended September 30, 2022 was comprised of interest income from cash and cash equivalents. Other income for the nine months ended September 30, 2021 was primarily comprised of the gain on the extinguishment of debt from the forgiveness of the PPP Loan and accrued interest.
Non-cash interest expense from liability related to the sales of future royalties. Non-cash interest expense for the nine months ended September 30, 2022 was comprised of imputed interest on the liability related to the sales of future royalties and the amortization of the associated issuance costs.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through the proceeds of public offerings of our common stock, sales of convertible preferred stock, the issuance of long-term debt and license agreements. As of September 30, 2022, we had cash and cash equivalents of $53.4 million. We invest any cash in excess of our immediate requirements primarily with a view to liquidity and capital preservation. As of September 30, 2022, our funds were held in cash and money market funds.
On August 8, 2022, or the Closing Date, we, through our wholly-owned subsidiary Clearside Royalty LLC, a Delaware limited liability company, or Royalty Sub, entered into a Purchase and Sale Agreement with entities managed by HealthCare Royalty Management, LLC, or HCR, pursuant to which Royalty Sub sold to HCR certain of its rights to receive royalty and milestone payments payable to Royalty Sub under the Arctic Vision License Agreement, Bausch License Agreement, that certain License Agreement, effective as of July 3, 2019, by and between us and Aura Biosciences, Inc., that certain Option and License Agreement, dated as of August 29, 2019, by and between REGENXBIO Inc. and us, and any and all out-license agreements following the Closing Date for, or related to XIPERE or the SCS Microinjector technology to be used in connection with compounds or products of any third parties delivered, in whole or in part, by means of the SCS Microinjector technology, excluding, for the avoidance of doubt, any in-licensed or internally developed therapies following the Closing Date, in exchange for up to $65 million. Under the terms of the Purchase and Sale Agreement, Royalty Sub received a payment of $32.1 million, representing the $32.5 million to which we were entitled less certain expenses. There were additional issuance costs of $1.5 million related to the Purchase and Sale Agreement resulting in net proceeds of $30.6 million. An additional $12.5 million was deposited in an escrow account by HCR to be released to Royalty Sub upon attainment of a pre-specified XIPERE sales milestone achieved no later than March 31, 2024. The terms of the Purchase and Sale Agreement also provide for an additional $20 million milestone payment to Royalty Sub upon attainment of a second pre-specified sales milestone related to 2024 XIPERE sales.
In April 2020, we entered into a loan agreement with Silicon Valley Bank under the terms of which Silicon Valley bank loaned us $1.0 million, or the PPP Loan, pursuant to the Paycheck Protection Program, or PPP, under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In accordance with the requirements of the CARES Act, we used the proceeds primarily for payroll costs and other eligible expenses. The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. On January 11, 2021, we received notification from Silicon Valley Bank that the PPP loan was forgiven in full, including approximately $7,000 of accrued interest.
In March 2020, Arctic Vision paid us an upfront payment of $4.0 million. In December 2021, we received a milestone payment of $4.0 million following receipt of FDA approval of XIPERE in the United States. In addition, Arctic Vision agreed to pay us up to a total of $22.5 million in development and sales milestone payments. Further, during the applicable royalty term, Arctic Vision agreed to pay us tiered royalties of 10-12% of net sales in the Arctic Territory, subject to customary reductions. In August 2021, we entered into an amendment to the Arctic Vision License Agreement to expand the territories covered by the license to include India and the ASEAN Countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam). In September 2021, we entered into a second amendment to the Arctic Vision License Agreement to expand the Arctic Territory to include Australia and New Zealand. We received an aggregate of $3.0 million in consideration for the expansion of the Arctic Territory.
In October 2019, we announced that Bausch acquired an exclusive license for the commercialization and development of XIPERE in the United States and Canada. On October 25, 2021, we announced that the FDA approved XIPERE for the treatment of macular edema associated with uveitis. We received $5.0 million from Bausch in November 2021 relating to the FDA approval of XIPERE, and in January 2022, we received an additional $10.0 million upon completion of pre-launch activities for XIPERE. Bausch launched XIPERE in the United States in the first quarter of 2022.
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We have entered into an at-the-market sales agreement, or the ATM agreement, with Cowen and Company LLC, or Cowen, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen acting as our sales agent. As of September 30, 2022, there was $14.4 million available for sales of our common stock under the ATM agreement.
Funding Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, research and development costs to build our product candidate pipeline, legal and other regulatory expenses and general overhead costs. In addition, we have certain contractual obligations for future payments. Refer to Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of CLS-AX or any future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from product sales. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
•successful enrollment in, and completion of, clinical trials;
•receipt of marketing approvals from applicable regulatory authorities;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; and
•launching commercial sales of the products, if and when approved, whether alone or in collaboration with others.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that candidate.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license and development agreements. Other than potential payments we may receive under our license and other agreements, we do not currently have any committed external source of funds, though, as described above, we may also be able to sell our common stock under the ATM agreement with Cowen subject to the terms of that agreement and depending on market conditions. We expect that we will require additional capital to fund our ongoing operations. Additional funds may not be available to us on a timely basis, on commercially reasonable terms, or at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic, the Russian Federation invasion of Ukraine and macroeconomic conditions such as inflation. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through additional collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, including any future collaboration or licensing arrangement for XIPERE outside of the territories in which we have previously licensed or granted options to license XIPERE, we may be required to relinquish additional rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We also incur costs as a public company, including costs and expenses for fees to members of our board of directors, accounting and finance personnel costs, directors and officers insurance premiums, audit and legal fees, investor relations fees and expenses for compliance with reporting requirements under the Exchange Act and rules implemented by the SEC and Nasdaq.
Outlook
We have suffered recurring losses and negative cash flows from operations since inception and anticipate incurring additional losses until such time, if ever, that we can generate significant milestone payments and royalties from XIPERE and other licensing arrangements or revenues from other product candidates. We will need additional financing to fund our operations. Our plans primarily consist of raising additional capital, potentially in a combination of equity or debt financings, monetizing royalties, or restructurings, or potentially entering into additional collaborations, partnerships and other strategic arrangements.
Based on our cash and cash equivalents as of the filing date, November 9, 2022, our current plans and forecasted expenses we expect that we will be able to fund our planned operating expenses and capital expenditure requirements into 2024. We have based
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this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. We will require additional capital in order to complete clinical development of CLS-AX.
Cash Flows
The following is a summary of the net cash flows provided by (used in) our operating, investing and financing activities (in thousands):
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Nine Months Ended
September 30, |
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2022 |
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2021 |
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Net cash provided by (used in): |
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Operating activities |
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$ |
(7,758 |
) |
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$ |
(15,787 |
) |
Investing activities |
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(155 |
) |
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— |
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Financing activities |
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30,758 |
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23,617 |
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Net change in cash and cash equivalents |
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$ |
22,845 |
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$ |
7,830 |
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During the nine months ended September 30, 2022, our operating activities used net cash of $7.8 million and $15.8 million, respectively. The net cash used in the nine months ended September 30, 2022 was primarily due to research and development expenses related to the preclinical and clinical programs and general and administrative expenses offset by the receipt of the $10.0 million milestone payment received from Bausch in connection with pre-launch activities for XIPERE. The net cash used in the nine months ended September 30, 2021 was primarily attributable to higher research and development expenses related to the preclinical and clinical CLS-AX program.
During the nine months ended September 30, 2022, our investing activities used net cash of $0.2 million for the acquisition of property and equipment.
During the nine months ended September 30, 2022 and 2021, our net cash provided by financing activities was $30.8 million and $23.6 million, respectively. The cash provided by financing activities for the nine months ended September 30, 2022 primarily consisted of $30.6 million of proceeds received from the Purchase and Sale Agreement, net of issuance costs. The cash provided by financing during the nine months ended September 30, 2021 primarily consisted of $11.1 million of net proceeds from the sale of shares of our common stock in a registered direct offering and $12.2 million of net proceeds from the sale of shares of our common stock under the ATM agreement.