You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the financial statements and the
notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis, including information
with respect to our plans and strategy for our business and related financing,
include forward-looking statements that involve risks, uncertainties and
assumptions. These statements are based on our beliefs and expectations about
future outcomes and are subject to risks and uncertainties that could cause our
actual results to differ materially from anticipated results. We undertake no
obligation to publicly update these forward-looking statements, whether as a
result of new information, future events or otherwise. You should read the "Risk
Factors" and "Special Note Regarding Forward-Looking Statements" sections of
this Annual Report on Form 10-K for a discussion of important factors that could
cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion
and analysis.
On September 27, 2019, Ocugen completed its reverse merger with Ocugen OpCo Inc.
(formerly known as Ocugen, Inc. ("Former Ocugen")) in accordance with the terms
of the Agreement and Plan of Merger and Reorganization, dated as of April 5,
2019, by and among Histogenics, Former Ocugen and Restore Merger Sub, Inc., a
wholly owned subsidiary of Histogenics ("Merger Sub"), as amended (the "Merger
Agreement"), pursuant to which Merger Sub merged with and into Former Ocugen,
with Former Ocugen surviving as a wholly owned subsidiary of Histogenics (the
"Merger"). Immediately after completion of the Merger, Histogenics changed its
name to Ocugen, Inc. For accounting purposes, the Merger is treated as a
"reverse asset acquisition" under generally acceptable accounting principles in
the United States ("U.S. GAAP") and Former Ocugen is considered the accounting
acquirer. Accordingly, Former Ocugen's historical results of operations replaced
the Company's historical results of operations for all periods prior to the
Merger and, for all periods following the Merger, the results of operations of
the combined company will be included in the Company's financial statements.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering,
developing and commercializing transformative therapies to treat the whole eye.
Our lead product candidate, OCU300, is a small molecule therapeutic currently in
Phase 3 clinical development for patients with ocular redness and discomfort
stemming from ocular graft-versus-host disease ("oGVHD"). As of March 20, 2020,
we had completed over 95% of planned enrollment of our Phase 3 clinical trial
for OCU300. OCU300 has received Orphan Drug Designation ("ODD") from the U.S.
Food and Drug Administration (the "FDA"), and it is the first and only product
candidate to receive that designation for the treatment of symptoms associated
with oGVHD. oGVHD, a severe chronic autoimmune disease that occurs in up to 60%
of allogeneic hematopoietic stem cell transplantation ("HSCT") patients, can
result in light sensitivity, excessive ocular redness, severe ocular pain and,
ultimately, vision impairment. We estimate the current prevalence of patients
suffering from oGVHD in the United States to be approximately 63,000. OCU300 is
formulated using our proprietary nanoemulsion technology, OcuNanoE-Ocugen's ONE
Platform™ ("OcuNanoE™"), which we believe represents an effective drug delivery
mechanism to treat ocular surface disorders. We believe that OcuNanoE™ provides
additional protection to the ocular surface and the potential for enhanced
efficacy compared to traditional formulations. We are the first company to use
nanoemulsion technology in the ophthalmology space.
We were developing OCU310 for patients with dry eye disease, which is also
formulated using OcuNanoE™. We have completed a Phase 3 clinical trial for
OCU310 that was initiated in September 2018. Although the trial showed that
OCU310 is safe and well-tolerated, it did not meet its co-primary endpoints for
symptom and sign. We are no longer pursuing the development of this product
candidate.
We are also developing a modifier gene therapy platform to generate therapies
designed to fulfill unmet medical needs in the area of retinal diseases,
including inherited retinal diseases ("IRDs"). Our modifier gene therapy
platform is being designed to target nuclear hormone receptors ("NHRs"), which
have the potential to restore homeostasis to the retina. Unlike single-gene
replacement therapies, which only target one genetic mutation, we believe that
our gene therapy platform, through its use of NHRs, represents a novel approach
in that it may address multiple retinal diseases with one product. Our first
gene therapy candidate, OCU400, received two ODDs from the FDA, one for the
treatment of nuclear receptor subfamily 2 group E member 3 ("NR2E3")
mutation-associated retinal diseases and the other for the treatment of
centrosomal protein 290 ("CEP290") mutation-associated retinal diseases. We are
planning to initiate a Phase 1/2a clinical trial for OCU400 in the next two
years. Our second gene therapy candidate, OCU410, is being developed to utilize
the nuclear receptor genes RAR-related orphan receptor A ("RORA") for the
treatment of dry age-related macular degeneration ("AMD"). This candidate is
currently in preclinical development.
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Additionally, we are conducting preclinical development for a novel biologic
product candidate. OCU200 is a novel fusion protein designed to treat diabetic
macular edema ("DME"), diabetic retinopathy ("DR") and wet age-related macular
degeneration ("wet AMD"). We expect to initiate a Phase 1/2 clinical trial for
OCU200 within the next two years. We plan to expand the therapeutic applications
of OCU200 beyond DME, DR and wet AMD to potentially include macular edema
following retinal vein occlusion ("RVO") and myopic choroidal neovascularization
("mCNV").
We have no products approved for commercial sale and have not generated any
revenue from product sales. We have never been profitable and have incurred
operating losses in each year since inception. We incurred net losses of
approximately $20.2 million and $18.2 million for the fiscal years ended
December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an
accumulated deficit of $51.5 million and a cash, cash equivalents and restricted
cash balance of $7.6 million. Substantially all of our operating losses resulted
from expenses incurred in connection with our research and development programs
and from general and administrative costs associated with our operations.
To date, we have viewed our operations and manage our business as one operating
segment. As of December 31, 2019, all of our assets were located in the United
States. Our headquarters and operations are located in Malvern, Pennsylvania.
Financial Operations Overview
Research and development expense
Research and development costs are expensed as incurred. These costs consist of
internal and external expenses. Internal expenses include the cost of salaries,
benefits and other related costs, including stock-based compensation, for
personnel serving in our product development functions, as well as allocated
rent and utilities expenses. External expenses include development, clinical
trials, patent costs and regulatory compliance costs incurred with research
organizations and other third-party vendors. License fees paid to acquire access
to proprietary technology are expensed to research and development unless it is
determined that the technology is expected to have an alternative future use.
All patent-related costs incurred in connection with filing and prosecuting
patent applications are expensed as incurred to research and development expense
due to the uncertainty about the recovery of the expenditure. We record costs
for certain development activities, such as clinical trials, based on our
evaluation of the progress to completion of specific tasks using data such as
patient enrollment, clinical site activations, or information provided to us by
our vendors on their actual costs incurred. Payments for these activities are
based on the terms of the individual arrangements, which may differ from the
pattern of costs incurred, and are reflected in the consolidated financial
statements as prepaid or accrued research and development expense, as the case
may be.
We plan to incur research and development expenses for the foreseeable future as
we expect to continue development and eventual commercialization of one or more
of our product candidates, if approved. We anticipate that our research and
development expenses will increase substantially as compared to prior periods as
we complete our Phase 3 trial with respect to OCU300 and prepare to commence
Phase 1/2a trials with respect to OCU400, OCU410 and OCU200, and otherwise
develop and prepare for commercialization of our product candidates. At this
time, due to the inherently unpredictable nature of preclinical and clinical
development, we are unable to estimate with any certainty the costs we will
incur and the timelines we will require in our continued development efforts.
As a result of the uncertainties discussed above, successful development and
completion of clinical trials is uncertain and may not result in approved
products. Completion dates and completion costs can vary significantly for each
future product candidate and are difficult to predict. We will continue to make
determinations as to which product candidates to pursue and how much funding to
direct to each product candidate on an ongoing basis in response to our ability
to enter into collaborations with respect to each product candidate, the
scientific and clinical success of each product candidate as well as ongoing
assessments as to the commercial potential of each product candidates.
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, accounting and other administrative functions. General and
administrative expense also includes corporate facility costs, including rent
and utilities, as well as legal fees related to corporate matters and fees for
accounting and other consulting services.
We anticipate that our general and administrative expense will increase as a
result of an expanded infrastructure and an increased headcount. We anticipate
higher corporate infrastructure costs including, but not limited to accounting,
legal, human resources, consulting, and investor relations fees, as well as
increased director and officer insurance premiums, associated with becoming a
public company. Additionally, if and when we believe a regulatory approval of a
product candidate appears likely,
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we anticipate an increase in payroll and expense as a result of its preparation
for commercial operations, especially as it relates to the sales and marketing
of our product candidates.
Change in fair value of derivative liabilities
Change in fair value of derivative liabilities includes the change in fair value
each reporting period of (a) the conversion and change in control features
embedded in certain convertible notes, which were required to be bifurcated and
recognized at fair value, and (b) the change in the fair value of the Company's
Series B Warrants that were issued in connection with a Securities Purchase
Agreement entered into with certain accredited investors in June 2019. The
change in fair value of derivative liabilities related to the Series B Warrants
was recognized through the date the Series B Warrants were reclassified to
equity. The reclassification to equity occurred once the Series B Warrants were
reassessed and determined to meet the derivative scope exception related to
equity indexation allowing for equity classification. See Note 10 in the notes
to the consolidated financial statements included in this report for additional
information. The change in fair value of derivative liabilities related to our
convertible notes was recognized through the date that the notes were converted
or otherwise settled. There were no derivative liabilities valued as of
December 31, 2019.
Other income (expense)
Other income (expense) consists primarily of interest expense, including the
amortization of debt issuance costs related to our debt and accretion of the
discount created by the bifurcation of the embedded conversion features and
embedded change in control features from certain of the convertible promissory
notes, interest income earned on our cash and cash equivalents held with
institutional banks, and foreign currency income (losses) due to exchange rate
fluctuations on transactions denominated in a currency other than its functional
currency.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). The preparation of our
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 financial statements and the reported amounts of
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.
While our significant accounting policies are described in more detail in the
notes to the consolidated financial statements appearing elsewhere in this
report, we believe that the following accounting policies and estimates are
those most critical to the preparation of our consolidated financial statements:
Stock-based compensation
We account for our stock-based compensation awards in accordance with the
Financial Accounting Standards Board's ("FASB") Accounting Standards
Codification ("ASC") Topic 718, Compensation-Stock Compensation ("ASC 718"). ASC
718 requires all stock-based payments to employees, including grants of employee
stock options and restricted stock units and modifications to existing
agreements, to be recognized in the statements of operations based on their fair
values. We use the Black-Scholes option-pricing model to determine the fair
value of options granted.
Our stock-based awards are subject to service-based vesting conditions.
Compensation expense related to awards to employees and directors with
service-based vesting conditions is recognized on a straight-line basis based on
the grant date fair value over the associated service period of the award, which
is generally the vesting term.
Estimating the fair value of options requires the input of subjective
assumptions, including expected life of the option, stock price volatility, the
risk-free interest rate and expected dividends. The assumptions used in our
Black-Scholes option-pricing model represent our best estimates and involve a
number of variables, uncertainties and assumptions and the application of
management's judgment, as they are inherently subjective. If any assumptions
change, our stock-based compensation expense could be materially different in
the future.
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These assumptions used in our Black-Scholes option-pricing model are as follows:
Expected Term. Due to the historical lack of a public market for the trading of
our common stock and the lack of sufficient company-specific historical data,
the expected term of employee options is determined using the "simplified"
method, as prescribed in Securities and Exchange Commission's ("SEC") Staff
Accounting Bulletin No. 107 ("SAB No. 107"), whereby the expected life equals
the arithmetic average of the vesting term and the original contractual term of
the option. The expected term of non-employee options is equal to the
contractual term.
Expected Volatility. The expected volatility is based on historical volatilities
of similar entities within our industry which were commensurate with the
expected term assumption as described in SAB No. 107.
Risk-Free Interest Rate. The risk-free interest rate is based on the interest
rate payable on U.S. Treasury securities in effect at the time of grant for a
period that is commensurate with the assumed expected term.
Expected Dividends. The expected dividend yield is 0% because we have not
historically paid, and do not expect for the foreseeable future to pay, a
dividend on our common stock.
Stock-based compensation expense was $0.9 million and $1.1 million for the years
ended December 31, 2019 and 2018, respectively. At December 31, 2019, we had
$0.9 million of unamortized stock-based compensation expense related to unvested
service-based stock options, which is expected to be recognized over a remaining
weighted-average vesting period of 1.7 years.
Derivative liabilities
Our convertible notes contained bifurcated conversion features classified as
derivative liabilities as the conversion feature does not have a fixed
conversion price and conversion will be settled in a variable number of shares.
Our convertible notes also contain bifurcated change in control features that
were determined to be redemption features and not clearly and closely related to
the debt host. We estimated the fair value of the embedded conversion and change
in control features at each issuance of convertible promissory notes and at the
end of each reporting period using an income approach model. Inputs into this
model include the expected time until conversion or change in control and our
estimates of the probability of conversion or change in control occurring. There
are no such derivatives valued as of December 31, 2019, due to either the
payment or conversion of the related notes.
We issued warrants to purchase common stock and we account for our warrants in
accordance with FASB ASC Topic 815-40, Derivatives and Hedging - Contracts in
Entity's Own Equity ("ASC 815-40"), which is the authoritative guidance on
accounting for derivative financial instruments indexed to and potentially
settled in a company's own stock. To determine whether a contract is considered
indexed to the issuer's own equity, we perform the following two-step analysis:
(1) evaluate whether the contract contains any exercise contingencies and, if
so, whether they disqualify the contract from being classified as equity, and
(2) assess whether the settlement terms are consistent with equity
classification.
We entered into a Securities Purchase Agreement with certain accredited
investors, pursuant to which we issued three series of warrants, Series A
Warrants, Series B Warrants and Series C Warrants. The Series A Warrants and
Series C Warrants were determined to meet the criteria for equity
classification. Upon the closing of the Merger, the Series B Warrants were
recognized as a derivative liability as they did not meet the criteria related
to equity indexation. We classified the Series B Warrants on our consolidated
balance sheet as a derivative liability which was recognized at fair value at
each reporting period subsequent to the initial issuance until the warrants were
reclassified as equity in November 2019 following a final mark to market upon
the completion of a reset period pursuant to which the number of shares of
common stock underlying the Series B Warrants was increased based on the trading
price for the common stock (the "Reset Period"). Changes in the fair value of
derivatives were recognized as other income (expense) in the consolidated
statements of operations and comprehensive loss.
We estimated the fair value of Series B Warrants using the Monte Carlo
simulation model. Key fair value inputs included the starting stock price,
expected stock price volatility during the Reset Period, and additional shares
issued from escrow. Upon conclusion of the Reset Period, we estimated the fair
value of the Series B Warrants using a Black-Scholes valuation model. The
methodology for measuring fair value is sensitive to the expected stock
volatility assumption input mentioned above. Inputs used in the valuation are
unobservable and are therefore classified as Level 3 fair value inputs. The use
of different valuation techniques or assumptions could result in materially
different fair value estimates. See Note 10 in the notes to the consolidated
financial statements included in this report for additional information.
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Results of Operations
Comparison of the Years Ended December 31, 2019 and 2018
The following table summarizes the results of our operations for the years ended
December 31, 2019 and 2018 (in thousands):
                                                              Year Ended
                                                             December 31,
                                                         2019            2018          Change
Operating expenses:
Research and development                             $   8,086       $  10,321       $ (2,235)
General and administrative                               6,077           5,819            258
Total operating expenses                                14,163          16,140         (1,977)
Loss from operations                                   (14,163)        (16,140)         1,977
Other income (expense)
Change in fair value of derivative liabilities          (3,187)          1,665         (4,852)
Loss on debt conversion                                   (341)              -           (341)
Interest income                                              1              19            (18)
Interest expense                                        (1,768)         (3,751)         1,983
Other income (expense)                                    (785)            (12)          (773)
Total other income (expense)                            (6,080)         (2,079)        (4,001)
Net loss                                             $ (20,243)      $ (18,219)      $ (2,024)


Research and development expense
Research and development expense decreased by $2.2 million for the year ended
December 31, 2019 when compared to the year ended December 31, 2018 primarily as
a result of a net decrease in program development and clinical trial activities
of $1.8 million and a net decrease of $0.4 million in other costs.
Specifically, expenses related to OCU300 decreased in 2019 by $2.0 million
primarily related to preclinical and manufacturing activities in 2018. This
decrease was offset by (a) a $0.2 million increase in OCU400 preclinical
activities and (b) a $0.1 million net increase in OCU200 preclinical and
manufacturing activities.
The $0.4 million net decrease in other research and development costs is
primarily related to (a) a $0.2 million decrease in employee-related expenses
due to a decrease in headcount and (b) a $0.2 million decrease in license fees
associated with a license milestone achieved during 2018.
General and administrative expense
General and administrative expenses increased by $0.3 million, for the year
ended December 31, 2019 when compared to the year ended December 31, 2018. The
increase was primarily due to a $0.7 million increase in professional and
consulting fees and a $0.3 million increase in insurance costs, which was offset
by a $0.6 million decrease in employee-related expenses due to a decrease in
headcount.
Change in fair value of derivative liability
The change in fair value of derivative liability was a loss of $3.2 million for
the year ended December 31, 2019 compared to a gain of $1.7 million related to a
change in fair value of the derivatives related to the debt instruments for the
year ended December 31, 2018. The loss for the year ended December 31, 2019
primarily relates to the remeasurement of the Series B Warrant liability.
Loss on debt conversion
The loss on debt conversion of $0.3 million primarily relates to 2019
conversions of all previously-issued convertible debt.
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Interest expense
Interest expense was $1.8 million for the year ended December 31, 2019 and $3.8
million for the year ended December 31, 2018. The decrease in interest expense
was primarily due to the 2019 conversions of all previously-issued convertible
debt.
Other expense
Other expense was $0.8 million the year ended December 31, 2019 compared to a de
minimis amount for the year ended December 31, 2018. Other expense for the year
ended December 31, 2019 primarily relates to equity issuance fees associated
with the Series B Warrants, which were expensed as incurred.
Liquidity and Capital Resources
We have not generated any revenue to date and have primarily funded our
operations to date through the sale and issuance of common stock and warrants to
purchase common stock, proceeds from convertible notes payable, and debt.
Specifically, since its inception and through December 31, 2019, we have raised
an aggregate of $51.1 million to fund its operations, of which $39.5 million was
from the sale of our common stock and warrants, $10.3 million was from the
issuance of convertible notes, $1.1 million was from borrowings under the EB-5
Program, and $0.2 million from grant proceeds. As of December 31, 2019, we had
$7.6 million in cash, cash equivalents and restricted cash.
Since our inception, we have devoted substantial resources to research and
development and have incurred significant net losses and expect to continue to
incur net losses for the foreseeable future. We incurred net losses of
approximately $20.2 million and $18.2 million for the year ended December 31,
2019 and 2018, respectively. As of December 31, 2019, we had an accumulated
deficit of $51.5 million. In addition, as of December 31, 2019, we had accounts
payable and accrued expenses of $4.2 million and indebtedness of $1.1 million.
Although it is difficult to predict future liquidity requirements, we believe
that we have sufficient cash and cash equivalents to fund our operations into
mid-2020, during which time, we expect to continue our development efforts with
respect to our product candidates. We will need to raise additional capital in
the future to further the development and commercialization of our other product
candidates. Until such time, if ever, that we generate product revenue, we
expect to obtain additional financing through the issuance of our common stock,
issuance of warrants to purchase company stock, through other equity or debt
financings, licensing or sale of assets, or through collaborations or
partnerships with other companies. We may not be able to raise additional
capital on terms acceptable to us, or at all, and any failure to raise capital
as and when needed could compromise our ability to execute on our business plan
and cause us to delay or curtail our operations until such funding is received.
The following table shows a summary of our cash flows for the periods indicated
(in thousands):
                                                                             Year Ended
                                                                            December 31,
                                                                       2019               2018
Net cash used in operating activities                              $ (16,893)         $ (11,631)
Net cash used in investing activities                                 (2,357)               (77)
Net cash provided by financing activities                             25,066              7,185

Net increase (decrease) in cash, cash equivalents and restricted cash

$   5,816          $  (4,523)


Operating activities
Cash used in operating activities was $16.9 million for the year ended December
31, 2019 compared with $11.6 million for the year ended December 31, 2018. The
increase in cash used in operating activities relates to additional cash used
for working capital purposes during 2019, including a significant decrease in
accounts payable.
Investing activities
Cash used in investing activities was $2.4 million for the year ended December
31, 2019 compared with $0.1 million for the year ended December 31, 2018. The
$2.3 million increase in cash used is primarily related to costs associated with
the Merger.
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Financing activities
Cash provided by financing activities was $25.1 million for the year ended
December 31, 2019 compared to $7.2 million for the year ended December 31, 2018.
This $17.9 million increase is primarily due to the $22.5 million of proceeds,
which were issued in connection with the June 2019 common stock and warrant
financing entered into by Former Ocugen and Histogenics with certain accredited
investors for an aggregate purchase price of $25.0 million (the "Pre-Merger
Financing"), $1.0 million from issuance of the stock subscription agreement, and
$0.2 million from issuance of common stock for warrant exercises. These
increases were partially offset by a payment of $5.3 million to settle the
convertible debt and a decrease in net proceeds of $0.5 million from the
issuance of convertible debt.
Indebtedness

In September 2016, pursuant to the U.S. Government's Immigrant Investor Program,
commonly known as the EB-5 program (the "EB-5 Program"), we entered into an
arrangement to borrow up to $10.0 million from EB5 Life Sciences, L.P. (the
"Lender") in $0.5 million increments. Borrowings are at a fixed interest rate of
4.0% and are to be utilized in the clinical development, manufacturing, and
commercialization of our products and for our general working capital needs.
Outstanding borrowings pursuant to the EB-5 Program become due upon the seventh
anniversary of the final disbursement. Amounts repaid cannot be re-borrowed. At
December 31, 2019, there was $1.0 million of principal outstanding under the
EB-5 program. Subsequent to December 31, 2019, we borrowed an additional
$0.5 million under the arrangement.
Funding requirements
We expect to continue to incur significant expenses in connection with our
ongoing activities, particularly as we continue research and development,
including clinical development activities of our product candidates, increase
our headcount and add operational, financial and information systems to execute
our business plan, maintain, expand and protect our patent portfolio, contract
to manufacture our product candidates, and operate as a public company.
Our future funding requirements, both near- and long-term, will depend on many
factors, including, but not limited to:
•the initiation, progress, timing, costs and results of clinical trials for our
product candidates;
•the outcome, timing and cost of the regulatory approval process for our product
candidates by the FDA;
•future costs of manufacturing and commercialization;
•the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;
•the cost of defending intellectual property disputes, including patent
infringement actions brought by third parties against us;
•the costs of expanding infrastructure and increasing headcount, as well as the
higher corporate infrastructure costs associated with becoming a public company;
and
•the extent to which we in-license or acquire other products, product candidates
or technologies.
We believe that the existing cash and cash equivalents will be sufficient to
fund our operations into mid-2020, during which time we expect to continue our
development efforts with respect to our product candidates. We have based this
estimate on assumptions that may prove to be wrong, and we could utilize our
available capital resources sooner than we expect. Substantial additional
financing will be needed to fund our operations thereafter and to commercially
develop any current or future product candidates. We currently do not have any
commitments to obtain additional funds and may be unable to obtain sufficient
funding in the future on acceptable terms, if at all. However, our management is
currently evaluating different strategies to obtain the required funding for
future operations. These strategies may include, but are not limited to: public
and private placements of equity and/or debt, payments from potential strategic
research and development, sale of assets, and licensing and/or collaboration
arrangements with pharmaceutical companies or other institutions. There can be
no assurance that these future funding efforts will be successful. If we cannot
obtain the necessary funding, we will need to delay, scale back or eliminate
some or all of our research and development programs? consider other various
strategic alternatives, including a merger or sale? or cease operations. If we
cannot expand our operations or otherwise capitalize on our business
opportunities because we lack sufficient capital, our business, financial
condition and results of operations could be materially adversely affected.
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Off-Balance Sheet Arrangements
We did not have off-balance sheet arrangements during the periods presented, and
we do not currently have any off-balance sheet arrangements as defined in the
rules and regulations of the SEC.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 to our
consolidated financial statements included in this report.
Other Company Information
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act ("JOBS Act") was
enacted. Section 107 of the JOBS Act permits an "emerging growth company" or a
"smaller reporting company" to delay the adoption of new or revised accounting
standards until those standards would otherwise apply to private companies. We
plan to avail ourselves of this exemption from new or revised accounting
standards as a smaller reporting company and, therefore, we may not be subject
to the same new or revised accounting standards as other public companies that
are not emerging growth companies or smaller reporting companies.
For so long as we are a "smaller reporting company," we intend to rely on
exemptions relating to: (1) providing an auditor's attestation report on our
system of internal control over financial reporting pursuant to
Section 404(b) of the Sarbanes-Oxley Act and (2) complying with certain
requirements that may be adopted by the Public Company Accounting Oversight
Board.
Although we remain a smaller reporting company, as of December 31, 2019, we are
no longer an emerging growth company.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements required by this item are set forth beginning at page
F-1 of this report and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) (the "Exchange
Act"), as of December 31, 2019. Based upon that evaluation, our principal
executive officer and principal financial officer concluded that, as of the end
of the period covered by this report, our disclosure controls and procedures are
effective in ensuring that (a) the information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and (b) 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. In designing and evaluating our disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
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Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act as a process
designed by, or under the supervision of, our principal executive officer and
principal financial officer and effected by our Board of Directors, management,
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of our financial statements for
external reporting purposes in conformity with generally accepted accounting
principles and includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets;
•provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
•provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the supervision of and with the participation of our Chief Executive
Officer and Chief Financial Officer, our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2019 based
on the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on this assessment, management concluded that our internal control over
financial reporting was effective as of December 31, 2019.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information.
Our Board of Directors has established Thursday, June 4, 2020 as the date of our
2020 Annual Meeting of Stockholders (the "2020 Annual Meeting").
The 2020 Annual Meeting will be held at the offices of Pepper Hamilton LLP, 400
Berwyn Park, 899 Cassatt Road, Berwyn, PA 19312, at 8:00 a.m., local time.
Stockholders of record at the close of business on Tuesday, April 14, 2020 will
be entitled to vote at the 2020 Annual Meeting.
Because the date of the 2020 Annual Meeting has been advanced by more than 30
calendar days from the date of the preceding year's annual meeting, in
accordance with Rule 14a-5(f) under the Exchange Act, we are informing
stockholders of certain dates related to the 2020 Annual Meeting.
Pursuant to Rule 14a-8 under the Exchange Act, a stockholder intending to
present a proposal to be included in the proxy materials for the 2020 Annual
Meeting must deliver a proposal in writing to our principal executive offices no
later than a reasonable time before we begin printing and mailing the proxy
materials for the 2020 Annual Meeting. According to our bylaws, a stockholder
must provide notice to the our corporate secretary of proposals intended to be
presented at, but not included in the proxy materials for, the 2020 Annual
Meeting, including director nominations for election to our Board of Directors,
in a timely manner. Under our bylaws, in order to be timely, in the event that
the date of the annual meeting is advanced more than 30 days prior to or delayed
more than 30 days after the anniversary of the preceding year's annual meeting,
notice by the stockholder must be delivered to us by the close of business on
the later of (x) the 90th day prior to such annual meeting or (y) the 10th day
following the day on which public announcement of the date of such meeting is
first made.
As such, the new deadline for submission of proposals to be included in the
proxy materials or otherwise to be considered at the 2020 Annual Meeting is the
close of business on Monday, April 6, 2020, which we consider a reasonable time
before we will begin printing and mailing proxy materials and is the 10th day
following the date of filing of this Annual Report. Proposals
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should be addressed to: Corporate Secretary, Ocugen, Inc., 5 Great Valley
Parkway, Suite 160, Malvern, PA 19355. Any such proposal must (i) meet the
requirements set forth in the rules and regulations of the SEC in order to be
eligible for inclusion in the proxy materials for the 2020 Annual Meeting and
(ii) contain the information specified in, and otherwise comply with, our
bylaws. We may omit any proposal from the proxy materials that does not comply
with the SEC's rules.
Because of the uncertainties surrounding the impact of the COVID-19 pandemic, we
are planning for the possibility that the 2020 Annual Meeting may be held solely
by means of remote communication. If we take this step, we will announce the
decision to do so in advance of the 2020 Annual Meeting, and details on how to
participate in the webcast will be set forth in a press release issued by us and
available at www.ocugen.com.
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