Form 10-Q
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Item 2. |
Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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The
following discussion of our financial condition and results of
operations should be read in conjunction with the financial
statements and notes included in Part I “Financial Information”,
Item I “Financial Statements” of this Quarterly Report on Form 10-Q
(the “Report”) and the audited financial statements and related
footnotes included in our Annual Report on Form 10-K for the year
ended December 31, 2021.
Forward-Looking Statements
Certain statements contained in this Report are not statements of
historical fact and are 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 “Exchange Act”). Forward-looking statements give current
expectations or forecasts of future events or our future financial
or operating performance. We may, in some cases, use words such as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “potential,” “predict,” “project,” “should,” “will,”
“would” or the negative of those terms, and similar expressions
that convey uncertainty of future events or outcomes to identify
these forward-looking statements.
These
forward-looking statements reflect our management’s beliefs and
views with respect to future events, are based on estimates and
assumptions as of the date of this Report and are subject to risks
and uncertainties, many of which are beyond our control, that could
cause our actual results to differ materially from those in these
forward-looking statements. We discuss many of these risks in
greater detail under Part I, Item 1A “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2021 and
subsequent reports filed with or furnished to the Securities and
Exchange Commission (the “SEC”). Moreover, we operate in a very
competitive and rapidly changing environment. New risks emerge from
time to time. It is not possible for our management to predict all
risks, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
any forward-looking statements we may make. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements.
Any
forward-looking statement made by us in this Report speaks only as
of the date hereof or as of the date specified herein. We undertake
no obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments or
otherwise, except as may be required by applicable laws or
regulations.
Overview
Ocuphire is a clinical-stage
ophthalmic biopharmaceutical company focused on developing and
commercializing therapies for the treatment of refractive and
retinal eye disorders. Ocuphire’s pipeline currently includes two
small molecule product candidates targeting several of such
indications.
Its lead product candidate,
Nyxol®
Eye Drops (“Nyxol”), is a once-daily eye drop formulation of
phentolamine mesylate designed to reduce pupil diameter and improve
visual acuity. As a result, Nyxol can potentially be used for the
treatment of multiple indications such as reversal of
pharmacologically-induced mydriasis (“RM”) (dilation of the pupil),
presbyopia (age-related blurry near vision) and dim light or night
vision disturbances (“NVD”) (halos and glares). Ocuphire’s
management believes these multiple indications potentially
represent a significant market opportunity. Nyxol has been studied
in a total of 11 clinical trials (3 Phase 1, 5 Phase 2, 2 Phase 3
and for safety in young pediatric patients (ages 3-11)) in a total
of over 950 patients (with over 590 Nyxol-treated) and has
demonstrated promising clinical data for use in the multiple
ophthalmic indications mentioned above. Ocuphire reported positive
top-line data from the first Phase 3 trial (MIRA-2) for RM,
reported positive top-line data from a 2nd
Phase 3 RM trial (MIRA-3) in March 2022, and reported positive data
from a pediatric safety study (MIRA-4) for RM in April 2022.
Ocuphire also reported positive top-line data from a Phase 2 trial
of Nyxol for treatment of presbyopia, both alone and with low-dose
pilocarpine (pilocarpine
hydrochloride 0.4% ophthalmic solution, “LDP”) as adjunctive
therapy. Ocuphire announced completion of enrollment of its NVD
Phase 3 trial (LYNX-1) in January 2022. Ocuphire expects to report
top-line results from the LYNX-1 NVD Phase 3 study in the second
quarter of 2022. Assuming successful and timely completion of the
RM trials, Ocuphire anticipates submitting a new drug application
(“NDA”) to the U.S. Food and Drug Administration (“FDA”) in late
2022 under the 505(b)(2) pathway for its drug led combination
product. Ocuphire has started pre-commercialization planning and
activities in anticipation of a successful RM approval.
Ocuphire’s second product candidate, APX3330, is a twice-a-day oral
tablet designed to target multiple pathways relevant to retinal and
choroidal (the vascular layer of the eye) diseases such as diabetic
retinopathy (“DR”) and diabetic macular edema (“DME”) which, if
left untreated, can result in permanent visual acuity loss and
eventual blindness. DR is a disease resulting from diabetes in
which chronically elevated blood sugar levels cause progressive
damage to blood vessels in the retina. DME is a severe form of DR
which involves leakage of protein and fluid into the macula, the
central portion of the retina, causing swelling and vascular
damage. Prior to Ocuphire’s in-licensing of the product candidate,
APX3330 had been studied by other sponsors in a total of 11
clinical trials (6 Phase 1 and 5 Phase 2) in a total of over 420
healthy volunteers or patients (with over 340 APX3330-treated) for
inflammatory and oncology indications, and had demonstrated
evidence of tolerability, pharmacokinetics, durability, and target
engagement. Ocuphire has also in-licensed APX2009 and APX2014,
which are second-generation product candidates and analogs of
APX3330. Ocuphire initiated a Phase 2 trial for APX3330 in April
2021 for the treatment of patients with DR, including moderately
severe non-proliferative DR (“NPDR”) and mild proliferative DR
(“PDR”), as well as patients with DME without loss of central
vision. Ocuphire reported enrollment completion of 103 patients in
the ZETA-1 trial in March 2022 and expects to report top-line
results from the ZETA-1 DR/DME Phase 2b study in the second half of
2022. In May 2022, Ocuphire reported masked safety data from the
ongoing Phase 2 trial in DR/DME for the 103 patients enrolled.
These safety data are consistent with safety data from the prior 11
clinical trials with total exposure experience of over 6,000
subject-days with 600 mg daily dose of APX3330.
As
part of its strategy, Ocuphire will continue to explore
opportunities to acquire additional ophthalmic assets and to seek
strategic partners for late-stage development, regulatory
preparation and commercialization in key global markets. To date,
Ocuphire’s primary activities have been conducting research and
development activities, planning clinical trials, performing
business and financial planning, recruiting personnel and raising
capital. Ocuphire does not have any products approved for sale and
has not generated any significant amounts of revenue. Ocuphire does
not expect to generate significant revenues until, and unless, the
FDA or other regulatory authorities approve Nyxol or APX3330 and
Ocuphire successfully commercializes its product candidates. Until
such time, if ever, as Ocuphire can generate substantial product
revenue, Ocuphire expects to finance its cash needs through a
combination of equity and debt financings as well as
collaborations, strategic alliances and licensing arrangements.
Through March 31, 2022, Ocuphire has funded its operations
primarily through equity financings that totaled $50.8 million in
gross proceeds, of which $21.15 million was received in connection
with the merger (“Merger”) with Rexahn Pharmaceuticals, Inc.
(“Rexahn”), net cash at Rexahn, a minor amount of license fee
payments earned under license agreements related to Rexahn’s
RX-3117 drug compound, and through the issuance of convertible
notes in private placements that totaled $8.5 million in gross
proceeds. Ocuphire’s net losses were $6.6 million and $39.0 million
for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, Ocuphire had an accumulated deficit of $96.0
million. Ocuphire anticipates that its expenses will increase
substantially as it:
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continues clinical trials for
Nyxol, APX3330 and for any other product candidate in its future
pipeline;
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continues preclinical studies for
Nyxol, APX3330 and for any other product candidate in its future
pipeline;
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develops additional product
candidates that it identifies, in-licenses or acquires;
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seeks regulatory approvals for
any product candidates that successfully complete clinical
trials;
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contracts to manufacture its
product candidates;
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maintains, expands and protects
its intellectual property portfolio;
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hires additional staff, including
clinical, scientific, operational and financial personnel, to
execute its business plan;
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adds operational, financial and
management information systems and personnel, including personnel
to support its product development and potential future
commercialization efforts;
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continues to operate as a public
company; and
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establishes on its own or with
partners, a sales, marketing and distribution infrastructure to
commercialize any products for which Ocuphire may obtain regulatory
approval;
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Ocuphire’s net losses may fluctuate significantly from quarter–to
quarter and year–to year, depending on the timing of its
preclinical studies, clinical trials and its expenditures on other
research and development activities as well as level of license fee
payments received under license agreements in connection with the
former Rexahn drug compounds.
Recent
Developments
For a
discussion of business developments that occurred during the first
quarter of 2022 through March 24, 2022, see "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations – Recent Developments" included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2021, filed on
March 24, 2022.
On March 29, 2022, Ocuphire announced positive top-line results in
MIRA-3, the second Phase 3 FDA registration trial evaluating the
safety and efficacy of Nyxol eye drops to reverse
pharmacologically-induced mydriasis (RM) in 368 subjects. The
topline results demonstrated that the MIRA-3 trial met its primary
endpoint with 58% of patients (study eye) treated with Nyxol
returning to ≤ 0.2 mm of their baseline pupil diameter (PD) at 90
minutes compared to only 6% of subjects (study eye) treated with
placebo (p <0.0001). The effect was also significant at 60
minutes (Nyxol 42% vs. placebo 2%, p <0.0001). In comparison,
only 36% of placebo treated subjects returned back to baseline PD
at 6 hours. These results showed clinically meaningful differences
between Nyxol and placebo for accelerating reversal of
pharmacologically-induced mydriasis with a favorable safety
profile.
On April 28, 2022, Ocuphire announced
positive results in the MIRA-4 trial evaluating the safety and
efficacy of Nyxol eye drops for RM in 23 pediatric patients.
The results demonstrated that Nyxol’s efficacy and safety in
pediatric patients 3-11 years of age was consistent with that shown
in prior MIRA trials which enrolled both adolescents (age 12-17
years) and adults (age 18 years and older), The primary endpoint
was met with Nyxol demonstrating a favorable safety and
tolerability profile. Specifically, there were no complaints of
headaches, redness, instillation site discomfort or pain, blurry
vision, burning or stinging or change in vital signs
reported.
In May 2022 at the Retina World Congress, Ocuphire presented that
new masked safety data for the 103 diabetic patients enrolled in
the ZETA-1 trial is consistent with APX3330’s favorable safety and
tolerability as seen in 11 previous trials in healthy, hepatic and
cancer patients. APX3330 at 600mg/day dose has over 6,000
subject-exposure days. Ocuphire will continue providing masked
safety data at various conferences prior to reporting the topline
data planned for the second half of 2022.
Presentations, Publications and Conferences
Ocuphire’s management team and medical advisors have participated
by invitation at ten major medical and industry conferences since
the beginning of the year, including sixteen papers, posters and
panel talks. The Company has been engaging with dozens of key
opinion leaders to expand awareness of the Nyxol and APX3330
development programs.
As a result of the COVID-19
pandemic, Ocuphire has experienced, and may continue to experience,
delays and disruptions in our clinical trials, as well as
interruptions in our manufacturing and analytical lab operations,
global supply chain and shipping, and clinical development
operations.
Ocuphire’s plans for further
testing or clinical trials may be further impacted by the
continuing effects of COVID-19. The global outbreak of COVID-19
continues to rapidly evolve. The extent to which the COVID-19
pandemic may further impact our business and clinical trials will
depend on future developments, which are highly uncertain and
cannot be predicted with confidence, such as the effect of the
pandemic on our suppliers and distributors and the global supply
chain, the duration of the outbreak, travel restrictions and social
distancing in the U.S. and other countries, business closures or
business disruptions and the effectiveness of actions taken in the
U.S. and other countries to contain and treat the disease. The
COVID-19 pandemic may also continue to impact our business as a
result of employee illness, school closures, and other community
response measures.
The COVID-19 pandemic may also impact our ability to secure
additional financing. Although Ocuphire cannot estimate the length
or gravity of the impact of the COVID-19 outbreak at this time, if
the pandemic continues, it may have a material adverse effect on
the Company’s results of future operations, financial position, and
liquidity in fiscal year 2022 and beyond.
Financial
Operations Overview
To
date, Ocuphire had limited collaborations revenue during the second
and third quarters of 2021 related to fees earned from license
agreements with BioSense Global LLC (“BioSense”) and Processa
Pharmaceuticals, Inc. (“Processa”) in connection with the Rexahn
RX-3117 drug compound. We anticipate that we may earn additional
revenues stemming from additional milestone and royalty payments
from these or other license agreements related to Rexahn’s legacy
drug compounds; however, the attainment of milestones or level of
sales required to earn royalty payments is highly uncertain.
Ocuphire does not expect to generate significant revenue unless or
until it obtains regulatory approval of and commercializes Nyxol or
APX3330. If Ocuphire fails to complete the development of Nyxol,
APX3330, or any other product candidate it may pursue in the
future, in a timely manner, or fails to obtain regulatory approval,
Ocuphire’s ability to generate significant revenue would be
compromised.
Operating
Expenses
Ocuphire’s
operating expenses are classified into two categories: general and
administrative and research and development.
General and
Administrative
General and
administrative expenses consist primarily of personnel-related
costs, including salaries, benefits and stock-based compensation
costs, for personnel in functions not directly associated with
research and administrative activities. Other significant costs
include insurance coverage for directors and officers and other
property and liability exposures, legal fees relating to
intellectual property and corporate matters, professional fees for
accounting and tax services, and other services provided by
business consultants. Ocuphire anticipates that its general and
administrative expenses will significantly increase in the future
to support its continued research and development activities and
costs associated with operating as a public company. These
increases will include increased costs related to the hiring of
additional personnel and fees for legal and professional services
as well as other public company related costs.
Research and
Development
To
date, Ocuphire’s research and development expenses have related
primarily to the clinical-stage development of Nyxol and APX3330.
Research and development expenses consist of costs incurred in
performing research and development activities, including
compensation and benefits for research and development employees
and costs for consultants, costs associated with preclinical
studies and clinical trials, regulatory activities, manufacturing
activities to support clinical activities, license fees, nonlegal
patent costs, fees paid to external service providers that conduct
certain research and development, and an allocation of overhead
expenses. Research and development costs are expensed as incurred
and costs incurred by third parties are expensed as the contracted
work is performed. Ocuphire accrues for costs incurred as the
services are being provided by monitoring the status of the study
or project, and the invoices received from its external service
providers. Ocuphire adjusts its accrual as actual costs become
known. Research and development activities are central to
Ocuphire’s business model.
Ocuphire expects that Nyxol and APX3330 will have higher
development costs during their later stages of clinical
development, as compared to costs incurred during their earlier
stages of development, primarily due to the increased size and
duration of the later-stage clinical trials. Ocuphire expects its
research and development expenses to significantly increase over
the next several years. However, it is difficult for Ocuphire to
determine with certainty the duration, costs and timing to complete
its current or future preclinical programs and clinical trials of
Nyxol, APX3330, and other product candidates. The duration, costs
and timing of clinical trials and development of Nyxol, APX3330 and
other product candidates will depend on a variety of factors that
include, but are not limited to, the following:
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per patient trial costs;
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the number of patients that
participate in the trials;
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the number of sites included in
the trials;
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the countries in which the trials
are conducted;
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the length of time required to
enroll eligible patients;
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the number of doses that patients
receive;
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the drop-out or discontinuation
rates of patients;
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potential additional safety
monitoring or other studies requested by regulatory agencies;
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the duration of patient
follow-up;
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the phase of development of the
product candidate;
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arrangements with contract
research organizations and other service providers; and
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the efficacy and safety profile
of the product candidates.
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Interest
Expense
Interest
expense consists of interest costs related to interest on principal related to a
short-term loan (related to financing an insurance policy) having
an annual interest rate of 5.5%.
Fair Value
Change in Warrant Liabilities
The fair value
change in warrant liabilities comprises the change in the fair
value of the warrant liabilities during the period the warrant
liabilities are outstanding.
Other
(Expense) Income, net
Other
(expense) income, net includes interest earned from cash and cash
equivalent investments, realized and unrealized gains (losses) from
equity investments and reimbursements in connection with grants and
other sources when they occur. In addition, payments made by us in
connection with the Contingent Value Rights Agreement (the “CVR
Agreement”) with former Rexahn shareholders when they occur are
also included in this line item.
Provision for
Income Taxes
Provision for
income taxes consists of federal and state income taxes in the
United States, as well as deferred income taxes and changes in
related valuation allowance reflecting the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Currently, there is no provision for
income taxes, as Ocuphire has incurred operating losses to date,
and a full valuation allowance has been provided on the net
deferred tax assets as of March 31, 2022 and December 31,
2021.
Results of Operations
Comparison of
Three Months Ended March 31, 2022 and 2021
The following
table summarizes Ocuphire’s operating results for the periods
indicated (in thousands):
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For
the Three Months Ended
March
31,
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2022
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2021
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Change
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Operating expenses:
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General and administrative
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$
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1,736
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$
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1,704
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$
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32
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Research and development
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4,772
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3,482
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1,290
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Total operating expenses
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6,508
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5,186
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1,322
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Loss from operations
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(6,508
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)
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(5,186
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)
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(1,322
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)
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Interest
expense
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(5
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)
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—
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(5
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)
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Fair value change in warrant liabilities
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—
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(33,829
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)
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33,829
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Other (expense) income, net
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(82
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)
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1
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(83
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)
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Loss before income taxes
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(6,595
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)
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(39,014
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)
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32,419
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Provision for income taxes
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—
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—
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—
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Net
loss
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$
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(6,595
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)
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$
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(39,014
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)
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$
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32,419
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General and
Administrative
General and
administrative expenses for the three months ended March 31, 2022
were $1.7 million compared to $1.7 million for the three months
ended March 31, 2021. The slight increase period over period of
$32,000 was primarily attributable to an increase in in
administrative employee headcount and stock-based compensation,
offset largely by a decrease in professional services, legal
support, insurance and public company costs. General and
administrative expenses included $0.3 million and $0.2 million in
stock-based compensation expense during the three months ended
March 31, 2022 and 2021, respectively.
Research and
Development
Research and
development expenses for the three months ended March 31, 2022 were
$4.8 million compared to $3.5 million for the three months ended
March 31, 2021. The $1.3 million increase was primarily
attributable to an increased activity level associated with
clinical trials and manufacturing activities for Nyxol and APX3330
period over period as well as additional preclinical and other
development activities during the current period. Research and
development expenses also included $0.1 million and $0.3 million in
stock-based compensation expense during the three months ended
March 31, 2022 and 2021, respectively.
Interest
Expense
Interest
expense for the three months ended March 31, 2022 of $5,000 was
comprised of interest on principal related to a short-term loan
(related to financing an insurance policy). There was no interest
expense during the comparable prior year period.
Fair Value
Change in Warrant Liabilities
The fair value
change in warrant liabilities was an expense of $33.8 million for
the three months ended March 31, 2021. The fair value change was
due primarily to the issuance of the Series A Warrants in
connection with the Pre-Merger Financing in November 2020,
discussed further below, and to the fluctuations in Ocuphire’s
common stock fair value and the number of potential shares of
common stock issuable upon conversion of the underlying Ocuphire
warrant liabilities were outstanding during the relevant periods.
Upon the February 3, 2021 effective date of the Waiver Agreements,
discussed further below, the Series A Warrants were reclassified to
equity and are no longer subject to remeasurement. There was a
negligible change to the fair value of the warrant liability
associated with the Rexahn warrants during the three months ended
March 31, 2022.
Other (Expense)
Income, net
During the three months ended March 31, 2022, Ocuphire had other
expense of $84,000 stemming principally from net unrealized losses
from our short-term investments. Other expense during the three
months ended March 31, 2021 was negligible.
During the
three months ended March 31, 2022 and 2021, Ocuphire had interest
income related to cash deposits on hand in the amount of $2,000 and
$1,000, respectively.
Liquidity and Capital
Resources
Capital
Resources
As
of March 31, 2022, Ocuphire’s principal sources of liquidity
consisted of cash and cash equivalents of $19.2 million. Ocuphire
believes that its cash on hand will be sufficient to fund its
operations into the second quarter of 2023. The Company’s cash and
cash equivalents are invested primarily in cash deposits at large,
long-standing financial institutions.
Ocuphire has not generated any revenue and
anticipates that it will continue to incur losses for the
foreseeable future. Future capital requirements depend on many
factors, including the need for the following:
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continued clinical trials and
preclinical studies for Nyxol, APX 3330 and for any other product
candidate in its future pipeline;
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developing additional product
candidates that it identifies, in-licenses or acquires;
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seeking regulatory approvals for
any product candidates that successfully complete clinical
trials;
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contracts to manufacture its
product candidates;
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establishing on its own or with
partners, a sales, marketing and distribution infrastructure to
commercialize any products for which it may obtain regulatory
approval;
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maintaining, expanding and
protecting its intellectual property portfolio;
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hiring additional staff,
including clinical, scientific, operational and financial
personnel, to execute its business plan;
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adding operational, financial and
management information systems and personnel, including personnel
to support its product development and potential future
commercialization efforts; and
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operating as a public
company.
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Historical Capital
Resources
Ocuphire’s
primary source of cash to fund its operations has been various
equity offerings in the amount of $50.8 million and the issuance of
convertible notes in the amount of $8.5 million, inclusive of the
promissory notes exchanged for Ocuphire convertible notes.
At-The-Market
Program
On
February 4, 2021, Ocuphire filed a Form S-3 shelf registration
under the Securities Act which was declared effective by the SEC on
February 12, 2021 (the “2021 Shelf”) under which the Company may
offer and sell, from time to time in its sole discretion,
securities having an aggregate offering price of up to $125
million. In connection with the 2021 Shelf, on March 11, 2021,
Ocuphire entered into a sales agreement with JonesTrading
Institutional Services LLC (“JonesTrading”) under which the Company
may offer and sell, from time to time at its sole discretion, to or
through JonesTrading, acting as agent and/or principal, shares of
its common stock having an aggregate offering price of up to $40
million (the “2021 ATM”). During the three months ended March 31,
2022, 336,544 shares of common stock were sold under the 2021 ATM
for gross proceeds in the amount of $1.2 million. A total of
3,115,434 shares of common stock were sold under the 2021 ATM for
gross proceeds through March 31, 2022 in the amount of $14.7
million before deducting issuance expenses in the amount of $0.5
million.
Registered
Direct Offering
On June 4,
2021, the Company entered into a placement agency agreement with
A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of
the placement agency agreement, AGP on June 8, 2021, sold an
aggregate of 3,076,923 shares of the Company’s common stock and
warrants to purchase 1,538,461 shares of the Company’s common stock
(the “RDO Warrants”) at an offering price of $4.875 per share and
0.50 RDO Warrants, for gross proceeds of $15.0 million, before
deducting AGP’s fees and related offering expenses in the amount of
$1.1 million. The purchase agreement contains customary
representations, warranties and agreements by the Company,
customary conditions to closing, indemnification obligations of the
Company, other obligations of the parties and termination
provisions.
The RDO
Warrants have an exercise price of $6.09 per share, are exercisable
upon the initial issuance date of June 8, 2021, and will expire
five years following the initial exercise date. Subject to limited exceptions, a holder of a
RDO Warrant will not have the right to exercise any portion of its
RDO Warrants if the holder, together with its affiliates, would
beneficially own in excess of 4.99% (or, at the election of a
holder prior to the date of issuance, 9.99%) of the number of
shares of common stock outstanding immediately after giving effect
to such exercise; provided, however, that upon prior notice to the
Company, the holder may increase or decrease the beneficial
ownership limitation, provided further that in no event shall the
beneficial ownership limitation exceed 9.99%. As of March
31, 2022, 1,538,461 RDO Warrants were still
outstanding.
The offering
of the Securities was made pursuant to the Company’s effective
shelf registration statement on Form S-3.
Securities Purchase
Agreement
On June 17, 2020, Ocuphire, Rexahn and certain investors entered
into a Securities Purchase Agreement, which was amended and
restated in its entirety on June 29, 2020 (as amended and restated,
the “Securities Purchase Agreement”). Pursuant to the
Securities Purchase Agreement, the investors invested a total of
$21.15 million in cash, including $300,000 invested by directors of
Ocuphire Pharma, Inc. prior to the Merger, and one director of
Rexahn, upon closing of the Merger (the “Pre-Merger Financing”).
Pursuant to the Pre-Merger Financing, (i) Ocuphire issued and sold
to the investors shares of common stock of Ocuphire Pharma, Inc.
prior to the Merger (the “Initial Shares”) which converted pursuant
to the exchange ratio in the Merger into an aggregate of 1,249,996
shares (the “Converted Initial Shares”) of common stock, (ii)
Ocuphire deposited into escrow, for the benefit of the Investors,
additional shares of common stock of Ocuphire Pharma, Inc. prior to
the Merger (the “Additional Shares”) which converted pursuant to
the exchange ratio in the Merger into an aggregate of 3,749,992
shares of common stock (the “Converted Additional Shares”), which
Converted Additional Shares were delivered (or became deliverable)
to the investors on November 19, 2020, and (iii) the Company agreed
to issue to each investor on the tenth trading day following the
consummation of the Merger (x) Series A Warrants representing the
right to acquire shares of common stock equal to the sum of (A) the
Converted Initial Shares purchased by the investor, (B) the
Converted Additional Shares delivered or deliverable to the
investor, without giving effect to any limitation on delivery
contained in the Securities Purchase Agreement and (C) the initial
number of shares of common stock, if any, underlying the Series B
Warrants issued to the Investor and (y) additional warrants to
purchase shares of common stock.
Waiver Agreements
Effective
February 3, 2021, each investor that invested in the Pre-Merger
Financing (each, a “Holder”) entered into a Waiver Agreement with
the Company (collectively, the “Waiver Agreements”). Pursuant to
the Waiver Agreements, the Holders and the Company agreed to waive
certain rights, finalize the exercise price and number of Series A
Warrants and Series B Warrants, eliminate certain financing
restrictions, extend the term of certain leak-out agreements, and,
in the case of certain Holders, grant certain registration rights
for the shares underlying the warrants.
The Waiver
Agreements provide for the permanent waiver of the full ratchet
anti-dilution provisions, contained in the Series A Warrants (as
certain of the anti-dilution provisions had previously caused
liability accounting treatment for the Series A Warrants). Upon the
effective date of the Waiver Agreement, the Series A Warrants were
reclassified to equity.
Pursuant to
the Waiver Agreements, the number of shares underlying all of the
Series B Warrants was fixed to 1,708,334 in the aggregate with
respect to all Holders.
Series A Warrants
The Series A
Warrants were issued on November 19, 2020 at an initial exercise
price of $4.4795 per share, were immediately exercisable upon
issuance and have a term of five years from the date of issuance.
The Series A Warrants are exercisable for 5,665,838 shares of
common stock in the aggregate (without giving effect to any
limitation on exercise contained therein). As of March 31, 2022,
5,665,838 Series A Warrants were still outstanding.
At issuance,
the Series A Warrants contained certain provisions that could have
resulted in a downward adjustment of the initial exercise price and
an upward adjustment in the number of shares underlying the
warrants if Ocuphire were to have issued or sold, or made an
agreement to issue or sell, any shares of common stock for a price
lower than the exercise price then in effect. Pursuant to the
terms of the Waiver Agreements, these provisions are no longer in
effect.
Series B Warrants
The Series B
Warrants have an exercise price of $0.0001, were exercisable upon
issuance and will expire on the day following the later to occur of
(i) the Reservation Date (as defined therein), and (ii) the date on
which the investor’s Series B Warrants have been exercised in full
(without giving effect to any limitation on exercise contained
therein) and no shares remain issuable thereunder. The Series B
Warrants were initially exercisable for 665,836 shares of common
stock in the aggregate (without giving effect to any limitation on
exercise contained therein) and ultimately became exercisable for
1,708,334 shares of common stock upon execution of the Waiver
Agreements. As of March 31, 2022, 78,700 Series B Warrants were
still outstanding.
At issuance,
the Series B Warrants contained certain provisions that could have
resulted in the issuance of additional Series B Warrants depending
on the dollar volume-weighted average prices of a share of Common
Stock during a 45-trading day Reset Period. Pursuant to the
terms of the Waiver Agreements, those provisions are no longer in
effect.
Ocuphire
Convertible Notes
From May 2018
through March 2020, Ocuphire issued convertible notes (the
“Ocuphire convertible notes”) for aggregate gross proceeds of $8.5
million, inclusive of the promissory notes exchanged for Ocuphire
convertible notes. The final closing of the Ocuphire convertible
notes occurred on March 10, 2020. The Ocuphire convertible notes
had an interest an interest rate of 8% per annum. On November
4, 2020, all of Ocuphire’s
outstanding notes were converted into 977,128 shares of Ocuphire
common stock in connection with the completion of the
Merger.
Cash
Flows
The following
table summarizes Ocuphire’s cash flows for the periods indicated
(in thousands):
| |
|
For
the Three Months Ended
March
31,
|
|
| |
|
2022
|
|
|
2021
|
|
| |
|
|
|
|
Net cash used in operating
activities
|
|
$
|
(6,170
|
)
|
|
$
|
(5,812
|
)
|
|
Net cash provided by (used in)
investing activities
|
|
|
—
|
|
|
|
—
|
|
|
Net cash provided by financing
activities
|
|
|
882
|
|
|
|
10
|
|
|
Net decrease in cash and cash
equivalents
|
|
$
|
(5,288
|
)
|
|
$
|
(5,802
|
)
|
Cash Flow from
Operating Activities
For the three
months ended March 31, 2022, cash used in operating activities of
$6.2 million was attributable to a net loss of $6.6 million,
partially offset by $0.5 million in non-cash operating expenses and
a net change use of $0.1 million in Ocuphire’s net operating assets
and liabilities. The non-cash expenses consisted principally of
stock-based compensation of $0.4 million and unrealized loss on
short-term investments of $0.1 million. The change in operating
assets and liabilities was primarily attributable to a decrease in
Ocuphire’s accounts payable and accrued liabilities, offset in part
by an decrease in prepaid expenses and other assets associated with
the fluctuations of Ocuphire’s operating expenses under the normal
course of business.
For the three
months ended March 31, 2021, cash used in operating activities of
$5.8 million was attributable to a net loss of $39.0 million,
partially offset by $34.3 million in non-cash operating expenses
and a net change of $(1.1) million in Ocuphire’s net operating
assets and liabilities. The non-cash expenses consisted of the fair
value change in the warrant liabilities of $33.8 million,
stock-based compensation of $0.5 million and depreciation expense
of $1,000. The change in operating assets and liabilities was
primarily attributable to a decrease in Ocuphire’s accrued
liabilities, on net basis, and increase in prepaid expenses
associated with the fluctuations of Ocuphire’s operating expenses
and in connection with operating as a public company
post-Merger.
Cash Flow from
Investing Activities
There were no sources or uses from
investing activities during the periods presented.
Cash Flow from
Financing Activities
Net cash
provided by financing activities during the three months ended
March 31, 2022 was $0.9 million in connection with the 2021 ATM
financing net proceeds of $1.2 million and exercise of stock
options in the amount of $27,000, offset by payments made on the
short-term loan of $0.3 million.
Net cash
provided by financing activities during the three months ended
March 31, 2021 was $10,000 in connection with the exercise of stock
options.
Liquidity and Capital Resource Requirements
Ocuphire has no current source of revenue to
sustain its present activities, and Ocuphire does not expect to
generate significant revenue until, and unless, the FDA or other
regulatory authorities approve Nyxol or APX3330 and it successfully
commercializes its product candidates. Until such time, if ever, as
Ocuphire can generate substantial product revenue, it expects to
finance its cash needs through a combination of equity and debt
financings as well as collaborations, strategic alliances and
licensing arrangements. Ocuphire does not have any committed
external source of funds. To the extent that Ocuphire raises
additional capital through the sale of equity or convertible debt
securities, the ownership interest of Ocuphire’s stockholders will
be diluted, and the terms of these securities may include
liquidation, warrants, or other preferences that adversely affect
your rights as a common stockholder. Debt financing, if available,
may involve agreements that include covenants limiting or
restricting Ocuphire’s ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring
dividends. If Ocuphire raises additional funds through
collaborations, strategic alliances or licensing arrangements with
pharmaceutical partners, Ocuphire may have to relinquish valuable
rights to its technologies, future revenue streams or grant
licenses on terms that may not be favorable to Ocuphire. If
Ocuphire is unable to raise additional funds through equity or debt
financings or through collaborations, strategic alliances or
licensing arrangements when needed, Ocuphire may be required to
delay, limit, reduce or terminate its product development, future
commercialization efforts, or grant rights to develop and market
its product candidates that Ocuphire would otherwise prefer to
develop and market itself.
Future
Capital Requirements
Ocuphire’s independent registered public
accounting firm included an explanatory paragraph in its report on
Ocuphire’s financial statements as of and for the years ended
December 31, 2021 and 2020, noting the existence of substantial
doubt about its ability to continue as a going concern. This
uncertainty arose from management’s review of Ocuphire’s results of
operations and financial condition and its conclusion that, based
on Ocuphire’s operating plans, Ocuphire did not have sufficient
existing working capital to sustain operations substantially beyond
twelve months following the date of the report filing. To continue
to fund operations, Ocuphire will need to raise capital. Ocuphire
may obtain additional financing in the future through the issuance
of common stock, through other equity or debt financings or through
collaborations or partnerships with other companies. Ocuphire may
not be able to raise additional capital on terms acceptable to it,
or at all, and any failure to raise capital as and when needed
could compromise Ocuphire’s ability to execute on its business
plan.
The development of Nyxol and APX3330 is
subject to numerous uncertainties, and Ocuphire has based these
estimates on assumptions that may prove to be substantially
different than what Ocuphire currently anticipates and could result
in cash resources being used sooner than what Ocuphire currently
expects. Additionally, the process of advancing early-stage product
candidates and testing product candidates in clinical trials is
costly, and the timing of progress in these clinical trials is
uncertain. Ocuphire’s ability to successfully transition to
profitability will be dependent upon achieving a level of product
sales adequate to support its cost structure. Ocuphire cannot give
any assurance that it will ever be profitable or generate positive
cash flow from operating activities.
Contractual
Obligations and Commitments
Facility Lease
Ocuphire leases a facility under a
non-cancellable operating lease that commenced on June 8, 2019 and
expires on December 31, 2022, as amended, for a base rent in the
amount of $3,000 per month.
Apexian Sublicense
Agreement
On January 21, 2020, Ocuphire entered into
the Apexian Sublicense Agreement, pursuant to which it obtained
exclusive worldwide patent and other intellectual property rights
that constitute a Ref-1 Inhibitor program relating to therapeutic
applications to treat disorders related to ophthalmic and diabetes
mellitus conditions. The lead compound in the Ref-1 Inhibitor
program is APX3330, which Ocuphire intends to develop as an oral
tablet therapeutic to treat DR and diabetic macular edema, and
potentially wAMD.
In connection with the Apexian Sublicense
Agreement, Ocuphire issued 843,751 shares of Ocuphire common stock
to Apexian and certain of Apexian’s affiliates.
Ocuphire agreed to make one-time milestone payments under the
Apexian Sublicense Agreement for each of the first ophthalmic
indication and the first diabetes mellitus indication. These
milestone payments include (i) payments for specified developmental
and regulatory milestones (including completion of the first Phase
2 trial and the first Phase 3 pivotal trial in the United States,
and filing and achieving regulatory approval from the FDA for the
first New Drug Application for a compound) totaling up to $11
million in the aggregate and (ii) payments for specified sales
milestones of up to $20 million in the aggregate, each of which net
sales milestone payments is payable once, upon the first
achievement of such milestone.
Lastly, Ocuphire also agreed to make royalty
payments equal to a single-digit percentage of its net sales of
products covered by the patents under the Apexian Sublicense
Agreement. None of the milestone or royalty payments were triggered
as of the date of this Report.
Other
Commitments
In the course
of normal operations, Ocuphire entered into cancellable purchase
commitments with its suppliers for various key research, clinical
and manufacturing services. The purchase commitments covered by
these arrangements are subject to change based on Ocuphire’s
research and development efforts.
Other Funding
Requirements
As noted
above, certain of our cash requirements relate to the funding of
our ongoing research and development of Nyxol and APX3330,
inclusive of any potential milestone and royalty obligations under
our intellectual property licenses. See “Part I, Item 1—
Business—Nyxol and APX3330 Clinical Experience Summaries —Ocuphire
Clinical Development Plan —Future Planned Nyxol Trials—Potential
Clinical Plans for APX3330—Future In-Licensing and Acquisition
Opportunities—Manufacturing—Apexian Sublicense Agreement—
Review and Approval
of Drugs in the United States” in our Annual Report on Form 10-K
for the year ended December 31, 2021 for a discussion of design,
development, pre-clinical and clinical activities that we may
conduct in the future, including expected cash expenditures
required for some of those activities, to the extent we are able to
estimate such costs.
Our other
cash requirements within the next twelve months include accounts
payable, accrued expenses, purchase commitments and other current
liabilities. Our other cash requirements greater than twelve months
from various contractual obligations and commitments may include
operating leases and contractual agreements with third-party
service providers for clinical research, product development,
manufacturing, supplies, payroll, equipment maintenance, and audits
for periods into calendar year 2023. Refer to Note 4 – Commitments
and Contingencies included in Part 1, Item 1 – Financial
Statements” of this Report
for further detail of our lease obligation and license agreements
with regard to the timing of expected future
payments.
We
expect to satisfy our short-term and long-term obligations through
cash on hand and from future equity and debt financings until we
generate an adequate level of revenue from commercial sales to
cover expenses, if ever.
Critical
Accounting Policies and Estimates
Ocuphire’s financial statements are prepared
in accordance with U.S. GAAP. These accounting principles require
Ocuphire to make estimates and judgments that can affect the
reported amounts of assets and liabilities as of the date of the
financial statements as well as the reported amounts of revenue and
expense during the periods presented. Ocuphire believes that the
estimates and judgments upon which it relies are reasonably based
upon information available to Ocuphire at the time that it makes
these estimates and judgments. To the extent that there are
material differences between these estimates and actual results,
Ocuphire’s financial results will be affected. The accounting
policies that reflect Ocuphire’s more significant estimates and
judgments and which it believes are the most critical to aid in
fully understanding and evaluating its reported financial results
are described below.
Our significant accounting policies are
discussed in Note 1 — Company Description and Summary of
Significant Accounting Policies, included in “Part I, Item 1 –
Financial Statements and Supplementary Data” of this Report. We
believe that the following accounting policies and estimates are
the most critical to aid in fully understanding and evaluating our
reported financial results. These estimates require our most
difficult, subjective, or complex judgments because they relate to
matters that are inherently uncertain. We have reviewed these
critical accounting policies and estimates and related disclosures
with the Audit Committee of our Board of Directors. We have not
made any material changes to date, nor do we believe there is a
reasonable likelihood of a material future change to the accounting
methodologies for the areas described below.
Warrant
Liabilities
Following the Merger, Ocuphire issued the
Series A Warrants in connection with the Pre-Merger Financing and
assumed Rexahn warrants issued prior to the Merger. Ocuphire
accounts for these warrants as a liability at fair value as long as
certain provisions precluding equity accounting treatment are
present. Upon the execution of the Waiver Agreements
described in Note 3 — Pre-Merger Financing included in Part 1, Item
1 – Financial Statements” of this Report, the Series A
Warrants were no longer subject to cash settlement or indexation
provisions, precluding equity classification, and as a result, not
subject to fair value remeasurement. Ocuphire will continue to
adjust the Rexahn warrant liability for changes in fair value until
the earlier of the exercise, expiration, or until such time that
cash settlement or indexation provisions are no longer in effect
for the Rexahn warrants. We do not expect that the
fluctuations in fair value attributed to the Rexahn warrant
liability will be significant.
Stock-based
Compensation
Ocuphire
accounts for stock-based compensation in accordance with the
provisions of ASC 718, Compensation — Stock Compensation.
Accordingly, compensation costs related to equity instruments
granted are recognized at the grant date fair value which is not
subject to remeasurement. We record equity instrument forfeitures
when they occur. For discussions about the application of grant
date fair value associated with our stock-based compensation, see
Note 8 — Stock-based Compensation included in “Part 1, Item 1 – Financial
Statements” of this
Report.
Income Tax
Assets and Liabilities
Currently,
there is no provision for income taxes, as we have incurred
operating losses to date, and a full valuation allowance has been
provided on our net deferred tax assets. For additional
information, see Note 11 — Income Taxes included in
“Part 1, Item
1 – Financial Statements” of
this Report.
We are
subject to numerous contingencies arising in the ordinary course of
business, including obligations related to certain license
agreements. For additional information, see Note 4 — Commitments
and Contingencies included in “Part 1, Item 1 – Financial
Statements” of this
Report.
Recent Accounting Pronouncements
Refer to Note
1— “Company Description and Summary of Significant Accounting
Policies” to our condensed consolidated financial statements
included in “Part 1, Item 1 – Financial Statements” in this Report
for a discussion of recently issued accounting
pronouncements.
|
Item 3. |
Quantitative and Qualitative
Disclosures About Market Risk
|
Not applicable
for smaller reporting companies.
|
Item 4. |
Controls and Procedures
|
Evaluation of Disclosure Controls and
Procedures
We maintain
disclosure controls and procedures that are designed to ensure that
information we are required to disclose in our Exchange Act reports
is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management,
including our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding
required disclosure.
We designed
and evaluated our disclosure controls and procedures recognizing
that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance and not absolute
assurance of achieving the desired control objectives. Also, the
design of a control system must reflect the fact that there are
resource constraints and that the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud,
if any, have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. The design
of any system of controls is based, in part, upon certain
assumptions about the likelihood of future events and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Under the
supervision of and with the participation of our management,
including our principal executive officer and principal financial
officer, we evaluated the effectiveness of our disclosure controls
and procedures, as such term is defined in Rules 13a-15(e) and
15(d)- 15(e) promulgated under the Exchange Act as of March 31,
2022. Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls
and procedures were effective as of March 31, 2022.
Changes in Internal Control Over
Financial Reporting
There were no
changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the
quarter ended March 31, 2022, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART II – OTHER
INFORMATION
|
Item 1. |
Legal Proceedings
|
From
time to time, we may be involved in various claims and legal
proceedings relating to claims arising out of our operations. We
are not currently a party to any legal proceedings that, in the
opinion of our management, are likely to have a material adverse
effect on our business. Regardless of outcome, litigation can have
an adverse impact on us because of defense and settlement costs,
diversion of management resources and other factors.
There have been no material changes in our risk factors previously
disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2021. You should
carefully consider the risks and uncertainties described
therein.
|
Item 2. |
Unregistered Sales of Equity
Securities and Use of Proceeds
|
None.
|
Item 3. |
Defaults Upon Senior
Securities
|
None.
|
Item 4. |
Mine Safety Disclosures
|
Not applicable to our
Company.
|
Item 5. |
Other Information
|
None.
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EXHIBIT
NUMBER
|
|
DESCRIPTION OF
DOCUMENT
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| |
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Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Appendix G to the
Registrant’s Definitive Proxy Statement on Schedule 14A, filed on
April 29, 2005).
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Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed
on May 5, 2017).
|
|
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|
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Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed
on August 30, 2018).
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|
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Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed
on April 12, 2019).
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Certificate of Amendment of Amended and Restated Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K, filed on November 6,
2020).
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Certificate of Amendment of Amended and Restated Certificate
of Incorporation (incorporated by reference to Exhibit 3.2 to the
Registrant’s Current Report on Form 8-K, filed on November 6,
2020).
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Second Amended and Restated Bylaws of the Registrant
(incorporated by reference to Exhibit 3.3 to the Registrant’s
Current Report on Form 8-K, filed on November 6, 2020).
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Consulting Agreement between the Registrant and Jay Pepose
dated April 8, 2022.
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Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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101.INS
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Inline XBRL Instance Document.
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101.SCH
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Inline XBRL Taxonomy Extension Schema Document.
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101.CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase
Document.
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101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase
Document.
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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|
Inline XBRL Taxonomy Extension Presentation Linkbase
Document.
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104
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|
Cover Page Interactive Data File
(formatted as inline XBRL and contained in Exhibit 101)
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| + |
Indicates management contract or compensatory plan.
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| * |
Documents are furnished not filed.
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Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: May 13, 2022
|
Ocuphire Pharma, Inc.
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By:
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/s/ Mina Sooch
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Mina Sooch
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Chief Executive Officer
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(Principal Executive Officer)
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By:
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/s/ Amy Rabourn
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Amy Rabourn
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Vice President Finance
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(Principal Financial Officer)
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