MILLENDO THERAPEUTICS
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the financial statements and the
related notes to those statements included later in this Annual Report. In
addition to historical financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, beliefs and
expectations that involve risks and uncertainties. Our actual results and the
timing of events could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report,
particularly in Item 1A. "Risk Factors" and "Special Note Regarding
Forward-Looking Statements."
Overview
We are a late-stage biopharmaceutical company primarily focused on developing
novel treatments for orphan endocrine diseases where current therapies do not
exist or are insufficient. The endocrine system is a collection of glands that
secrete hormones into the blood stream to regulate a number of functions,
including appetite, metabolism, growth, development and reproduction. Diseases
of the endocrine system can cause multiple and varied symptoms, including
appetite dysregulation, metabolic dysfunction, obesity, cardiovascular disease,
menstrual irregularity, hirsutism, and infertility.
We are currently advancing three product candidates. Our most advanced product
candidate, livoletide (AZP-531), is a potential treatment for Prader-Willi
syndrome ("PWS"), a rare and complex genetic endocrine disease usually
characterized by hyperphagia, or insatiable hunger, that contributes to serious
complications, a significant burden on patients and caregivers, and early
mortality. In a randomized, double-blind, placebo-controlled Phase 2a clinical
trial in 47 patients with PWS, we observed that administration of livoletide
once daily was associated with a clinically meaningful improvement in
hyperphagia, as well as a reduction in appetite. In a pre-specified analysis of
38 home-resident patients with PWS from the Phase 2a trial, we observed a larger
and statistically significant decrease in hyperphagia following administration
of livoletide as compared to placebo. In March 2019 , we initiated a Phase 2b/3
clinical trial of livoletide for the treatment of hyperphagia in patients with
PWS. The randomized, double-blind, placebo-controlled pivotal Phase 2b trial
includes 158 patients with PWS ages 8 to 65, recruited across 38 sites in the
United States , Europe and Australia . As of February 26, 2020 , the three-month
"core" period of the Phase 2b trial has been completed. Topline results from the
pivotal Phase 2b trial are expected in early second quarter of 2020. A
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protocol amendment was submitted to the U.S. Food and Drug Administration , or
FDA, on August 7, 2019 , which allows 4- to 7-year-olds to participate in the
Phase 2b/3 clinical trial. We continue to recruit patients in this age group. On
July 29, 2019 , the FDA designated the investigation of livoletide for PWS as a
Fast Track development program. We are also conducting preclinical activities in
support of the development of a multi-dose pen device to improve patient and
caregiver convenience, as well as patient compliance, and to further simplify
the administration of livoletide.
We are developing nevanimibe (ATR-101) as a potential treatment for patients
with congenital adrenal hyperplasia ("CAH"), a rare, monogenic adrenal disease
that requires lifelong treatment with exogenous cortisol, often at high doses.
These chronic high doses of cortisol can result in side effects that include
diabetes, obesity, hypertension and psychological problems. When on suboptimal
doses of cortisol, female patients with CAH can experience hirsutism,
infertility and menstrual irregularity, and male patients with CAH can
experience testicular atrophy, infertility and testicular tumors. It is often
difficult for physicians to appropriately treat CAH without causing adverse
consequences. We reported results from our Phase 2a clinical trial of nevanimibe
in patients with CAH in March 2018 and initiated a Phase 2b trial in the third
quarter of 2018. We expect to report topline results from the first cohort of
the Phase 2b trial in the second half of 2020. Enrollment for the second cohort
of the Phase 2b trial is continuing and sites are actively enrolling patients.
We expect to provide an additional update on the second cohort in the second
half of 2020.
We also have a neurokinin 3 receptor (NK3R) antagonist (MLE-301) in our research
and development pipeline, which we plan to develop as a potential treatment of
vasomotor symptoms ("VMS"), commonly known as hot flashes and night sweats, in
menopausal women. MLE-301 is currently in preclinical studies designed to enable
first-in-human clinical studies, which we expect to initiate in the second half
of 2020.
We had also been investigating nevanimibe (ATR-101) as a potential treatment for
patients with endogenous Cushing's syndrome ("CS"), a rare endocrine disease
characterized by excessive cortisol production from the adrenal glands. As a
result of slower than anticipated enrollment in our CS Phase 2 clinical trial,
we elected to discontinue the trial in August 2019 , suspend development of
nevanimibe for the treatment of CS, and focus our resources on other programs in
our research and development pipeline.
Since our inception in January 2012 , our operations have focused on conducting
preclinical studies and clinical trials, acquiring technology and assets,
organization and staffing, business planning, and raising capital. We have
devoted substantial effort and resources to acquiring our three current product
candidates, livoletide, nevanimibe, and MLE-301, as well as our previous product
candidate, MLE4901, which we ceased developing in 2017. We acquired livoletide
in connection with our acquisition of Alizé Pharma SAS, or Alizé, in December
2017 . We in-licensed nevanimibe from the Regents of the University of Michigan ,
or the University of Michigan , in June 2013 . We licensed MLE-301 from F.
Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. (collectively, "Roche"), in
October 2018 . We do not have any product candidates approved for sale and have
not generated any revenue from product sales. We have funded our operations
primarily through the sale and issuance of common stock, preferred stock and
convertible promissory notes, proceeds received from the Merger as well as
borrowings under term loans.
Since inception, we have incurred significant operating losses and negative
operating cash flows and there is no assurance that we will ever achieve or
sustain profitability. Our net losses were $44.6 million and $27.2 million for
the years ended December 31, 2019 and 2018, respectively. As of December 31,
2019 , we had an accumulated deficit of $208.7 million . We expect to continue to
incur significant expenses and increasing operating losses for the foreseeable
future. We anticipate that our expenses will increase significantly in
connection with our ongoing activities, including:
•continuing the ongoing and planned clinical development of livoletide and
nevanimibe;
•continuing the preclinical development and potential clinical development of
MLE-301;
•initiating preclinical studies and clinical trials for any additional diseases
for our current product candidates and any future product candidates that we may
pursue;
•building a portfolio of product candidates through the acquisition or
in-license of drugs or product candidates and technologies;
•developing, maintaining, expanding and protecting our intellectual property
portfolio;
•manufacturing, or having manufactured, clinical and commercial supplies of our
product candidates;
•seeking marketing approvals for our current and future product candidates that
successfully complete clinical trials;
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•establishing a sales, marketing and distribution infrastructure to
commercialize any product candidate for which we may obtain marketing approval;
•hiring additional administrative, clinical, regulatory and scientific
personnel; and
•continuing to incur additional costs associated with operating as a public
company.
Recent Events
Financing
In December 2019 , we sold 4,791,667 shares of our common stock pursuant to an
underwriting agreement (the "Underwriting Agreement") with Citigroup Global
Markets Inc. and SVB Leerink LLC , as representatives of the several underwriters
named therein (the "Underwriters"), for net proceeds to us of approximately
$26.5 million , after deducting underwriting discounts and commissions and other
offering expenses payable by us. The price to the public in this offering was
$6.00 per share and resulted in the sale of 4,166,667 shares of our common stock
for net proceeds to us of approximately $23.0 million , after deducting
underwriting discounts and commissions and other offering expenses. In addition,
the Underwriters purchased an additional 625,000 shares of our common stock at
the public offering price of $6.00 per share pursuant to a purchase option
granted to them under the Underwriting Agreement, resulting in net proceeds to
us of approximately $3.5 million , after deducting underwriting discounts and
commissions.
The offering was made pursuant to our registration statement on Form S-3
(Registration Statement No. 333-230749), which was declared effective by the
Securities and Exchange Commission on April 18, 2019 , and a prospectus
supplement thereunder.
At-the-Market Equity Distribution Agreement
In April 2019 , we entered into an "at-the-market" ("ATM") equity distribution
agreement with Citigroup Global Markets Inc. acting as sole agent with an
aggregate offering value of up to $50.0 million which allows us to sell our
common stock through the facilities of the Nasdaq Capital Market. Subject to the
terms of the equity distribution agreement, we are able to determine, at our
sole discretion, the timing and number of shares to be sold under this ATM
facility. In March 2020 , we amended the equity distribution agreement to include
SVB Leerink LLC as an additional sales agent for the ATM. In March 2020 , we sold
719,400 shares of our common stock under our ATM equity distribution agreement
for estimated net proceeds to us of approximately $5.5 million .
Sales of our common stock pursuant to the ATM have been made pursuant to our
registration statement on Form S-3 (Registration Statement No. 333-230749),
which was declared effective by the Securities and Exchange Commission on April
18, 2019 .
Merger
On December 7, 2018 , OvaScience, Inc. , or OvaScience , now known as Millendo
Therapeutics, Inc. completed its reverse merger or, the Merger, with what was
then known as "Millendo Therapeutics, Inc. ," or Private Millendo, in accordance
with the terms of the Agreement and Plan of Merger and Reorganization dated as
of August 8, 2018 , as amended on September 25, 2018 and November 1, 2018 , or the
Merger Agreement. OvaScience's shares of common stock listed on The Nasdaq
Capital Market, previously trading through the close of business on Friday,
December 7, 2018 under the ticker symbol "OVAS," commenced trading on The Nasdaq
Capital Market, under the ticker symbol "MLND," on Monday, December 10, 2018 .
In August 2018 , Private Millendo issued convertible promissory notes, or the
Notes, to several of its existing investors and received cash proceeds of $8.0
million . The Notes accrued simple interest of 6.0% per annum. Additionally,
immediately prior to the Merger, Private Millendo issued and sold an aggregate
of 1,320,129 shares of Private Millendo common stock for total net proceeds of
approximately $20.1 million , or the Pre-Closing Financing, to certain existing
stockholders of Private Millendo.
In connection with the Merger, each outstanding share of Private Millendo
capital stock converted into shares of OvaScience's common stock, and each
outstanding option or warrant to purchase Private Millendo capital stock
converted into the right to receive shares of OvaScience's common stock. At the
Closing of the Merger, Private Millendo stockholders received an aggregate of
8,789,628 shares of OvaScience common stock, which includes 1,320,129 shares of
common stock issued to the investors in the Pre-Closing Financing, Private
Millendo option holders received options to purchase 1,874,158 shares of
OvaScience common stock and Private Millendo warrant holders received warrants
to purchase 17,125 shares of OvaScience
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common stock. In addition, upon the Closing of the Merger, all principal and
interest underlying the Notes converted into 499,504 shares of OvaScience common
stock.
Immediately following the Merger, Private Millendo became a wholly-owned
subsidiary of OvaScience . Upon consummation of the Merger, or the Closing,
OvaScience adopted the business plan of Private Millendo and discontinued the
pursuit of OvaScience's business plan pre-Closing. The Merger was accounted for
as a reverse recapitalization with Private Millendo as the accounting acquirer.
On the Merger date, the primary pre-combination assets of OvaScience was cash,
cash equivalents and marketable securities. At the time of the Merger,
OvaScience had net assets of $38.0 million , which was comprised primarily of
cash, cash equivalents and marketable securities. See Note 3 of our Consolidated
Financial Statements for additional information regarding the Merger accounting
treatment.
Following the Closing of the Merger, on December 7, 2018 , we issued and sold an
aggregate of 1,230,158 shares of common stock to an institutional investor for
$16.258065 per share, for total net proceeds of approximately $18.7 million .
Integration of OvaScience
Leading up to the closing date of the Merger, OvaScience had agreed to
terminate, assign or otherwise fully discharge substantially all obligations
under all contracts to which OvaScience or its subsidiaries were a party,
wind-down the operations, and dissolve certain subsidiaries. OvaScience has
closed their offices and all employees were terminated or resigned prior to or
at the closing. All operations are drawing to a close that were not already
wound down prior to closing.
Acquisition of Alizé
In December 2017 , Private Millendo entered into agreements to acquire 100% of
the outstanding ownership interests of Alizé, a privately held biotechnology
company based in Lyon, France focused on the development of a treatment for
patients with PWS, through its lead product candidate, livoletide.
In December 2017 , we acquired 83.6% of the issued and outstanding share capital
of Alizé pursuant to a Share Sale and Contribution Agreement. The consideration
included an upfront payment of $1.0 million , and the issuance of Private
Millendo's Series A-1 preferred stock, Series B-1 preferred stock, and common-1
stock, which upon consummation of the Merger were converted to shares of our
common stock. In December 2018 , we acquired the remaining 16.4% of Alizé's
issued and outstanding share capital from Otonnale SAS, or Otonnale. The
consideration included a cash payment of $0.8 million and the issuance of the
442,470 shares of our common stock.
The Share and Contribution Agreement with Alizé was accounted for as an asset
acquisition as substantially all of the fair value of the gross assets acquired
was concentrated in the livoletide development program. The $63.8 million in
estimated fair value allocated to livoletide was expensed, as we determined the
asset has no alternative future use. The total consideration given, net of cash
acquired was $63.1 million . The assets acquired and liabilities assumed as of
the acquisition date were $65.3 million and $2.2 million , respectively, for net
assets acquired of $63.1 million .
Components of Results of Operations
Research and development expense
Research and development expense consists primarily of costs incurred in
connection with the development of our product candidates. We expense research
and development costs as incurred. These expenses include:
•personnel expenses, including salaries, benefits and stock-based compensation
expense;
•costs of funding research performed by third parties, including pursuant to
agreements with contract research organizations ("CROs"), as well as
investigative sites and consultants that conduct our preclinical studies and
clinical trials;
•expenses incurred under agreements with contract manufacturing organizations
("CMOs"), including manufacturing scale-up expenses and the cost of acquiring
and manufacturing preclinical study and clinical trial materials;
•payments made under our third-party licensing agreements;
•consultant fees and expenses associated with outsourced professional scientific
development services;
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•expenses for regulatory activities, including filing fees paid to regulatory
agencies; and
•allocated expenses for facility costs, including rent, utilities, depreciation
and maintenance.
Milestone payment obligations incurred prior to regulatory approval of a product
candidate, which are accrued when the event requiring payment of the milestone
occurs are included in research and development expense.
We typically use our employee, consultant and infrastructure resources across
our development programs. We track certain outsourced development costs by
product candidate, but do not allocate all personnel costs or other internal
costs to specific product candidates.
The following table summarizes our research and development expenses by product
candidate, personnel expense and other expenses for the years ended December 31,
2019 and 2018, respectively:
Year Ended
December 31,
2019 2018
(in thousands)
Livoletide expenses $ 14,702 $ 4,921
Nevanimibe expenses 2,899 4,108
MLE-301 expenses 2,723 -
Personnel expenses 6,559 4,616
Other expenses 960 780
Total $ 27,843 $ 14,425
We expect our research and development expense will increase for the foreseeable
future as we seek to advance development of our product candidates. The
successful development of our product candidates is highly uncertain. At this
time, we cannot reasonably estimate or know the nature, timing and costs of the
efforts that will be necessary to complete the remainder of the development of
livoletide, nevanimibe, or MLE-301. We are also unable to predict when, if ever,
material net cash inflows may commence from sales of livoletide, nevanimibe,
MLE-301 or any future product candidates that we may develop due to the numerous
risks and uncertainties associated with clinical development, including risks
and uncertainties related to:
•the number of clinical sites included in the trials;
•the length of time required to enroll suitable patients;
•the number of patients that ultimately participate in the trials;
•the number of doses patients receive;
•the duration of patient follow-up and number of patient visits;
•the results of our clinical trials;
•the establishment of commercial manufacturing capabilities;
•the receipt of marketing approvals; and
•the commercialization of product candidates.
We may never succeed in obtaining regulatory approval for livoletide,
nevanimibe, MLE-301 or any future product candidates we may develop. Product
candidates in later stages of clinical development, like livoletide and
nevanimibe, 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.
General and administrative expense
General and administrative expense consists primarily of personnel expenses,
including salaries, benefits and stock-based compensation expense, for employees
in executive, finance, accounting, business development, legal and human
resource functions. General and administrative expense also includes corporate
facility costs, including rent, utilities, depreciation and
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maintenance, not otherwise included in research and development expense, as well
as legal fees related to intellectual property and corporate matters and fees
for accounting, recruiting and consulting services.
We anticipate that our general and administrative expense will increase as we
support additional clinical trials for livoletide, nevanimibe and MLE-301. In
addition, if and when we believe that regulatory approval of livoletide,
nevanimibe or MLE-301 appears likely, we anticipate an increase in headcount and
related expense as a result of our preparation for commercial operations.
Other general expenses
Other general expenses consist of professional fees and severance costs incurred
in connection with the Merger in 2018.
Interest expense (income), net
Interest expense (income) represents amounts earned on our cash, cash
equivalents, marketable securities and restricted cash balances.
Change in fair value of preferred stock warrant liability
Change in fair value of preferred stock warrant liability reflects the change in
the fair value of our outstanding preferred stock warrants, which is primarily
driven by changes in the fair value of the underlying preferred stock.
Outstanding warrants to purchase shares of our preferred stock were classified
as liabilities and were subject to re-measurement at each balance sheet date
until consummation of the Merger whereby the warrants were exchanged for
warrants to receive shares of our common stock. Upon completing the exchange,
the warrants were eligible for equity classification and no longer subject to
re-measurement.
Results of operations
Comparison of the years ended December 31, 2019 and 2018
Year Ended
December 31,
2019 2018
(in thousands)
Operating expenses:
Research and development $ 27,843 $ 14,425
General and administrative 17,556 8,691
Other general expenses - 3,758
Loss from operations 45,399 26,874
Other expenses:
Interest expense (income), net (1,038) 134
Other loss 207 169
Net loss $ 44,568 $ 27,177
77-------------------------------------------------------------------------------- Tabl e o f Contents Research and development expense Research and development expense increased by$13.4 million to$27.8 million for the year endedDecember 31, 2019 from$14.4 million for the year endedDecember 31, 2018 . The following table summarizes our research and development expenses for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (in thousands) Preclinical and clinical development expense$ 20,324 $ 9,272 Compensation expense, other than stock-based compensation 5,260
4,010
Stock-based compensation expense 1,299
606
Other expenses 960
537
Total research and development expense$ 27,843
The increase in total research and development expense is attributable to: •a$11.1 million increase in preclinical and clinical development expense mainly related to the development of livoletide; •a$1.9 million increase in compensation and stock-based compensation expenses as a result of our increase in research and development headcount and additional options granted; and •a$0.4 million increase in other expenses mainly related to the development of livoletide due to allocated rent and facility costs. General and administrative expense General and administrative expense increased by$8.9 million to$17.6 million for the year endedDecember 31, 2019 from$8.7 million for the year endedDecember 31, 2018 . The increase was primarily due to a$4.3 million increase in compensation and stock-based compensation expense as a result of our increase in general and administrative headcount and changes to compensation arrangements, a$2.6 million increase in professional fees incurred mainly related to being a publicly traded company, and a$1.9 million increase in insurance, rent and facility related. The increase in insurance is due to operating as a public company and the increase in rent and facility related expenses is due to increased headcount and additional leased office space. Other general expenses In connection with the Merger in 2018, we incurred$3.8 million of transaction related costs mainly due to professional fees and severance. Interest expense (income), net Interest expense (income), net increased by$1.2 million to$1.0 million net interest income for the year endedDecember 31, 2019 from$0.1 million net interest expense for the year endedDecember 31, 2018 . The change was primarily due to higher interest income received as a result of larger cash, cash equivalent, restricted cash, and marketable securities balances we had immediately following the Merger. Other loss Other loss increased by$38,000 to$207,000 for the year endedDecember 31, 2019 from$169,000 for the year endedDecember 31, 2018 . The increase was due to higher foreign currency losses as a result of exchange rate fluctuations on transactions denominated in a currency other than our functional currency. 78 -------------------------------------------------------------------------------- Tabl e o f Contents Liquidity and Capital Resources The following table sets forth the primary uses of cash and cash equivalents for each year set forth below: Year Ended December 31, 2019 2018 (in thousands) Net cash used in operating activities$ (41,222) $ (23,647) Net cash provided by investing activities 3,988 1,932 Net cash provided by financing activities 26,943 77,744 Effect of foreign currency exchange rate changes on cash 33 118 Net (decrease) increase in cash, cash equivalents and restricted cash$ (10,258) $ 56,147 Uses of funds Operating activities During the year endedDecember 31, 2019 , we used$41.2 million of cash to fund operating activities. During the year endedDecember 31, 2019 , cash used in operating activities reflected our net loss of$44.6 million and a net change in operating assets and liabilities of$2.0 million , offset by non-cash charges of$5.4 million , principally related to stock-based compensation. During the year endedDecember 31, 2018 , we used$23.6 million of cash in operating activities. Cash used in operating activities reflected our net loss of$27.2 million , offset by a net increase in operating assets and liabilities of$1.1 million and non-cash charges of$2.5 million , principally related to stock-based compensation, write-off of deferred financing costs, non-cash interest and changes in fair value of our preferred stock warrant liability. Investing activities During the year endedDecember 31, 2019 , we received$4.4 million in net proceeds from the sale of marketable securities offset by$0.4 million in purchases of property and equipment. During the year endedDecember 31, 2018 , we received$2.5 million in net proceeds from the sale of marketable securities and paid$0.5 million in acquisition costs previously accrued in connection with the asset acquisition of Alizé. Financing activities During the year endedDecember 31, 2019 , we received proceeds of$0.5 million from the exercise of options and warrants, and$26.7 million in proceeds received from the issuance of common stock, net of issuance costs paid. See Note 1 of our Consolidated Financial Statements for additional information related to the issuance of common stock. These proceeds were offset by$0.2 million for the repayment of debt. During the year endedDecember 31, 2018 , financing activities provided$77.7 million in net cash, primarily attributable to cash acquired in connection with the Merger of$33.3 million and$38.8 million in net proceeds from the sale of our common stock in private placements of which$20.1 million was received prior to the Merger and$18.7 million was received immediately following the consummation of the Merger. We also received$8.0 million in proceeds from the issuance of convertible promissory notes inAugust 2018 that were converted into shares of our common stock inDecember 2018 upon consummation of the Merger. These cash inflows were offset by payments of$1.4 million in related financing costs, payment of$0.8 million in connection with the repurchase of redeemable non-controlling interests, and repayments of$0.2 million of debt. Funding requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we in the future submit an NDA inthe United States or a marketing authorization application inEurope for any of our product candidates, we expect to incur significant costs in connection with the submission as well as significant commercialization expenses related to program sales, marketing, manufacturing and distribution, which expenses we expect to incur prior to generating any revenues from product sales. Accordingly, we will need to obtain substantial additional funding in connection 79 -------------------------------------------------------------------------------- Tabl e o f Contents with our current and future operations. If we are unable to raise capital when needed or on attractive terms, we may would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. InApril 2019 , we entered into an "at-the-market" ("ATM") equity distribution agreement withCitigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to$50.0 million which allows us to sell our common stock through the facilities of the Nasdaq Capital Market. Subject to the terms of the equity distribution agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. InMarch 2020 , we amended the equity distribution agreement to includeSVB Leerink LLC as an additional sales agent for the ATM. InMarch 2020 , we sold 719,400 shares of our common stock under our ATM equity distribution agreement for estimated net proceeds to us of approximately$5.5 million . As ofDecember 31, 2019 , we had cash, cash equivalents, marketable securities and restricted cash of$63.5 million , which, in addition to funds received in connection with shares issued under the ATM equity distribution agreement inMarch 2020 , we believe are sufficient to fund our planned operations into 2022. This cash runway guidance is based on our current operational plans and excludes any additional funding that may be received and business development or commercialization activities that may be undertaken. In addition, our operating plans may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. In any event, we will require additional capital to pursue regulatory approval and the commercialization of our current and future product candidates. Our future capital requirements will depend on many factors, including: •the scope, progress, results and costs of preclinical studies and clinical trials; •the scope, prioritization and number of our research and development programs; •the costs, timing and outcome of regulatory review of our product candidates; •our ability to establish and maintain collaborations on favorable terms, if at all; •the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under collaboration agreements, if any; •the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; •the extent to which we acquire or in-license other product candidates and technologies; •the costs of securing manufacturing arrangements for commercial production; and •the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. 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, 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. 80 -------------------------------------------------------------------------------- Tabl e o f Contents If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third-parties, we may have to relinquish valuable 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 product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations and Commitments The following table summarizes our commitments to settle contractual obligations atDecember 31, 2019 : Year Ended December 31 2019, Less than 1 1 to 3 3 to 5 More than Year Years Years 5 Years Total (in thousands) Operating leases (1)$ 1,803 $ 1,633 $ 1,198 $ 45 $ 4,679 Long-term debt (2) 208 168 - - 376 Licensing arrangements (3) 20 60 - - (4) 80 (4) Total$ 2,031 $ 1,861 $ 1,198 $ 45 (4)$ 5,135 (4) __________________________ (1)Reflects obligations pursuant to our office leases inAnn Arbor, Michigan ;Waltham, Massachusetts ;Lexington Massachusetts ; andLyon, France . InJanuary 2020 , we terminated our office lease agreement inLyon, France . (2)Reflects obligations pursuant to our advance agreement withBpifrance Financing. InDecember 2017 , in connection with our acquisition of Alizé, we assumed €0.7 million of debt that Alizé had outstanding withBpifrance Financing. No interest is charged or accrued with respect to the debt. We are required to make quarterly principal payments between €17,500 to €50,000 per quarter through maturity. In addition to the quarterly payments, we could be obligated to pay, if applicable, no later thanMarch 31 of each year starting fromJanuary 1, 2016 , a reimbursement annuity equal to 20% of the proceeds generated by us from license, assignment or revenue-generating use of the livoletide program. We are permitted to repay the debt at any time. (3)Reflects obligations pursuant to our license agreements with theUniversity of Michigan , other than contingent obligations to make milestone and royalty payments where the amount, likelihood and timing of such payments are not fixed or determinable. Contingent payments pursuant to our license agreements withErasmus University Medical Center and Roche are also excluded from the above table. (4)We are obligated to pay theUniversity of Michigan minimum royalties of$20,000 per year from 2020 to 2023 and$0.2 million per year beginning in 2024 through expiration of the term of the license agreement. All such amounts due afterDecember 31, 2023 are excluded from the table above because the duration of the license agreement is not determinable. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty. Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. Critical Accounting Policies Our Consolidated Financial Statements are prepared in accordance withU.S. GAAP. The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of 81 -------------------------------------------------------------------------------- Tabl e o f Contents expenses during the reported period. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. Research and development expenses Research and development expense consists primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. At the end of each reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the service provided, we may record net prepaid or accrued expense relating to these costs. As ofDecember 31, 2019 , we had not made any material adjustments to our prior estimates of accrued research and development expenses. Stock-based compensation We measure expense for all stock options based on the estimated fair market value of the award on the grant date. We use the Black-Scholes option pricing model to value our stock option awards. We recognize compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. We have not issued awards where vesting is subject to a market or performance condition; however, if we were to grant such awards in the future, recognition would be based on the derived service period. Expense for awards with performance conditions would be estimated and adjusted on a quarterly basis based upon our assessment of the probability that the performance condition will be met. Historically, for all periods prior to the Merger, the fair market values of the shares of common stock underlying our stock options were estimated on each grant date by the board of directors. In order to determine the fair market value of our common stock, our board of directors considered, among other things, contemporaneous valuations of our common and preferred stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by theAmerican Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or Practice Aid. Given the absence of a public trading market of our capital stock, the our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value of our common and preferred stock, including: •contemporaneous third-party valuations of our common stock; •the prices, rights, preferences and privileges of our preferred stock relative to the common stock; •our business, financial condition and results of operations, including related industry trends affecting our operations; •the likelihood of achieving a liquidity event, such as an IPO or sale of our company, given prevailing market conditions; •the lack of marketability of our common stock; •the market performance of comparable publicly traded companies; and •U.S. and global economic and capital market conditions and outlook. Following the Merger, the fair market value of our common stock was determined based on the closing price of our common stock on the Nasdaq Capital Market. Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for a description of recent accounting pronouncements applicable to its Consolidated Financial Statements. 82
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