CHIMERIX, INC. The following discussion and analysis should be read in conjunction with "Selected Financial Data" and our financial statements and related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report. You should carefully read the "Risk Factors" section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Forward-Looking Statements."
Overview
Chimerix is a biopharmaceutical company whose mission it is to develop medicines that meaningfully improve and extend the lives of patients facing deadly diseases. InJune 2021 , theU.S. Food and Drug Administration (FDA) approved TEMBEXA (brincidofovir) for the treatment of smallpox as a medical countermeasure. Our two most advanced clinical-stage development programs are ONC201 and dociparstat sodium (DSTAT). ONC201 is in development for recurrent H3 K27M-mutant glioma. DSTAT is in Phase 3 development as a potential first-line therapy in combination with standard chemotherapy for the treatment of acute myeloid leukemia (AML). Recent Developments TEMBEXA (brincidofovir, BCV) OnJune 4, 2021 , the FDA granted TEMBEXA approval for the treatment of smallpox. TEMBEXA is available in tablets and oral suspension. It is approved for adult and pediatric patients, including neonates. TEMBEXA was developed as a medical countermeasure for the treatment of smallpox under an ongoing collaboration withBiomedical Advanced Research and Development Authority (BARDA). OnJuly 19, 2021 , the FDA confirmed that, following the recent approval, TEMBEXA is entitled to seven years' orphan exclusivity in theU.S. for the treatment of smallpox beginning with theJune 4, 2021 marketing approval. In addition to orphan exclusivity, TEMBEXA patent coverage in theU.S. is expected to extend into 2034. TEMBEXA potentially fills an important role as a treatment countermeasure to smallpox; it has a differentiated mechanism of action, a relatively high barrier to resistance and available evidence suggests it can be used in patients who have received the other FDA approved smallpox antiviral treatment. In September, an article was published in the peer review journal,Antiviral Research , providing a thorough assessment of TEMBEXA as a medical counter measure for smallpox. OnDecember 22, 2021 , BARDA issued a RFP, which confirmed, among other things, BARDA's intent to negotiate a sole source contract with us for the development and procurement of TEMBEXA. The RFP indicates that BARDA intends to contract with us to procure up to 1.7 million treatment courses of a smallpox antiviral. Currently our proposal is under review with BARDA. In addition, as a governmental agency, BARDA's ability to enter into a contract is subject to continued funding for this purpose, which can change at any time.
As of
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--------------------------------------------------------------------------------Imipridones - ONC201, ONC206 and ONC212
Imipridones are a potential new class of selective cancer therapies. Clinical trials of ONC201 in glioma patients with the H3 K27M-mutation are underway at several locations in theU.S. The Company plans to meet with the FDA in the first half of 2022 to review the design for the ONC201 first-line randomized, placebo-controlled Phase 3 trial in combination with radiation therapy. The Company plans to initiate this study in patients who harbor the H3 K27M mutation in the second half of 2022. Under a potential accelerated approval for ONC201 in H3 K27M positive recurrent diffuse midline glioma the FDA may require this trial to be underway. In addition, the Company is conducting a retrospective natural history study, completing other supporting clinical pharmacology data, CMC supporting data and compiling the safety package which it plans to review with the FDA.
ONC201 - Results from 50 Patient Cohort of ONC201 in Recurrent H3 K27M-mutant Glioma
OnNovember 4, 2021 , we reported top-line results from the blinded independent central review (BICR) efficacy analysis. The efficacy analysis by BICR of the 50-patient cohort determined the overall response rate (ORR) to be 20.0% (95% Confidence Interval (CI): 10.0-33.7%) as determined by Response Assessment in Neuro-Oncology Criteria for High Grade Gliomas (RANO-HGG). The median duration of response (mDOR) was 11.2 months (95% CI: 3.8 - not reached) and the median time to response (mTTR) was 8.3 months. The cohort for a potential registration of ONC201 was comprised of the first 50 patients enrolled across five ONC201 clinical studies that met certain criteria. These patients were two years of age or older, had measurable diffuse midline glioma, harbored the H3 K27M mutation and had evidence of progression following prior therapy with at least radiation completed at least 90 days prior to enrollment, among certain other criteria. One serious adverse event identified by an investigator was possibly related to ONC201. Full safety data collection and analysis for this cohort is ongoing. Prior safety review of ONC201 identified the most commonly reported adverse events (AEs) as nausea/vomiting, fatigue and decreased lymphocyte counts. This data along with other supportive clinical data from the ONC201 clinical studies, a natural history evaluation, other supporting clinical pharmacology data, chemistry, manufacturing and controls (CMC) support, safety data and possible requirement to have an ongoing Phase 3 trial will be compiled for review at meetings expected to be requested with the FDA in 2022. In accordance with the terms of the merger agreement betweenChimerix andOncoceutics, Inc. , the achievement of the 20% ORR via BICR resulted in a success milestone payment of$20 million to the former Oncoceutics, Inc. shareholders paid prior to year-end. ONC206 and ONC212
Phase 1 clinical trials for ONC206, our second imipridone product candidate, and IND-enabling work for our third imipridone candidate, ONC212, remain ongoing.
Dociparstat (DSTAT) for First-Line Acute Myeloid Leukemia (AML)
During 2020, we conducted an end of Phase 2 meeting with the FDA related to our development of DSTAT in AML, which informed the design of the Phase 3 trial. We are currently enrolling in our 570-subject Phase 3 Dociparstat in AML with Standard Chemotherapy (DASH AML) study of DSTAT for the treatment of AML. The multicenter, randomized, double-blind, placebo-controlled, parallel-group study will evaluate the efficacy and safety of DSTAT in combination with standard intensive induction and consolidation chemotherapy for the treatment of newly-diagnosed AML patients.Chimerix expects to unblind data following enrollment of the first 80 evaluable patients in this study to assess complete response rates and minimal residual disease rates between the study arm and the control arm. Enrollment of this study has proceeded more slowly than expected due to ongoing hospital staffing shortages related to COVID-19 and the competitive nature of enrolling subjects in this patient population. As such, we do not expect to complete enrollment of the first 80 evaluable patients by year end. We are reviewing a number of options to accelerate the development of DSTAT.
CMX521
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Emerging Antiviral Drug Development Initiative (READDI) at the University of
North Carolina at Chapel Hill (UNC). READDI itself is a global public-private
partnership founded at UNC by the UNC Eshelman School of Pharmacy , UNC School of
Medicine , Gilling School of Global Public Health , Eshelman Institute for
Innovation and the Structural Genomics Consortium . Monotherapy prophylactic
administration of aerosol CMX521 every eight hours starting eight hours prior to
infection reduced average viral titers in lung on day four post-infection by
3.62 log10 (>99.9% reduction) and prevented weight loss/clinical progression
versus placebo. The model used in this study was also used in the development of
another antiviral therapy which has Emergency Use Authorization for SARS-CoV-2
in the United States . Antiviral efficacy was also demonstrated with monotherapy
treatment when CMX521 was initiated post-infection. When administered within 16
hours post-infection, CMX521 significantly reduced SARS-CoV-2 in the lung
(Kruskal-Wallis p<0.0001) and protected mice from clinical symptoms of disease
including weight loss and adverse lung pathology (p<0.0001) at day 4
post-infection relative to placebo.
Silicon Valley
OnJanuary 31, 2022 , we entered into a Loan and Security Agreement (the Loan Agreement) withSilicon Valley Bank . The Loan Agreement provides for a four-year secured revolving loan facility (the Credit Facility) in an aggregate principal amount of up to$50.0 million . Proceeds from the Credit Facility may be used for working capital and general corporate purposes. We entered into the Loan Agreement to increase our financial flexibility by, among other things, providing a non-dilutive source of capital that can be drawn on to support our future working capital needs in light of the previously disclosed potential entry into a sole source contract with BARDA. We view the Credit Facility as a resource that will supplement our financial position by providing an alternative source of capital that can be utilized on an as-needed basis, for example, in advance of an anticipated (or future) shipment of TEMBEXA treatment courses to BARDA into theU.S. Strategic National Stockpile over the term of the Credit Facility. We may borrow, repay and re-borrow funds under the Credit Facility without a prepayment penalty untilJanuary 31, 2026 (the Maturity Date), at which time the Credit Facility expires, and all outstanding revolving loans under the Credit Facility, together with all accrued and unpaid interest, must be repaid. No exit fee exists upon expiration of the Credit Facility on the Maturity Date. Subject to the satisfaction of certain liquidity ratios, the full$50.0 million of the Credit Facility will be available for us to borrow on a non-formula basis. If we are unable to meet these liquidity ratios, then availability under the Credit Facility is determined based on a borrowing base equal to percentages of certain accounts receivable and certain purchase orders (which include prospective options for BARDA to procure TEMBEXA treatment courses) in accordance with a formula set forth in the Loan Agreement. Borrowings under the Credit Facility accrue interest at a floating per annum rate of the greater of (i) 1.50% above the Prime Rate (as defined below) and (ii) 4.75%. Prime Rate is defined as the rate of interest per annum published inThe Wall Street Journal or any successor publication thereto as the "prime rate". If such rate of interest fromThe Wall Street Journal becomes unavailable, the "Prime Rate" shall mean the rate of interest per annum announced bySilicon Valley Bank as its prime rate in effect. In each case, in the event such prime rate is less than zero, such rate shall be deemed to be zero for purposes of the Loan Agreement. We must also pay an unused line fee equal to 0.25% per annum on the unused portion of the Credit Facility, payable quarterly in arrears. Upon the termination of the Loan Agreement for any reason prior to the Maturity Date, the Company will be required to pay toSilicon Valley Bank an early termination fee of$0.5 million . The Loan Agreement also requires us to paySilicon Valley Bank a non-refundable commitment fee of$0.5 million , payable in four equal installments beginning on the date of the Loan Agreement and each anniversary of such date thereafter untilJanuary 31, 2025 .
Our obligations under the Loan Agreement are secured by a first lien on substantially all our assets other than our intellectual property, with a negative pledge on the intellectual property of our leading programs.
Business Development Review
In addition to our transactions withCantex Pharmaceuticals, Inc. (Cantex), SymBio Pharmaceuticals Limited (SymBio) andOncoceutics, Inc. (Oncoceutics), management is continuing to conduct a review and assessment of potential transaction opportunities with the goal of building our product candidate pipeline, including, but not limited to, licensing, merger or acquisition transactions, issuing or transferring shares of common stock, or the license, purchase or sale of specific assets, in addition to other potential actions aimed at maximizing stockholder value. There can be no assurance that this review will result in the identification or consummation of any additional transaction. 61 --------------------------------------------------------------------------------
Financial Overview
Revenues
To date, we have not generated any revenue from product sales. All of our revenue to date has been derived from government grants and a contract and the receipt of up-front proceeds under our collaboration and license agreements.
InFebruary 2011 , we entered into a contract with BARDA, aU.S. governmental agency that supports the advanced research and development, manufacturing, acquisition, and stockpiling of medical countermeasures. The contract originally consisted of an initial performance period, referred to as the base performance segment, which ended onMay 31, 2013 , plus up to four extension periods, referred to as option segments, which have all been exercised. The contract was a cost-plus fixed fee development contract. Under the contract we received$72.5 million in expense reimbursement and$4.6 million in fees. The fourth and final option segment ended onSeptember 1, 2021 and the contract expired in accordance with its terms. Under the BARDA contract, we recognized revenue of$1.6 million ,$5.3 million , and$7.6 million during the twelve months endedDecember 31, 2021 , 2020, and 2019, respectively. InSeptember 2019 , we entered into a license agreement with SymBio for worldwide rights to develop, manufacture and commercialize TEMBEXA in all human indications, excluding the use for treatment of orthopoxviruses, including smallpox. Under the contract, we received a$5.0 million upfront payment inOctober 2019 and could receive up to an additional$180.0 million in potential regulatory and commercial milestones. Since the license agreement was entered into inSeptember 2019 , we have recognized all of the$5.0 million of revenue related to the upfront payment. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon occurrence of the triggering events. In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and royalties from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of any product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and
development activities, including conducting preclinical studies and clinical
trials, manufacturing development efforts and activities related to regulatory
filings for our product candidates. We recognize research and development
expenses as they are incurred. Costs for certain development activities are
recognized based on an evaluation of the progress to completion of specific
tasks using information and data provided to us by our vendors. We cannot
determine with certainty the duration and completion costs of the current or
future clinical studies of any product candidates. Our research and development
expenses consist primarily of:
•fees paid to consultants and contract research organizations (CROs), including
in connection with preclinical and clinical trials, and other related clinical
trial fees, such as for investigator grants, patient screening, laboratory work,
clinical trial database management, clinical trial material management and
statistical compilation and analysis;
•salaries and related overhead expenses, which include stock option, restricted
stock units and employee stock purchase program compensation and benefits, for
personnel in research and development functions;
•payments to third-party manufacturers, which produce, test and package drug
substance and drug product (including continued testing of process validation
and stability) for unapproved product candidates;
•costs related to legal and compliance with regulatory requirements; and
•license fees for and milestone payments related to licensed products and
technologies.
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The table below summarizes our research and development expenses for the periods
indicated (in thousands). Our direct research and development expenses consist
primarily of external costs, such as fees paid to investigators, consultants,
central laboratories and CROs, in connection with our clinical trials,
preclinical development, and payments to third-party manufacturers of drug
substance and drug product. We typically use our employee and infrastructure
resources across multiple research and development programs.
Years Ended
2021 2020 2019
Direct research and development expenses $ 26,808
17,709 11,543 12,705
Research and development personnel costs - stock-based compensation
6,611 2,969 4,089
Indirect research and development expenses 22,689 2,595 3,393
Total research and development expenses $ 73,817 $ 36,232 $ 42,288
The successful development of product candidates is highly uncertain. At this
time, we cannot reasonably estimate the nature, timing or costs of the efforts
that will be necessary to complete the development of any product candidates or
the period, if any, in which material net cash inflows from any product
candidates may commence. This is due to the numerous risks and uncertainties
associated with our business, as detailed in Part II, Item IA, "Risk Factors" in
this Quarterly Report on Form 10-Q and in our other filings with the SEC .
TEMBEXA (Brincidofovir, BCV)
We developed TEMBEXA for the treatment of smallpox. FDA marketing approval for TEMBEXA was received onJune 4, 2021 . Under our cost-plus-fixed fee BARDA contract, we incurred expenses in connection with the development of orthopoxvirus animal models, the demonstration of efficacy and pharmacokinetics of TEMBEXA in the animal models, the conduct of clinical studies for subjects with DNA viral infections, the manufacture and process validation of bulk drug substance and TEMBEXA 100 mg tablets and TEMBEXA 10 mg/mL oral suspension, and submission of the NDAs to the FDA. In addition, we have incurred additional supportive costs for the development of TEMBEXA for smallpox that we did not seek reimbursement for from BARDA. We have incurred costs related to the manufacturing of TEMBEXA for a possible procurement contract. These costs were expensed as incurred until the June approval. Following the June approval, costs related to the manufacturing of TEMBEXA are recorded and shown as inventories on the Consolidated Balance Sheets.
Imipridones program
InJanuary 2021 , we acquired Oncoceutics. In connection with the transaction, we recorded$82.9 million of acquired in-process research and development expenses for the three months endedMarch 31, 2021 , which included$25.0 million for an upfront payment to Oncoceutics,$43.4 million related to the fair value of 8,723,769 shares common stock issued to Oncoceutics, a$14.0 million promissory note due on the one-year anniversary of the acquisition, and$0.3 million related to transaction costs consisting primarily of legal and professional fees. As we continue to develop and prepareOncoceutics' lead compound, ONC201, for aU.S. regulatory approval, we expect to incur significant research and development expense. We also plan to incur development expenses in connection with the continued development of otherOncoceutics' compounds, including ONC206 and ONC212. Dociparstat sodium (DSTAT)
As we continue to focus on the development of DSTAT for treatment of AML patients, we expect research and development expense to increase with the ongoing and planned clinical trials. We are currently enrolling our Phase 3 DASH AML trial.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
costs for employees in executive, finance, marketing, investor relations,
information technology, legal, human resources and administrative support
functions, including share-based compensation expenses and benefits. Other
significant general and administrative expenses include costs related to
commercial readiness efforts, accounting and legal services, costs of various
consultants, director and officer liability insurance, occupancy costs and
information systems.
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--------------------------------------------------------------------------------Interest Income and Other, Net
Interest income and other, net consists primarily of interest earned on our cash, cash equivalents and short-term and long-term investments.
Share-based Compensation
TheFinancial Accounting Standards Board (FASB) authoritative guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. Total consolidated share-based compensation expense of$12.3 million ,$5.6 million and$9.5 million was recognized in the years endedDecember 31, 2021 , 2020 and 2019, respectively. The share-based compensation expense recognized included expense for stock options, RSUs and our employee stock purchase plan purchase rights. We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes pricing model. This estimate is affected by our stock price as well as assumptions including the expected volatility, expected term, risk-free interest rate, expected dividend yield, expected rate of forfeiture and the fair value of the underlying common stock on the date of grant.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business. Our significant accounting policies are described in Note 1 to our audited consolidated financial statements for the year endedDecember 31, 2021 included in this Annual Report. We believe that our accounting policies relating to revenue recognition, research and development prepaids and accruals, acquired IPR&D, inventories, investments and share-based compensation are the most critical to understanding and evaluating our reported financial results. We have identified these policies as critical because they both are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods. For more information regarding these policies, you should refer to Note 1 to our audited consolidated financial statements included in this Annual Report. Revenue Recognition Our revenues generally consist of (i) contract and grant revenue - revenue generated under federal and private foundation grants and contracts, and (ii) collaboration and licensing revenue - revenue related to non-refundable upfront fees, royalties and milestone payments earned under license agreements. Revenue is recognized in accordance with the criteria outlined in Accounting Standards Codification (ASC) 606 issued by theFinancial Accounting Standards Board (FASB). Following this accounting pronouncement, a five-step approach is applied for recognizing revenue, including (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.
InFebruary 2011 , we entered into a contract with BARDA for the advanced development of TEMBEXA as a medical countermeasure in the event of a smallpox release. Under the contract, we received$72.5 million in expense reimbursement and$4.6 million in fees over the performance of one base segment and four option segments. Exercise of each option segment was solely at the discretion of BARDA. The Company assessed the services in accordance with the authoritative guidance and concluded that there was a potential of five separate contracts (one base segment and four option segments) within this agreement, each of which had a single performance obligation. All option segments (one through four) were exercised, as well as the base segment. The transaction price for each segment, based on the transaction price as defined in each segment contract, 64 -------------------------------------------------------------------------------- was allocated to the single performance obligation for each contract. The transaction price was recognized over time by measuring the progress toward complete satisfaction of the performance obligation. For reimbursable expenses, this occurred as qualifying research activities were conducted based on invoices from company vendors. For the fixed fee, the progress toward complete satisfaction was estimated based on the costs incurred to date relative to the total estimated costs per the terms of each contract. The Company typically invoiced BARDA monthly as costs were incurred. Any amounts received in advance of performance were recorded as deferred revenue until earned. The base segment and first option segment were completed prior to adoption of ASC 606. The second and third option segments were completed onAugust 20, 2020 . The fourth option segment was completed onSeptember 1, 2021 and the contract has expired in accordance with its terms.
Grant Revenue
Grant revenue under cost-plus-fixed-fee grants from the federal government and private foundations is recognized as allowable costs are incurred and fees are earned. As a result of its acquisition ofOncoceutics, Inc. (Oncoceutics), the Company became the beneficiary of two federal grant programs and two grant programs with private foundations, of which the federal grant programs ended in the third quarter of 2021. AtDecember 31, 2021 , the Company has a deferred revenue balance of$0.2 million related to these grants. Additionally, for the twelve months ended months endedDecember 31, 2021 , the Company recognized$0.4 million of grant revenue related to these grants.
SymBio Pharmaceuticals
OnSeptember 30, 2019 , we entered into a license agreement with SymBio Pharmaceuticals Limited (SymBio) under which we granted SymBio exclusive worldwide rights to develop, manufacture and commercialize BCV for all human indications, excluding the prevention and treatment of orthopoxviruses, including smallpox. We assessed the agreement in accordance with the authoritative guidance and concluded that the SymBio contract includes multiple performance obligations. The SymBio contract has one fixed transaction amount of a$5.0 million upfront payment received inOctober 2019 and several variable transaction amounts, up to$180 million , due to us at certain regulatory and commercial milestones, along with low double-digit percent royalties based on net sales of BCV. All variable transaction amounts are fully constrained, therefore the allocated transaction price is$5.0 million . The majority of the transaction price of the contract has been allocated to the combined performance obligation of the granting of the license to BCV and associated technology transfer which was recognized when the technology transfer was completed in the fourth quarter of 2019. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon the occurrence of the triggering events or when those transaction amounts are no longer fully constrained.
Research and Development Prepaids and Accruals
As part of the process of preparing financial statements, we are required to estimate our expenses resulting from our obligation under contracts with vendors and consultants and clinical site agreements in connection with our research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our objective is to reflect the appropriate research and development expenses in our financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of our research and development efforts. We determine prepaid and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. We adjust our rate of research and development expense recognition if actual results differ from our estimates. We make estimates of our prepaid and accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period. ThroughDecember 31, 2021 , there had been no material adjustments to our prior period estimates of prepaid and accruals for research and development expenses. Our research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.
We have acquired and may continue to acquire the rights to develop and
commercialize new drug candidates. In accordance with Accounting Standards
Codification, or ASC, Subtopic 730-10-25, Accounting for Research and
Development Costs, the up-front payments to acquire a new drug compound, as well
as future milestone payments when paid or payable, are immediately expensed as
acquired IPR&D in transactions other than a business combination provided that
the drug has not
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achieved regulatory approval for marketing and, absent obtaining such approval,
has no alternative future use. Upon obtaining regulatory approval for marketing,
any subsequent milestone payments may be capitalized and amortized over the life
of the asset.
Inventories
We consider regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. We begin capitalization of these inventory related costs once regulatory approval is obtained. We primarily use actual costs to determine our cost basis for inventories.
AtDecember 31, 2021 , our inventory is related to TEMBEXA, which is being manufactured for the treatment of smallpox and potential delivery to the Strategic National Stockpile (SNS) for theU.S. government and other government agencies. TEMBEXA was approved by the FDA onJune 4, 2021 , at which time we began to capitalize inventory costs associated with TEMBEXA. Prior to FDA approval of TEMBEXA, all costs related to the manufacturing of TEMBEXA were charged to research and development expense in the period incurred as there was no alternative future use. We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of its inventories, which includes amounts related to materials, manufacturing costs, shipping and handling costs on a first-in, first-out (FIFO) basis. Work-in-process includes all inventory costs prior to packaging and labelling, including raw material, active product ingredient, and drug product. Finished goods include packaged and labelled products. Our inventories atDecember 31, 2021 consisted of$2.8 million of work-in-process and no finished goods. Our assessment of market value requires the use of estimates regarding the net realizable value of its inventory balances, including an assessment of excess or obsolete inventory. Our determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires it to utilize judgment. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for its products, product expiration dates and current sales levels. Our assumptions of future demand for its products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period. In addition, our inventory may experience expiration of its shelf-life stability. During the twelve months endedDecember 31, 2021 , we did not record a reserve for inventory as we assume TEMBEXA will be sold to the US government under a procurement contract withBiomedical Advanced Research and Development Authority (BARDA) or could be sold to other governmental agencies. Should no procurement contract be secured in the future, we may reserve part or all of our inventory balance, which would be included in cost of sales.
Investments
Investments consist primarily of commercial paper, corporate bonds, andU.S. Treasury securities. We invest in high-credit quality investments in accordance with our investment policy which minimizes the probability of loss. Available-for-sale debt securities are carried at fair value as determined by quoted market prices, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' deficit. Realized gains and losses are determined using the specific identification method and transactions are recorded on a settlement date basis in interest income (expense) and other, net. Investments with original maturities beyond three months at the date of purchase and which mature on, or less than twelve months from, the balance sheet date are classified as short-term. Investments with a maturity beyond twelve months from the balance sheet date are classified as long-term. We periodically review available-for-sale debt securities for other-than-temporary declines in fair value below the cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of our amortized cost basis. Any such declines in value judged to be other-than-temporary on available-for-sale securities are reported in other-than-temporary impairment of investment.
Valuation of Share-Based Compensation
We record the fair value of share-based awards issued as of the grant date as compensation expense. We recognize compensation expense over the requisite service period, which is equal to the vesting period.
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--------------------------------------------------------------------------------Share-based compensation expense includes stock options, RSUs and employee stock purchase plan purchase rights and has been reported in our Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):
Years Ended December 31,
2021 2020 2019
Income Statement Classification: Research and development expense$ 6,611 $ 2,969 $ 4,089 General and administrative expense 5,649 2,599
5,439
Total stock-based compensation expense
RSU compensation expense is based on the grant-date fair value of our common stock.
We calculate the fair value of share-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and the fair value of the underlying common stock on the date of grant. In applying these assumptions, we considered the following factors: •We use historical volatility data to estimate the volatility of our common stock price. •We use historical exercise data to estimate expected term. •We determine the risk-free interest rate by reference to implied yields available fromU.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. •The assumed dividend yield is based on our expectation of not paying dividends for the foreseeable future. •We estimate forfeitures based on our historical analysis of actual stock option forfeitures.
The assumptions used in the Black-Scholes option-pricing model for the years
ended
Stock Options
Years Ended December 31,
2021 2020 2019
Expected volatility 95.84 % 93.24 % 88.77 %
Expected term (in years) 6.0 6.0 6.0Weighted-average risk-free interest rate 0.71 % 1.24 % 2.42 % Expected dividend yield
- % - % - %
Weighted-average fair value per option $ 6.67 $ 1.78 $ 1.71
Employee Stock Purchase Plan
Years Ended December 31,
2021 2020 2019
Expected volatility 97.54 % 75.39 % 57.22 %
Expected term (in years) 0.71 1.28 1.23Weighted-average risk-free interest rate 0.25 % 0.37 % 2.36 % Expected dividend yield
- % - %
- %
Weighted-average option value per share
Utilization of Net Operating Loss Carryforwards
AtDecember 31, 2021 , we had net operating loss carryforwards for federal and state tax purposes of approximately$637.9 million and$455.4 million , respectively. AtDecember 31, 2020 , we had net operating loss carryforwards for federal and state tax purposes of approximately$551.0 million and$388.5 million , respectively. In addition, we had tax credit carryforwards for federal tax purposes of approximately$23.3 million as ofDecember 31, 2021 , which begin to expire in 2022. The future utilization of net operating loss and tax credit carryforwards may be limited due to changes in ownership. In general, if we 67 -------------------------------------------------------------------------------- experience a greater than 50 percent aggregate change in ownership of certain significant stockholders or groups over a three-year period (a Section 382 ownership change), utilization of our pre-change net operating loss carryforwards is subject to an annual limitation under Section 382 of the Code (and similar state laws). The annual limitation generally is determined by multiplying the value of our stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the pre-change net operating loss carryforwards before utilization and may be substantial. We have determined that a Section 382 ownership change occurred in 2002 and 2007 resulting in limitations of at least$64,000 and$762,000 , respectively, of losses incurred prior to the respective ownership change dates. In addition, we have determined that another Section 382 ownership change occurred in 2013 with our initial public offering, our private placements and other transactions that have occurred since 2007, resulting in a limitation of at least$6.7 million of losses incurred prior to the ownership change date. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Furthermore, under the Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the Tax Act. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offsetUnited States federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. RESULTS OF OPERATIONS
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Years Ended December 31, Dollar Change % Change
2021 2020 Increase/(Decrease)
Revenues:
Contract and grant revenue $ 1,928 $ 5,274 $ (3,346) (63.4) %
Licensing revenue 51 98 (47) (48.0)
Total revenues 1,979 5,372 (3,393) (63.2) %
Operating expenses:
Research and development 73,817 36,232 37,585 103.7 %
General and administrative 18,672 13,656 5,016 36.7 %
Acquired in-process research and development 82,890 - 82,890 *
Total operating expenses 175,379 49,888 125,491 251.5 %
Loss from operations (173,400) (44,516) (128,884) 289.5 %Other income:
Interest income and other, net 164 994 (830) (83.5) %
Net loss $ (173,236) $ (43,522) $ (129,714) 298.0 %
* Not meaningful or not calculable
Contract and Licensing Revenue
For the year endedDecember 31, 2021 , contract and licensing revenue decreased to$2.0 million compared to$5.4 million for the year endedDecember 31, 2020 . The decrease of$3.4 million , or 63.2%, was related to a decrease in reimbursable expenses associated with our development contract with BARDA upon receiving FDA approval for TEMBEXA.
Research and Development Expenses
For the year ended
•an increase of
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•an increase of $14.2 million primarily related to drug manufacturing and
clinical trial support of ONC201;
•an increase of $9.5 million in compensation expenses, of which $3.6 million is
related to non-cash stock compensation expenses; offset by
•a decrease of $4.5 million in brincidofovir smallpox program expenses with the
approval of TEMBEXA in June 2021 ; and
•a decrease of $2.0 million in DSTAT development expenses primarily related to
the conclusion of animal studies.
General and Administrative Expenses
For the year endedDecember 31, 2021 , our general and administrative expenses increased to$18.7 million compared to$13.7 million for the year endedDecember 31, 2020 . The increase of$5.0 million , or 36.7%, was primarily related to the following: •an increase of$3.6 million in compensation expenses, of which$3.1 million is related to non-cash stock compensation expense; and •an increase of$1.2 million in consulting, legal, and operational expenses with the growth of the company's infrastructure.
In connection with our acquisition of Oncoceutics inJanuary 2021 , we recorded a total of$82.9 million of acquired in-process research and development expenses for the year endedDecember 31, 2021 , which included$82.6 million of in-process research and development assets expensed and$0.3 million of transaction costs. We paid consideration including an upfront payment of$25.0 million to Oncoceutics,$43.4 million related to the fair value of the 8,723,769 shares of common stock issued to Oncoceutics, and a$14.0 million promissory note due on the one-year anniversary of the acquisition.
Interest Income and Other, net
For the year ended
Comparison of the Years ended
The following table summarizes our results of operations for the years ended
Years Ended December 31, Dollar Change % Change
2020 2019 Increase/(Decrease)
Revenues:
Contract and grant revenue $ 5,274 $ 7,604 $ (2,330) (30.6) %
Licensing revenue 98 4,915 (4,817) (98.0) %
Total revenues 5,372 12,519 (7,147) (57.1) %
Operating expenses:
Research and development 36,232 42,288 (6,056) (14.3) %
General and administrative 13,656 21,169 (7,513) (35.5) %
Acquired in-process research and development - 65,045 (65,045) (100.0) %
Total operating expenses 49,888 128,502 (78,614) (61.2) %
Loss from operations (44,516) (115,983) 71,467 (61.6) %Other income:
Interest income and other, net 994 3,407 (2,413) (70.8) %
Net loss $ (43,522) $ (112,576) $ 69,054 (61.3) %
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Revenue
For the year endedDecember 31, 2020 , contract revenue decreased to$5.3 million compared to$7.6 million for the year endedDecember 31, 2019 . The decrease of$2.3 million , or 30.6%, was related to a decrease in reimbursable expenses associated with our contract with BARDA. For the year endedDecember 31, 2020 , license revenue decreased to$0.1 million compared to$4.9 million for the year endedDecember 31, 2019 due to our licensing agreement with SymBio.
Research and Development Expenses
For the year ended
•a decrease of$9.1 million related to the discontinuation of both the oral and IV BCV development programs and the BCV expanded access programs; •a decrease of$3.5 million in smallpox program expenses; •a decrease of$2.7 million related to compensation expenses as headcount was reduced as part of the Company's restructuring activities inMay 2019 ; offset by •an increase of$9.5 million in DSTAT research and development expenses, consisting of an increase of$5.4 million in clinical trial initiation activities and$4.1 million to conclude animal studies and to develop and manufacture clinical trial material.
General and Administrative Expenses
For the year endedDecember 31, 2020 , our general and administrative expenses decreased to$13.7 million compared to$21.2 million for the year endedDecember 31, 2019 . The decrease of$7.5 million , or 35.5%, was primarily related to the following: •a decrease of$5.1 million related to compensation expense as headcount was reduced as part of the Company's restructuring activities inMay 2019 ; •a decrease of$2.2 million related to business development expenses and to out-license BCV for non-smallpox indications; and •a decrease of$0.2 million in legal fees, other professional fees and operational expenses.
We recorded$65.0 million of acquired in-process research and development expenses for the year endedDecember 31, 2019 , which included$30.0 million for an upfront payment to Cantex,$34.9 million related to the fair value of common stock issued to Cantex, and$0.1 million related to Cantex transaction costs, primarily legal and professional fees. There was no expense related to this for the year endedDecember 31, 2020 .
Interest Income and Other, net
For the year ended
LIQUIDITY AND CAPITAL RESOURCES
As ofDecember 31, 2021 , we had capital available to fund operations of approximately$90.4 million . Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. We have incurred losses since our inception in 2000 and as ofDecember 31, 2021 , we had an accumulated deficit of$885.6 million . We may continue to incur losses for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. OnAugust 10, 2020 , we entered into an Open Market Sale AgreementSM (the Jefferies Sales Agreement) withJefferies LLC , as agent, pursuant to which we may offer and sell, from time to time through Jefferies, up to$75 million of shares of our common stock. Sales of our common stock made pursuant to the Jefferies Sales Agreement, if any, will be made under our shelf 70 -------------------------------------------------------------------------------- registration statement on Form S-3 (File No. 333-244146), which was declared effective by theSEC onAugust 17, 2020 . As ofDecember 31, 2021 , we have not sold any shares of our common stock under the Jefferies Sales Agreement. OnJanuary 20, 2021 , we entered into an underwriting agreement (the Underwriting Agreement) withJefferies LLC andCowen and Company, LLC , as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,765,000 shares (the Shares) of our common stock. The price to the public in this offering was$8.50 per share, and the Underwriters agreed to purchase the Shares from us pursuant to the Underwriting Agreement at a price of$7.99 per share. Under the terms of the Underwriting Agreement, we granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of our common stock at the public offering price. The net proceeds to us from this offering were approximately$107.8 million , as the Underwriters' option to purchase additional shares was exercised in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed onJanuary 25, 2021 . OnMay 6, 2021 , we filed an automatic shelf registration statement on Form S-3 with theSEC , which became effective upon filing, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a "well-known seasoned issuer" underSEC rules, This registration statement will remain in effect for up to three years from the date it became effective. As ofDecember 31, 2021 , no sales have been made under the automatic shelf registration statement. OnJanuary 31, 2022 , we entered into a Loan and Security Agreement (the Loan Agreement) withSilicon Valley Bank . The Loan Agreement provides for a four-year secured revolving loan facility (the Credit Facility) in an aggregate principal amount of up to$50.0 million . Proceeds from the Credit Facility may be used for working capital and general corporate purposes. Reference the section headed "Recent Developments" for additional information. OnDecember 22, 2021 , BARDA issued a RFP, which confirmed, among other things, BARDA's intent to negotiate a sole source contract with us for the development and procurement of TEMBEXA. The RFP indicates that BARDA intends to contract with us to procure up to 1.7 million treatment courses of a smallpox antiviral. We have responded to the RFP and currently are in active negotiations with BARDA on the price per course of therapy, manufacturing schedule, delivery schedule and quantities. We expect this contract to generate product sales in 2022. We cannot assure that adequate funding will be available on terms acceptable to us, if at all. Any additional equity financings will be dilutive to our stockholders and any additional debt may involve operating covenants that may restrict our business. If adequate funds are not available through these means, we may be required to curtail significantly one or more of our research or development programs, and any launch and other commercialization expenses for any of our products that may receive marketing approval. We cannot assure you that we will successfully develop or commercialize our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit. We believe that our existing cash, cash equivalents, and investments will enable us to fund our current operating expenses and capital requirements for at least the next 12 months. However, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate.
Cash Flows
The following table sets forth the significant sources and uses of cash for the
periods (in thousands):
Years Ended December 31,
Cash sources and uses: 2021 2020 2019
Net cash used in operating activities $ (99,930) $ (36,038) $ (75,181)
Net cash provided by investing activities (44,091) 64,713 10,631
Net cash provided by financing activities 112,429 1,413 345
Net increase (decrease) in cash and cash equivalents $ (31,592) $ 30,088 $ (64,205)
Operating Activities
Net cash used in operating activities of $99.9 million for the year ended
December 31, 2021 was primarily the result of our $173.2 million net loss offset
by the change in operating asset and liabilities and the add-back of non-cash
expenses. The change in operating assets and liabilities includes a increase in
accounts payable and accrued liabilities of $7.1 million and a
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decrease of $0.3 million in accounts receivable offset by an increase in
inventories of $2.8 million and an increase in prepaid expenses and other assets
of $2.4 million . Non-cash expenses included add-backs of $43.4 million for the
fair value of common stock issued in relation to the Oncoceutics acquisition,
$14.0 million for the note payable due on the one-year anniversary of the
Oncoceutics acquisition, $12.3 million for stock-based compensation, $0.8
million of amortization of discount/premium on investments, $0.3 million for
lease-related amortization and $0.2 million of depreciation of property and
equipment.
Net cash used in operating activities of $36.0 million for the year ended
December 31, 2020 was primarily the result of our $43.5 million net loss offset
by the change in operating assets and liabilities and the add-back of non-cash
expenses. The change in operating assets and liabilities includes a decrease in
prepaid expenses and other assets of $1.0 million and a decrease of $0.9 million
in accounts receivable offset by a decrease in accounts payable and accrued
liabilities of $0.2 million . Non-cash expenses included add-backs of $5.6
million for stock-based compensation and $0.4 million of depreciation of
property and equipment offset by $0.2 million of amortization of
discount/premium on investments.
Net cash used in operating activities of $75.2 million for the year ended
December 31, 2019 was primarily the result of our $112.6 million net loss and
the change in operating assets and liabilities, offset by the add-back of
non-cash expenses. The change in operating assets and liabilities includes a
decrease in accounts payable and accrued liabilities of $4.3 million , an
increase of $0.9 million in accounts receivable and an increase in prepaid
expenses and other assets of $0.8 million . Non-cash expenses included add-backs
of $34.9 million for the fair value of common stock issued in relation to the
Cantex license agreement, $9.5 million for stock-based compensation, $0.6
million of depreciation of property and equipment, $0.3 million for the loss on
disposal of assets, offset by $1.8 million of amortization of discount/premium
on investments.
Investing Activities
Net cash provided by investing activities of $44.1 million during the year ended
December 31, 2021 was primarily the result of purchases of short-term and
long-term investments, offset by maturities and sales of short-term investments.
Net cash provided by investing activities of $64.7 million during the year ended
December 31, 2020 was primarily the result of maturities and sales of short-term
investments, offset by purchases of short-term investments. Net cash provided by
investing activities of $10.6 million during the year ended December 31, 2019
was primarily the result of maturities and sales of short-term investments,
offset by purchases of short-term investments.
Financing Activities
Net cash provided by financing activities of$112.4 million for the year endedDecember 31, 2021 was primarily the result of$107.8 million in proceeds from the issuance of common stock and$4.6 million from the exercise of stock options and purchases under the ESPP. Net cash provided by financing activities of$1.4 million for the year endedDecember 31, 2020 was primarily the result of$1.4 million from the exercise of stock options and purchases under the ESPP. Net cash provided by financing activities of$0.3 million for the year endedDecember 31, 2019 was primarily the result of$0.4 million from the exercise of stock options and purchases under the ESPP.
Future Funding Requirements
To date, we have not generated any revenue from product sales. We do not know
when, or if, we will generate any revenue from product sales. We do not expect
to generate significant revenue from product sales unless and until we
commercialize TEMBEXA or any of our other product candidates. At the same time,
we expect our expenses to increase in connection with our ongoing development
activities, particularly as we continue the research, development and clinical
trials of, and seek regulatory approval for, our product candidates.
Furthermore, subject to obtaining regulatory approval of any of our product
candidates, we expect to incur significant commercialization expenses for
product sales, marketing, manufacturing and distribution. We anticipate that we
will need substantial additional funding in connection with our continuing
operations. Based upon our current operating plan, we believe that our existing
cash, cash equivalents and short-term investments, will enable us to fund our
operating expenses and capital requirements for at least the next 12 months. We
have based our estimates on assumptions that may prove to be wrong, and we may
use our available capital resources sooner than we currently expect. Because of
the numerous risks and uncertainties associated with the development and
commercialization of our product candidates, we are unable to estimate the
amounts of increased capital outlays and operating expenditures necessary to
complete the development of our product candidates.
Until such time, if ever, as we can generate substantial revenue from product
sales, we expect to finance our cash needs through a combination of equity
offerings, debt financings, government or other third-party funding, marketing
and distribution arrangements, or other collaborations, strategic alliances or
licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, the ownership interests of
our common stockholders will be
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diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of our common stockholders. Debt
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
additional funds through government or other third-party funding, marketing and
distribution arrangements or other collaborations, strategic alliances or
licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product
candidates or to grant licenses on terms that may not be favorable to us.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our contractual obligations atDecember 31, 2021 (in thousands): Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years Operating leases (1)$ 3,380 $ 637$ 1,495 $ 1,248 $ - SPL Supply Purchase Obligation$ 2,400 $ -$ 2,400 $ - $ - Total$ 5,780 $ 637$ 3,895 $ 1,248 $ - (1)Consists of our corporate headquarters lease encompassing 21,325 square feet of office space that expires inJuly 2026 . Additionally, consists of our laboratory lease encompassing a total of approximately 7,925 square feet which is located inDurham, North Carolina and expires inJuly 2026 . In addition to the amounts set forth in the table above, we have payment obligations under license agreements that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones. We will be required to make additional payments when certain milestones are achieved and we are obligated to pay royalties based on future product sales. As ofDecember 31, 2021 , we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not included in the table above. In connection with the development and commercialization of ONC201 and ONC206, in addition to royalties on product sales, we could be required to pay former Oncoceutics securityholders up to an aggregate of$340.0 million in remaining milestone payments, assuming the achievement of all remaining applicable milestone events under the merger agreement. InNovember 2021 , we achieved the BICR milestone and paid the former Oncoceutics securityholders$20 million . In connection with the development and commercialization of DSTAT, in addition to royalties on product sales, we could be required to pay Cantex up to an aggregate of$587.5 million in milestone payments, assuming the achievement of all applicable milestone events under the license agreement. Additionally, we enter into contracts in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination or cancellation within 30 days of notice, and therefore are not included in the table above. We also have agreements with our executive officers that require the funding of specific payments, if certain events occur, such as a change in control or the termination of employment without cause. These potential payment obligations are not included in the table above.
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