INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve a number of risks and uncertainties. We caution readers that
any forward-looking statement is not a guarantee of future performance and that
actual results could differ materially from those contained in the
forward-looking statement. These statements are based on current expectations of
future events. Such statements include, but are not limited to, statements about
future financial and operating results, plans, objectives, expectations and
intentions, costs and expenses, interest rates, outcome of contingencies,
financial condition, results of operations, liquidity, business strategies, cost
savings, objectives of management and other statements that are not historical
facts. You can find many of these statements by looking for words like
"believes," "expects," "anticipates," "estimates," "may," "should," "will,"
"could," "plan," "intend" or similar expressions in this document or in
documents incorporated by reference into this document. We intend that such
forward-looking statements be subject to the safe harbors created thereby.
Examples of these forward-looking statements include, but are not limited to:
• our ability to continue as a going concern, our anticipated future capital
requirements and the terms of any capital financing agreements;
• progress and preliminary and future results of any clinical trials;
• anticipated regulatory filings, requirements and future clinical trials;
• the effects of COVID-19 on our business and financial results;
• timing and amount of future contractual payments, product revenue and
operating expenses; and
• market acceptance of our products and the estimated potential size of
these markets.
These forward-looking statements are based on the current beliefs and
expectations of our management and are subject to significant risks and
uncertainties. If underlying assumptions prove inaccurate or unknown risks or
uncertainties materialize, actual results may differ materially from current
expectations and projections. Factors that might cause such a difference include
those discussed in Item 1A "Risk Factors," as well as those discussed elsewhere
in the Quarterly Report on Form 10-Q. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this document or, in the case of documents referred to or incorporated by
reference, the date of those documents.
All subsequent written or oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events, except as
may be required under applicable U.S. securities law. If we do update one or
more forward-looking statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking statements.
Overview
We are a clinical-stage pharmaceutical company committed to the global
(excluding Central & Eastern Europe plus other territories) development and
commercialization of cytisinicline for smoking cessation and nicotine
addiction. Our primary focus is to address the global smoking and nicotine
addiction epidemic, which is a leading cause of preventable death and is
responsible for more than eight million deaths annually worldwide. We may expand
our focus to address other methods of nicotine addiction such as
e-cigarettes/vaping.
Our management team has significant experience in growing emerging companies
focused on the development of under-utilized pharmaceutical compounds to meet
unmet medical needs. We intend to use this experience to develop and ultimately
commercialize cytisinicline either directly or via strategic collaborations.
Cytisinicline is an established smoking cessation treatment that has been
approved and marketed in Central and Eastern Europe by Sopharma AD for over 20
years under the brand name Tabex™. It is estimated that over 20 million people
have used cytisinicline to help treat nicotine addiction, including over 2,000
patients in investigator-conducted, Phase 3 clinical trials in Europe and New
Zealand. Both trials were published in the New England Journal of Medicine in
September 2011 and December 2014, respectively.
Cytisinicline is a naturally occurring, plant-based alkaloid. Cytisinicline is
structurally similar to nicotine and has a well-defined, dual-acting mechanism
of action that is both agonistic and antagonistic. It is believed to aid in
smoking cessation and the treatment of nicotine addiction by interacting with
nicotine receptors in the brain by reducing the severity of nicotine withdrawal
symptoms
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through agonistic binding to nicotine receptors and by reducing the reward and
satisfaction associated with nicotine through antagonistic properties.
Non-clinical toxicology studies were sponsored by the National Center for
Complementary and Integrative Health, or NCCIH, a division of the National
Institutes of Health, or NIH, and by the National Cancer Institute, or NCI, to
assist in our Investigational New Drug Application, or IND. In June 2017, we
filed our IND application for cytisinicline with the United States Food and Drug
Administration, or FDA, which included the NCCIH sponsored non-clinical studies.
Additional non-clinical reproductive toxicology studies have also been conducted
by NCCIH and NCI, with three such studies already submitted to the FDA. Other
non-clinical toxicology studies that will be required for a New Drug
Application, or NDA, include two longer-term chronic toxicology studies and two
carcinogenicity studies, which are in distinct stages of execution as company
sponsored studies. One of the chronic toxicology studies has been completed and
submitted to FDA. The 13-Week Interim report for the second 39-Week chronic
toxicology study has been completed and submitted to FDA with the 39-Week study
report expected to be completed and submitted to FDA in the fourth quarter 2020.
Additionally, one of the carcinogenicity studies is currently in progress, while
the second carcinogenicity study is planned for initiation during Phase 3
development.
In August 2017, we initiated a Phase 1 clinical study evaluating the effect of
food on the bioavailability of cytisinicline in normal healthy volunteers. We
completed the food effect study and announced the results in November of 2017
demonstrating similar bioavailability of cytisinicline in fed and fasted
subjects.
In October 2017, we initiated a clinical study assessing the repeat-dose
pharmacokinetics, or PK, and pharmacodynamics, or PD, effects of 1.5 mg and 3 mg
cytisinicline in 36 healthy volunteer smokers when administered over the
standard 25-day course of treatment as marketed by Sopharma in their
territories. Of the 36 subjects, 24 were to be 18-65 years of age and 12 were to
be greater than 65 years of age. Final results were presented at the Annual
Meeting of the Society for Research on Nicotine and Tobacco, or SRNT, in
February 2019. The study randomized a total of 26 subjects, which included only
2 of the intended 12 subjects of an age greater than 65, due to difficulty
enrolling within this age group. All 26 subjects completed the study.
Predictable increases in plasma cytisinicline concentrations were observed with
increasing unit dosing from 1.5 mg to 3 mg. Smokers in the study were not
required to have a designated or predetermined quit date. Overall, subjects had
an 80% reduction in cigarettes smoked, 82% reduction in expired carbon monoxide,
and 46% of the subjects achieved biochemically verified smoking abstinence by
day 26. Subjects who received 3 mg cytisinicline over the 25 days had a trend
for higher smoking abstinence compared to subjects who received 1.5 mg
cytisinicline. The adverse events, or AEs, observed were mostly mild with
transient headaches as the most commonly reported event. No severe or serious
AEs were observed in the study.
In December 2017, we initiated a series of drug metabolism, drug-to-drug
interaction, and transporter studies of cytisinicline and results from these
studies were announced in June 2018. These studies demonstrated that
cytisinicline has no clinically significant interaction with any of the hepatic
enzymes commonly responsible for drug metabolism nor clinically significant
interaction with drug transporters. This suggests that cytisinicline may be
administered with other medications without the need to modify the dose of any
co-administered medications. We will continue to evaluate any new FDA guidance
on whether additional drug-to-drug interactions studies will be required prior
to a future NDA filing.
We have met with the FDA and with other national regulatory authorities in
Europe to identify the steps required for the approval of cytisinicline. We held
an end of Phase 2 meeting with the FDA in May 2018 to review and receive
guidance on our Phase 3 clinical program and overall development plans for
cytisinicline to support an NDA. This review included submitted results from
non-clinical studies, standard drug-to-drug interaction and
reproductive/teratogenicity studies. Detailed plans for chronic toxicology,
carcinogenicity studies, and additional clinical studies regarding renal
impairment, QT interval prolongation, longer term exposure and adequate
demonstration of safety and efficacy from our planned randomized,
placebo-controlled, Phase 3 clinical trials were also discussed.
In 2018, Sopharma commercially launched a newly formulated cytisinicline tablet
with improved shelf life in their territories. In May 2018, we initiated a study
to evaluate the effect of food on the bioavailability of cytisinicline in
volunteer smokers using this new formulation and data results were announced in
September 2018. The study demonstrated similar bioavailability of cytisinicline
in fed and fasted subjects. Cytisinicline was extensively absorbed after oral
administration with maximum cytisinicline concentration levels observed in the
blood within less than two hours with or without food. Total excretion levels of
cytisinicline also remained equivalent in both the fed and fasted states, and
the 3 mg dose using this new formulation of cytisinicline was well tolerated.
In the third quarter of 2018, the United States Adopted Names Council adopted
cytisinicline as the non-proprietary, or generic, name for the substance also
known as cytisine.
In December 2018, we announced that the FDA was in agreement with our Initial
Pediatric Study Plan, specifically, providing a full waiver for evaluating
cytisinicline in a pediatric population. The reasons for the full waiver were
based on the low numbers of children smoking under the age of 12 and the
logistical difficulties of recruiting treatment-seeking smokers in the
adolescent age group. The
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agreed upon Initial Pediatric Study Plan is expected to be included as part of
our future application for marketing approval of cytisinicline.
In March 2019, we initiated a clinical trial to assess the dose limiting AEs
that would define the maximum tolerated dose, or MTD, for a single administered
oral dose of cytisinicline. This study evaluated smokers who received one single
dose of cytisinicline. The starting dosage of cytisinicline was 6 mg and was to
be increased in separate groups of subjects for each escalated dose level until
stopping criteria (based on the occurrence of dose-limiting AEs) were reached. A
safety review after each dose level was performed by an independent Data Safety
Monitor Committee, or DSMC, before escalation to the next dose level. Six dose
levels were pre-planned with 21 mg cytisinicline as the highest dose level. When
the MTD was not reached at 21 mg, the study was amended to evaluate doses up to
30 mg, as recommended by the DSMC. At this 30 mg dose, the stopping criteria of
serious or severe AEs were still not met, but the DSMC recommended stopping the
study since the frequency of gastrointestinal symptoms were approaching an MTD
level. The results were reviewed with the FDA with agreement that further
escalation beyond the single 30 mg dose was not required. This Phase-1 study was
a requirement for our future NDA and marketing approval of cytisinicline. It
fulfills an FDA requirement to evaluate potential safety issues in the event
patients exceed a recommended single dose outside of a clinical trial setting.
These results do not impact the intended dosing planned for future Phase 3
cytisinicline clinical trials which was informed by the Phase 2b ORCA-1 trial
discussed below.
In June 2019, we announced positive top line results for the Phase 2b ORCA-1
trial and defined the dose selection of 3 mg, three times daily, or TID, for our
Phase 3 development. ORCA-1 is the first in our ORCA (Ongoing Research of
Cytisinicline for Addiction) Program that aims to evaluate the effectiveness of
cytisinicline for smoking cessation, nicotine addiction therapy, and potential
benefit in other indications.
ORCA-1 was initiated in October 2018 and evaluated 254 smokers in the United
States. The trial evaluated both 1.5 mg and 3 mg doses of cytisinicline on the
standard declining titration schedule as well as a more simplified TID dosing
schedule, both over 25 days. The trial was randomized and blinded to compare the
effectiveness of the cytisinicline doses and schedules to respective placebo
groups. Subjects were treated for 25 days, provided behavioral support, and
followed up for an additional four weeks to assess continued smoking abstinence
after the 25-day treatment.
The primary endpoint in the study was the reduction in daily smoking, a
self-reported measure. Three of the four cytisinicline treatment arms
demonstrated a statistically significant reduction, p<0.05, compared to placebo.
The fourth arm trended to significance (p= 0.052). Across all treatment arms,
over the 25-day treatment period, subjects on cytisinicline experienced a 74-80%
median reduction in the number of cigarettes smoked, compared to a 62% reduction
in the placebo arms.
The secondary endpoint of the trial was a 4-week continuous abstinence rate,
which is the relevant endpoint for regulatory approval. All cytisinicline
treatment arms showed significant improvements in abstinence rates compared to
the placebo arms. The most impressive results were observed in the 3 mg TID
cytisinicline arm which demonstrated a 54% abstinence rate starting at week 4,
compared to 16% for placebo (p<0.0001) and a continuous abstinence rate, weeks 5
through 8, of 30% for cytisinicline compared to 8% for placebo (p= 0.005). At
week 4, all four cytisinicline arms demonstrated statistically significant
(p<0.05) reductions in expired carbon monoxide, or CO, a biochemical measure of
smoking activity. Expired CO levels had declined by a median of 71-80% in the
cytisinicline treatment arms, compared to only 38% in the placebo arms. The
greater reductions in expired CO levels for the cytisinicline arms versus
placebo suggest that placebo-treated subjects may have over-reported their
reduction in cigarettes smoked or overcompensated with greater inhalation while
smoking fewer cigarettes.
Cytisinicline was well-tolerated with no serious AEs reported. The most commonly
reported (>5%) AEs across all cytisinicline treatment arms versus placebo arms
were abnormal dreams, insomnia, upper respiratory tract infections, and nausea.
In the 3 mg TID treatment arm versus placebo arms, the most common AEs were
abnormal dreams, insomnia, and constipation (each 6% vs 2%), upper respiratory
tract infections (6% vs 14%), and nausea (6% vs 10%), respectively. Compliance
with study treatment was greater than 94% across all arms.
We presented the ORCA-1 results in September 2019 at the annual European meeting
of the Society for Research on Nicotine and Tobacco, or SRNT, held in Oslo,
Norway. Based on the results of the ORCA-1 trial, we have selected 3 mg TID for
Phase 3 development. Overall, the 3 mg dose administered TID demonstrated the
best overall safety and efficacy when compared to other doses and
administrations studied in ORCA-1.
In November 2019, we held a type C meeting with the FDA to review the ORCA-1
results and our revisions to the Phase 3 clinical program using the simplified 3
mg TID dosing schedule. The FDA agreed that the 3 mg TID dosing schedule was
acceptable. We also discussed with the FDA timing for the submission of the
13-Week interim report from the second ongoing chronic toxicology study to
support the longer treatment durations of 6- and 12-weeks in the Phase 3
clinical program. This interim chronic toxicology report was submitted in the
second quarter of 2020 to the FDA in order to achieve our goal of initiating the
Phase 3 program in the second half of 2020.
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Our planned Phase 3 trial, ORCA-2, is designed to evaluate the efficacy and
safety of 3 mg TID of cytisinicline in smokers within the United States. The
study plans to compare 3 mg TID of cytisinicline dosing versus placebo and will
include behavioral support for all subjects. Co-primary endpoints of the study
are an assessment of smoking abstinence during the last four weeks of 6-week and
12-week treatment periods, compared to similar placebo treatment periods.
Secondary endpoints include smoking abstinence out to 24 weeks. Due to the
ongoing COVID-19 pandemic, we are assessing the feasibility and required
processes at each intended clinical site participating in the Phase 3 study, in
order to initiate the Phase 3 study as planned in the second half of 2020. Study
plans may be adjusted in response to COVID-19 public health control measures and
in accordance with regulatory guidelines to ensure subject safety, data
integrity and study continuity occurs.
In June 2020, we announced the topline results from the RAUORA trial, an
independent investigator-sponsored Phase 3 clinical trial. The trial achieved
statistical significance in showing that cytisinicline plus behavioral support
was at least as effective as varenicline plus behavioral support at six months.
In addition, the trial showed that cytisinicline resulted in significantly fewer
reported adverse events when compared to varenicline. The final RAUORA trial
results will be submitted for publication and are expected to be presented at
SRNT Europe Annual Meeting in September 2020.
The RAUORA Phase 3 study was a non-inferiority clinical trial comparing
cytisinicline to varenicline (Chantix®) in M?ori (indigenous New Zealanders) and
wh?nau (family) of M?ori. The study was led by Dr. Natalie Walker, Associate
Professor at the University of Auckland, and was funded by the Health Research
Council of New Zealand. The RAUORA trial was designed to evaluate the
effectiveness, safety, and cost-effectiveness of cytisinicline compared to
varenicline as a smoking cessation aid. The study compared cytisinicline
administered on a schedule of 25 days of downward dosing titration followed by
twice-daily dosing for a total of 12 weeks with varenicline administered on a
schedule of seven days of upward titration followed by twice-daily dosing for a
total of 12 weeks. The primary endpoint was a comparison of biochemically
confirmed continuous abstinence rates at six months, and the trial was designed
to assess if the two agents were non-inferior to each other. In total, 1,105
M?ori or wh?nau expressed interest in participating in the study and a total of
679 were randomized to receive either cytisinicline or varenicline. The average
age of participants in the trial was 43 years and approximately 70% of the
participants were women.
We are also considering potential clinical studies in users of e-cigarettes.
This is an important area of focus given the vaping epidemic and the number of
vaping-related lung illnesses that were reported in 2019. The number of
e-cigarette users continues to grow and, according to data published in the
Annals of Internal Medicine in 2018, there are a reported 10.8 million
e-cigarette users in the United States alone. The National Institute on Drug
Abuse, or NIDA, a division of the NIH, has tobacco/nicotine and vaping on their
list of Drugs of Abuse. While e-cigarettes have been viewed as generally safer
than combustible cigarettes, the long-term safety of e-cigarettes is still
unproven and may sustain nicotine addiction. Given the mechanism of action of
cytisinicline, we believe it could be used to help address nicotine addiction
for e-cigarette users. We have engaged FreeMind Group to assist in conducting a
strategic assessment and in securing non-dilutive funding to evaluate
cytisinicline in reduction or cessation of vaping and or e-cigarettes.
We have no products approved for commercial sale and have not generated any
revenue from product sales to date. We have never been profitable and have
incurred operating losses in each year since inception. Our net loss was $6.2
million for the six months ended June 30, 2020. As of June 30, 2020, we had an
accumulated deficit of $51.9 million, cash and cash equivalents balance of $12.1
million and a positive working capital balance of $10.8 million. During the six
months ended June 30, 2020, net cash used in operations was $6.7 million.
Substantial doubt exists as to our ability to continue as a going concern. Our
ability to continue as a going concern is uncertain and dependent on our ability
to obtain additional financing. We expect to incur significant expenses and
increasing operating losses for at least the next several years as we continue
our clinical development of, and seek regulatory approval for, cytisinicline and
add personnel necessary to operate as a public company with an advanced clinical
candidate. We expect that our operating losses will fluctuate significantly from
quarter to quarter and year to year due to timing of clinical development
programs and efforts to achieve regulatory approval. Without additional funds,
we may be forced to delay, scale back or eliminate some of our research and
development activities or other operations and potentially delay product
development in an effort to provide sufficient funds to continue our operations.
If any of these events occurs, our ability to achieve our development and
commercialization goals would be adversely affected.
Our current resources are insufficient to fund our planned operations for the
next 12 months. We will continue to require substantial additional capital to
continue our clinical development activities. Accordingly, we will need to raise
substantial additional capital to continue to fund our operations from the sale
of our securities, partnering arrangements or other financing transactions in
order to finance the commercialization of our product candidate. The amount and
timing of our future funding requirements will depend on many factors, including
the pace and results of our clinical development efforts. Failure to raise
capital as and when needed, on favorable terms or at all, will have a negative
impact on our financial condition and our ability to develop our product
candidate.
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Our accompanying financial results have been prepared assuming we will continue
to operate as a going concern, which contemplates the realization of assets and
liabilities and commitments in the normal course of business. The financial
results do not include any adjustments to the amounts and classification of
assets and liabilities that might be necessary should we be unable to continue
as a going concern. Such adjustments could be material.
Reverse Stock Split
On July 29, 2020, we filed a certificate of amendment to our Second Amended and
Restated Certificate of Incorporation, as amended, and effected as of July 31,
2020 a 1-for-20 reverse stock split of our issued and outstanding shares of
common stock. As a result of the reverse stock split, each 20 shares of the
outstanding common stock were combined into one share of common stock without
any change to the par value per share. The reverse stock split did not affect
the number of authorized shares of common stock which remains at 150,000,000.
The reverse stock split was approved by our board of directors and stockholders
and is intended to allow us to regain compliance with the NASDAQ's continued
listing criteria related to the Minimum Bid Price Rule. However, there can be no
assurance that we will regain compliance until a written confirmation from
NASDAQ has been issued.
Unless otherwise noted, impacted amounts and share information included in the
financial statements and notes thereto have been retroactively adjusted for the
stock split as if such stock split occurred on the first day of the first period
presented. Certain amounts in the notes to the financial statements may be
slightly different than previously reported due to rounding of fractional shares
as a result of the reverse stock split.
License Agreements
Sopharma License and Supply Agreements
We are party to a license agreement, or the Sopharma License Agreement, and a
supply agreement, or the Sopharma Supply Agreement, with Sopharma, AD, or
Sopharma. Pursuant to the Sopharma License Agreement, we were granted access to
all available manufacturing, efficacy and safety data related to cytisinicline,
as well as a granted patent in several European countries related to new oral
dosage forms of cytisinicline providing enhanced stability. Additional rights
granted under the Sopharma License Agreement include the exclusive use of, and
the right to sublicense, the trademark Tabex in all territories described in the
Sopharma License Agreement. Under the Sopharma License Agreement, we agreed to
pay a nonrefundable license fee. In addition, we agreed to make certain royalty
payments equal to a mid-single digit percentage of all net sales of Tabex
branded products in our territory during the term of the Sopharma License
Agreement, including those sold by a third party pursuant to any sublicense
which may be granted by us. To date, any amounts paid to Sopharma pursuant to
the Sopharma License Agreement have been immaterial.
University of Bristol License Agreement
In July 2016, we entered into a license agreement with the University of
Bristol, or the University of Bristol License Agreement. Under the University of
Bristol License Agreement, we received exclusive and nonexclusive licenses from
the University of Bristol to certain patent and technology rights resulting from
research activities into cytisinicline and its derivatives, including a number
of patent applications related to novel approaches to cytisinicline binding at
the nicotinic receptor level.
In consideration of rights granted by the University of Bristol, we paid a
nominal license fee and agreed to pay amounts of up to $3.2 million, in the
aggregate, tied to a financing milestone and to specific clinical development
and commercialization milestones resulting from activities covered by the
University of Bristol License Agreement. Additionally, if we successfully
commercialize any product candidates subject to the University of Bristol
License Agreement, we are responsible for royalty payments in the low-single
digits and payments up to a percentage in the mid-teens of any sublicense
income, subject to specified exceptions, based upon net sales of such licensed
products.
On January 22, 2018, we and the University of Bristol entered into an amendment
to the University of Bristol License Agreement. Pursuant to the amended
University of Bristol License Agreement we received exclusive rights for all
human medicinal uses of cytisinicline across all therapeutic categories from the
University of Bristol from research activities into cytisinicline and its
derivatives. In consideration of rights granted by the amended University of
Bristol License Agreement, we agreed to pay an initial amount of $37,500 upon
the execution of the amended University of Bristol License Agreement, and
additional amounts of up to $1.7 million, in the aggregate, tied to a financing
milestone and to specific clinical development and commercialization milestones
resulting from activities covered by the amended University of Bristol License
Agreement, in addition to amounts under the original University of Bristol
License Agreement of up to $3.2 million in the aggregate, tied to specific
financing, development and commercialization milestones. Additionally, if we
successfully commercialize any product candidate subject to the amended
University of Bristol License Agreement or to the original University of Bristol
License Agreement, we will be responsible, as provided in the original
University of Bristol License Agreement, for royalty payments in the low-single
digits and payments up to a
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percentage in the mid-teens of any sublicense income, subject to specified
exceptions, based upon net sales of such licensed products. Up to June 30, 2020,
we had paid the University of Bristol $125,000 pursuant to the University of
Bristol License Agreement.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of costs for
clinical trials, contract manufacturing, personnel costs, milestone payments to
third parties, facilities, regulatory activities, non-clinical studies and
allocations of other R&D-related costs. External expenses for clinical trials
include fees paid to clinical research organizations, clinical trial site costs
and patient treatment costs.
We manage our clinical trials through contract research organizations and
independent medical investigators at our sites and at hospitals and expect this
practice to continue. Due to our ability to utilize resources across several
projects, we do not record or maintain information regarding the indirect
operating costs incurred for our research and development programs on a
program-specific basis. In addition, we believe that allocating costs on the
basis of time incurred by our employees does not accurately reflect the actual
costs of a project.
We expect our research and development expenses to increase for the foreseeable
future as we continue to conduct our ongoing non-clinical studies, and initiate
new clinical trials and registration-enabling activities. The process of
conducting clinical trials and non-clinical studies necessary to obtain
regulatory approval is costly and time consuming and we may never succeed in
achieving marketing approval for cytisinicline. (See "Item 1A. Risk
Factors-Risks Related to the Development of Our Product Candidate
Cytisinicline.")
Successful development of cytisinicline is highly uncertain and may not result
in an approved product. We cannot estimate completion dates for development
activities or when we might receive material net cash inflows from our R&D
projects, if ever. We anticipate we will make determinations as to which
markets, and therefore, which regulatory approvals, to pursue and how much
funding to direct toward achieving regulatory approval in each market on an
ongoing basis in response to our ability to enter into new strategic alliances
with respect to each program or potential product candidate, the scientific and
clinical success of each future product candidate, and ongoing assessments as to
each future product candidate's commercial potential. We will need to raise
additional capital and may seek additional strategic alliances in the future in
order to advance its various programs.
Our projects or intended R&D activities may be subject to change from time to
time as we evaluate results from completed studies, our R&D priorities and
available resources.
General and Administrative Expenses
General and administrative, or G&A, expenses consist primarily of salaries and
related costs for our personnel in executive, finance and accounting, corporate
communications and other administrative functions, as well as consulting costs,
including market research, business consulting, human resources and intellectual
property. Other costs include professional fees for legal and auditing services,
insurance and facility costs.
Results of Operations
For the three and six months ended June 30, 2020
Research and development expenses
Our research and development expenses for our clinical development program for
the three and six months ended June 30, 2020 and 2019 were as follows (in
thousands):
Three months ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Clinical development programs:
Cytisinicline $ 1,103 $ 2,032 $ 2,644 $ 6,087
Total research and development expenses $ 1,103 $ 2,032 $ 2,644 $ 6,087
Research and development expenses for the three and six months ended June 30,
2020 decreased to $2.6 million and $1.1 million, respectively, from $6.1 million
and $2.0 million for the three and six months ended June 30, 2019, respectively.
The decreases in the 2020 periods as compared to the 2019 periods were primarily
due to our completion of the ORCA-1 trial, a Phase 2b optimization study that
was initiated in October 2018 and completed in June 2019.
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General and administrative expenses
Our general and administrative expenses for the three and six months ended June
30, 2020 and 2019 were as follows (in thousands):
Three months ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Total general and administrative expenses $ 1,815 $ 1,630 $ 3,631 $ 3,515
General and administrative expenses for the three and six months ended June 30,
2020 increased to $1.8 million and $3.6 million, respectively, from $1.6 million
and $3.5 million for the three and six months ended June 30, 2019, respectively.
The increases in the 2020 periods as compared to the 2019 periods were primarily
due to additional market research and public relations activities, this was
partially offset by lower travel costs as a result of travel restrictions across
the U.S and other countries during the COVID-19 pandemic.
Liquidity and Capital Resources
We have incurred an accumulated deficit of $51.9 million through June 30, 2020
and we expect to incur substantial additional losses in the future as we operate
our business and continue or expand our R&D activities and other operations. We
have not generated any revenue from product sales to date, and we may not
generate product sales revenue in the near future, if ever. As of June 30, 2020,
we had a cash and cash equivalents balance of $12.1 million and a positive
working capital balance of $10.8 million.
The financial results have been prepared assuming we will continue to operate as
a going concern, which contemplates the realization of assets and liabilities
and commitments in the normal course of business.
Substantial doubt exists as to our ability to continue as a going concern. Our
ability to continue as a going concern is uncertain and dependent on our ability
to obtain additional financing. There is no assurance that we will obtain
financing from other sources. The uncertainty with respect to our operations and
the market generally due to the COVID-19 pandemic may make it challenging to
raise additional capital on favorable terms, if at all. We have, thus far,
financed our operations through payments from former collaborators and equity
financings. Without additional funds, we may be forced to delay, scale back or
eliminate some of our research and development activities or other operations
and potentially delay product development in an effort to provide sufficient
funds to continue our operations. If any of these events occur, our ability to
achieve our development and commercialization goals would be adversely affected.
In addition, we expect to incur significant expenses and increasing operating
losses for at least the next several years as we continue our clinical
development of, and seek regulatory approval for, cytisinicline and add
personnel necessary to operate as a public company with an advanced clinical
candidate. We expect that our operating losses will fluctuate significantly from
quarter to quarter and year to year due to timing of clinical development
programs and efforts to achieve regulatory approval.
Our current resources are insufficient to fund our planned operations for the
next 12 months. We will continue to require substantial additional capital to
continue our clinical development activities. Accordingly, we will need to raise
substantial additional capital to continue to fund our operations from the sale
of our securities, partnering arrangements or other financing transactions in
order to finance the commercialization of our product candidate. The amount and
timing of our future funding requirements will depend on many factors, including
the pace and results of our clinical development efforts. Failure to raise
capital as and when needed, on favorable terms or at all, will have a negative
impact on our financial condition and our ability to develop our product
candidate.
The consolidated financial results do not include any adjustments to the amounts
and classification of assets and liabilities that might be necessary should we
be unable to continue as a going concern. Such adjustments could be material.
Lincoln Park Capital Equity Line
On September 14, 2017 we and Lincoln Park Capital Fund, LLC, or LPC, entered
into a share and unit purchase agreement, which was amended on March 12, 2020,
or the Purchase Agreement, pursuant to which we have the right to sell to LPC up
to $11.0 million in shares of our common stock, par value $0.001 per share,
subject to certain limitations and conditions set forth in the Purchase
Agreement. On May 22, 2018 we obtained the requisite stockholder authorization
to sell shares of our common stock to LPC in excess of 20% of our outstanding
shares of common stock (as of the date we entered into the Purchase Agreement)
in order to be able to sell to LPC the full amount remaining under the Purchase
Agreement.
Pursuant to the Purchase Agreement, LPC initially purchased 1,644 of our units,
or the Units, at a purchase price of $608.00 per unit, with each Unit consisting
of (a) one share of our common stock and (b) one warrant to purchase one-quarter
of a share of common stock at an exercise price of $699.20 per share, or
Warrant. Each Warrant became exercisable six months following the issuance date
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until the date that is five years and six months after the issuance date and is
subject to customary adjustments. The Warrants were issued only as part of the
Units in the initial purchase of $1.0 million and no warrants shall be issued in
connection with any other purchases of common stock under the Purchase
Agreement.
After the initial purchase, if our stock price is above $1.00, as often as every
other business day over the 54-month term of the Purchase Agreement, and up to
an aggregate amount of an additional $10.0 million (subject to certain
limitations) of shares of common stock, we have the right, from time to time, in
our sole discretion and subject to certain conditions to direct LPC to purchase
up to 7,500 shares of common stock. The purchase price of shares of common stock
pursuant to the Purchase Agreement will be based on prevailing market prices of
common stock at the time of sales without any fixed discount, and we will
control the timing and amount of any sales of common stock to LPC. As
consideration for entering into the Purchase Agreement, we issued to LPC 617
shares of common stock in September 2017 and, in connection with the amendment
of the Purchase Agreement in March 2020, we paid to LPC $0.1 million as an
expense reimbursement. The consideration of 617 shares of our common stock were
fair valued based on the closing price of our common stock as at the transaction
date and recognized as part of offering expenses.
During the three and six months ended June 30, 2020, we offered and sold zero
shares of our common stock pursuant to the Purchase Agreement with LPC. Since
entry into the Purchase Agreement, from September 14, 2017 through June 30,
2020, we offered and sold an aggregate of 27,868 shares of our common stock,
including the 1,644 shares that were part of the initial purchase of Units.
These aggregate sales resulted in gross proceeds to us of approximately $4.4
million and offering expenses of $0.5 million. As of June 30, 2020, shares of
our common stock having an aggregate value of approximately $6.6 million
remained available for sale under this offering program.
At The Market Offering Agreement with H.C. Wainwright & Co., LLC
On June 7, 2019, we entered into an At The Market Offering Agreement, or the
Offering Agreement, with H.C. Wainwright & Co., LLC, as agent, or H.C.
Wainwright, pursuant to which we may offer and sell, from time to time and at
our election, through H.C. Wainwright, shares of our common stock, par value
$0.001 per share, having an aggregate offering price of up to $6.0 million.
Pursuant to the Offering Agreement, H.C. Wainwright may sell the shares our
common stock by any method permitted by law deemed to be an "at the market
offering" as defined in Rule 415 of the Securities Act, including sales made by
means of ordinary brokers' transactions, including on The Nasdaq Capital Market,
at market prices or as otherwise agreed with H.C. Wainwright. H.C. Wainwright
will use commercially reasonable efforts consistent with its normal trading and
sales practices to sell the shares of common stock from time to time, based upon
instructions from us, including any price or size limits or other customary
parameters or conditions we may impose.
We will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate
gross proceeds from each sale of shares of common stock and have agreed to
reimburse H.C. Wainwright for certain specified expenses in connection with
entering into the Offering Agreement.
From June 7, 2019 to August 4, 2020, we did not offer any shares of our common
stock for sale pursuant to the Offering Agreement. As of May 13, 2020, shares of
our common stock having an aggregate value of approximately $6.0 million
remained available for sale under the Offering Agreement.
Warrant Exercise Agreement
On May 30, 2019, we entered into a Warrant Exercise Agreement, or the Exercise
Agreement, with a Shareholder of our common stock, or the shareholder. Pursuant
to the Exercise Agreement, the shareholder exercised (i) outstanding warrants to
purchase 13,515 shares of our common stock, par value $0.001 per share, with an
exercise price of $62.89 per share issued as part of the October 2018 financing
and (ii) outstanding warrants to purchase 41,875 shares of our common stock with
an exercise price of $80.00 per share issued as part of the June 2018 financing,
for aggregate exercise proceeds to us of approximately $4.2 million, or,
collectively, the Warrant Exercise.
As an inducement for the Warrant Exercise, we agreed to issue to the shareholder
a new warrant, exercisable for six years, to purchase up to 60,000 shares of our
common stock at an exercise price of $90.00 per share. We also agreed to file a
registration statement covering the resale of the New Warrant Shares. The New
Warrant and New Warrant Shares were offered to the shareholder in reliance upon
the exemption provided by Rule 506 of Regulation D and Section 4(a)(2) of the
Securities Act of 1933.
Under ASC 260, the fair value of the new warrants of $3.9 million was recognized
into accumulated deficit.
December 2019 Public Offering
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On December 17, 2019, we completed an underwritten registered public offering,
pursuant to which we sold, 478,875 Class A Units at a price per unit of $12.00
and 6,256 Class B Units at a price per unit of $999.60.
Each Class A Unit consisted of one share of our common stock and a warrant to
purchase one share of common stock.
Each Class B Unit consisted of one share of Series B Convertible Preferred
Stock, par value $0.001 per share, convertible at any time at the holder's
option into approximately 83 shares of common stock, and warrants to purchase
approximately 83 shares of common stock.
Each warrant was immediately exercisable, expires on the five year anniversary
of the date of issuance and is exercisable at a price per share of common stock
of $6.60, subject to adjustment in the event of subsequent equity sales of
common stock or securities convertible into common stock for an exercise price
per share less than the exercise price per share of the warrants then in effect,
provided, however, that the exercise price of the warrants cannot be reduced to
an amount less than $1.20 per share of common stock. Additionally, subject to
certain exceptions, if, after December 17, 2019, (i) the volume weighted average
price of the common stock for each of 30 consecutive trading days, or the 2019
Measurement Period, which 2019 Measurement Period commences on the closing date,
exceeds 300% of the exercise price (subject to adjustments for stock splits,
recapitalizations, stock dividends and similar transactions), (ii) the average
daily trading volume for such 2019 Measurement Period exceeds $500,000 per
trading day and (iii) certain other equity conditions are met, and subject to a
beneficial ownership limitation, then the Company may call for cancellation of
all or any portion of the warrants then outstanding.
The Class A Units and Class B Units were not certificated and the shares of
common stock, Series B Convertible Preferred Stock and warrants comprising such
Units were immediately separable and were issued separately in the public
offering. The Class A and B Units were offered by us pursuant to the
registration statement on Form S-1 (File No. 333-234530), and each amendment
thereto, which was initially filed with the SEC on November 6, 2019 and declared
effective by the SEC on December 17, 2019.
In addition, pursuant to the Underwriting Agreement we entered into with
Ladenburg Thalmann & Co. Inc., or Ladenburg, on December 17, 2019, we granted
Ladenburg a 45 day option, or the 2019 Overallotment Option, to purchase up to
150,000 additional shares of common stock and/or warrants to purchase up to
150,000 shares of common stock solely to cover over-allotments. The 2019
Overallotment Option was exercised in full on December 17, 2019.
The public offering raised total gross proceeds of $13.8 million and after
deducting $1.5 million in underwriting discounts and commissions and offering
expenses, we received net proceeds of $12.3 million.
The underwriting discounts and commissions and offering expenses have been
charged against the gross proceeds.
As of June 30, 2020, all 6,256 shares of the Series B Convertible Preferred
Stock had been converted into 521,124 shares of common stock, and no shares of
the Series B Convertible Preferred Stock remained outstanding.
April 2020 Private Placement
On April 27, 2020 and April 28, 2020, we entered into subscription agreements
with certain accredited investors pursuant to which we sold to the purchasers in
a private placement approximately 280,782 units, or Units, each consisting of
(i) one share of common stock, and (ii) a warrant to purchase 0.75 shares of
common stock at an offering price of $6.60 per Unit, for aggregate gross
proceeds of approximately $1.9 million. Paulson Investment Company, LLC, or the
Broker, acted as the exclusive placement agent for the offering and, pursuant to
the placement agent agreement between us and the Broker, received a cash
commission equal to 9% of the gross proceeds from the sale of the Units and was
issued a five (5) year warrant upon substantially similar terms as the investor
warrants to purchase 25,270 shares of common stock at an initial exercise price
of $7.59 per share. The net proceeds to us, after deducting Broker expenses and
commissions and offering expenses was approximately $1.6 million.
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Each warrant is exercisable beginning on October 27, 2020, the six-month
anniversary of the initial closing date of the offering, through April 27, 2025,
which is the five year anniversary of the initial closing date of the offering.
The warrants issued pursuant to subscription agreements executed on April 27,
2020 are exercisable at a price per share of common stock of $7.24, subject to
adjustment, and the warrants issued pursuant to subscription agreements executed
on April 28, 2020 are exercisable at a price per share of common stock of $7.32,
subject to adjustment. Additionally, subject to certain exceptions, if, after
the initial exercise date, (i) the volume weighted average price of the common
stock for each of 30 consecutive trading days, or the Measurement Period, which,
Measurement Period commences on the closing date, exceeds 300% of the exercise
price (subject to adjustments for stock splits, recapitalizations, stock
dividends and similar transactions), (ii) the average daily trading volume for
such Measurement Period exceeds $500,000 per trading day and (iii) certain other
equity conditions are met, and subject to a beneficial ownership limitation,
then we may call for cancellation of all or any portion of the warrants then
outstanding.
July 2020 Registered Direct Offering
On July 1, 2020, we completed a registered direct offering, pursuant to which we
sold 731,707 shares of our common stock at a price of $8.20 per share. We paid
Lake Street Capital Markets, LLC, the exclusive placement agent for the
offering, and Ladenburg Thalmann & Co. Inc., our advisor, a cash fee equal to an
aggregate of 8% of the gross proceeds generated from the sale of the common
stock and also reimbursed the placement agent for certain of its expenses.
The registered direct offering raised total gross proceeds of $6.0 million, and
after deducting approximately $0.5 million in placement agent fees and offering
expenses, we received net proceeds of approximately $5.5 million.
August 2020 Public Offering
On August 3, 2020, we entered into an underwritten public offering of our
securities, or the Public Offering, pursuant to which we will sell an aggregate
of (a) 569,043 shares of our common stock, including 92,856 shares subject to
the underwriter's option to purchase additional shares, or the Shares, and (b)
pre-funded warrants to purchase 142,857 shares of our common stock, or the
Pre-Funded Warrants, to the underwriter. The Shares will be sold at the public
offering price of $10.50 per share. The Pre-Funded Warrants will be sold at a
public offering price of $10.499 per Pre-Funded Warrant, which represents the
per share public offering price for the Shares less a $0.001 per share exercise
price for each such Pre-Funded Warrant.
The Pre-Funded Warrants are exercisable at any time after the date of issuance.
A holder of Pre-Funded Warrants may not exercise the warrant if the holder,
together with its affiliates, would beneficially own more than 9.99% of the
number of shares of common stock outstanding immediately after giving effect to
such exercise. A holder of Pre-Funded Warrants may increase or decrease this
percentage, but not in excess of 19.99%, by providing at least 61 days' prior
notice to us.
We estimate that total gross proceeds from the Public Offering will be
approximately $7.5 million and after deducting approximately $0.7 million in
underwriting discounts and commissions and offering expenses, we estimate net
proceeds to be approximately $6.8 million. The underwriting discounts and
commissions and offering expenses will be charged against the gross proceeds. We
expect the Public Offering to close on or about August 6, 2020, subject to the
satisfaction of customary closing conditions.
Cash Flows
Cash Used in Operating Activities
For the six months ended June 30, 2020, net cash used in operating activities
was $6.7 million compared to $8.7 million for the six months ended June 30,
2019. The decrease in cash used in operations in the 2020 period as compared to
the 2019 period was primarily attributable to decrease in research and
development expenses related to our ORCA-1 trial.
Cash Provided in Financing Activities
For the six months ended June 30, 2020, net cash provided by financing
activities was $2.1 million compared to $4.6 million for the six months ended
June 30, 2019. Net cash provided by financing activities in the six months ended
June 30, 2020 relates to proceeds received from the April 2020 Private Placement
and warrant exercises. Net cash provided by financing activities in the six
months ended June 30, 2019 relates to proceeds received from warrant exercises
and from our purchase agreement with LPC.
Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2020 was
$14,000 compared to net cash provided by investing activities of $5.0 million
for the six months ended June 30, 2019. Net cash used in investing activities in
the six months ended June 30, 2020 relates primarily to the purchase of
equipment. Net cash provided by investing activities for six months ended June
30, 2019 relates primarily to transactions involving marketable securities in
the normal course of business.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet financing arrangements as of June 30,
2020.
Commitments and Contingencies
We previously disclosed certain contractual obligations and contingencies and
commitments relevant to us within the financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2019, as filed with
the SEC on March 13, 2020. There have been no material changes to our
"Contractual Obligations" table in Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our 2019 Form
10-K. For more information regarding our current contingencies and commitments,
see note 7 to the financial statements included above.
Material Changes in Financial Condition
June 30, December 31,
(in thousands) 2020 2019
Total Assets $ 16,458 $ 21,078
Total Liabilities 1,920 3,028
Total Equity 14,538 18,050
The decrease in assets at June 30, 2020 compared to December 31, 2019 is
attributable to a decrease in cash, cash equivalents and short-term investments
as these assets have been used to fund operations. The decrease in liabilities
at June 30, 2020 as compared to December 31, 2019 was primarily due to lower
employee bonus accrual in accrued compensation and lower trades payables as our
ORCA-1 trial, a Phase 2b optimization study that was initiated in October 2018
and was completed in June 2019.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. We have discussed those estimates that we believe are
critical and require the use of complex judgment in their application in our
audited financial statements for the year ended December 31, 2019 in our Annual
Report on Form 10-K filed with the SEC, on March 13, 2020. Since December 31,
2019, there have been no material changes to our critical accounting policies or
the methodologies or assumptions we apply under them.
New Accounting Standards
See Note 2, "Accounting Policies," of the consolidated financial statements for
information related to the adoption of new accounting standards in 2020, none of
which had a material impact on our financial statements, and the future adoption
of recently issued accounting standards, which we do not expect to have a
material impact on our financial statements.
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