Overview
Cocrystal Pharma, Inc. (the "Company" or "Cocrystal") is a clinical stage
biotechnology company seeking to discover and develop novel antiviral
therapeutics as treatments for serious and/or chronic viral diseases. We employ
unique structure-based technologies and Nobel Prize winning expertise to create
first- and best-in-class antiviral drugs. These technologies are designed to
efficiently deliver small molecule therapeutics that are safe, effective and
convenient to administer. We have identified promising preclinical and early
clinical stage antiviral compounds for unmet medical needs including Influenza
virus, Coronavirus, Hepatitis C virus ("HCV"), and Norovirus infections.
Impact of COVID-19 Pandemic
COVID-19 is caused by a coronavirus called severe acute respiratory syndrome
coronavirus 2 (SARS-CoV-2). Coronaviruses are a large family of viruses that are
common in people and many different species of animals, including camels,
cattle, cats, and bats. Rarely, animal coronaviruses can infect people and then
spread between people. This occurred with Middle East respiratory syndrome
coronavirus (MERS-CoV) and severe acute respiratory syndrome coronavirus
(SARS-CoV), and now with the virus that causes COVID-19.
We have experienced delays in our supply chain and with contract service
organizations (CROs) and contract development and manufacturing organizations
(CDMOs) as a result of the COVID-19 pandemic. The consequences of the COVID-19
pandemic and the impact on the national and global economy continues to evolve
and the full extent of the impact is uncertain as of the date of this filing.
Research and Development Update
During the six months ended June 30, 2021, the Company focused its research and
development efforts primarily in three areas:
Influenza
We have several preclinical candidates under development for the treatment of
influenza infection. CC-42344, a novel PB2 inhibitor, has been selected as a
preclinical lead. This candidate binds to a highly conserved PB2 site of
influenza polymerase complex (PB1: PB2: PA) and exhibits a novel mechanism of
action. CC-42344 showed excellent antiviral activity against influenza A
strains, including avian pandemic strains and Tamiflu and Xofluza resistant
strains, and has favorable pharmacokinetic and drug resistance profiles. We have
completed preclinical IND enabling studies and plan to initiate a Phase 1 study
in the third quarter of 2021.
On January 2, 2019, the Company entered into an Exclusive License and Research
Collaboration Agreement (the "Collaboration Agreement") with Merck Sharp & Dohme
Corp. ("Merck") to discover and developed certain proprietary influenza A/B
antiviral agents that are effective against both influenza A and B strains
In January 2021, we announced that we completed all research obligations under
the Collaboration Agreement, and that Merck is now solely responsible for
further preclinical and clinical development of the influenza A/B antiviral
compounds that were discovered using Cocrystal's unique structure-based
technologies. Merck is continuing development of the compounds under the terms
of our Collaboration Agreement.
Coronavirus
In December 2020, we announced the selection of CDI-45205 as the lead compound
for further preclinical development against SARS-CoV-2, that causes COVID-19.
CDI-45205 was one of the broad-spectrum protease inhibitors that were obtained
from Kansas State University Research Foundation ("KSURF") under an exclusive
license agreement announced in April 2020. That agreement provides Cocrystal
with an exclusive, royalty-bearing license to develop and commercialize
therapeutic, diagnostic and prophylactic products against coronaviruses,
caliciviruses and picornaviruses based on antivirals discovered by KSURF. See
"Collaborations - Kansas State University Research Foundation." The Company
believes these protease inhibitors have the ability to inhibit the inactive
SARS-CoV-2 polymerase replication enzymes into an active form. CDI-45205 showed
good bioavailability in mouse and rat pharmacokinetic studies via
intraperitoneal injection, and also no cytotoxicity against a variety of human
cell lines.
The Company recently demonstrated a strong synergistic effect with the
FDA-approved COVID-19 medicine remdesivir. Additionally, a proof-of-concept
animal study demonstrated that daily injection of CDI-45205 exhibited favorable
in vivo efficacy in MERS-CoV-2 infected mice. CDI-45205 and several analogs
showed potent in vitro activity against the SARS-CoV-2 Delta (India/B.1.617.2)
and Gamma (Brazil/P.1) variants. Cocrystal previously announced that CDI-45205
and analogs exhibited broad-spectrum activity against the SARS-CoV-2 Alpha
(United Kingdom/B.1.1.7) and Beta (South African/B.1.351) variants, surpassing
the activity observed with the Wuhan strain.
The Company has initiated scale-up synthesis and process chemistry development.
We are working toward pre-IND status with CDI-45205 and plan to initiate an
IND-enabling study in the first half of 2022 with CDI-45205, for
intranasal/pulmonary delivery.
In addition to CDI-45205, the Company has leveraged its antiviral development
expertise by using its proprietary technology and drug discovery platform to
launch two additional COVID-19 programs, novel SARS-CoV-2 3CL protease
inhibitors and replication inhibitors. The Company anticipates identifying
another SARS-CoV-2 preclinical 3CL lead for oral administration this year and to
initiate an IND-enabling study in the first half of 2022.
Norovirus Infections
We continue to identify and develop non-nucleoside polymerase and protease
inhibitors using the Company's proprietary structure-based drug design
technology platform. In addition, we now have exclusive rights to norovirus
protease inhibitors for use in humans obtained in the license from Kansas State
University Research Foundation (see under Collaborations below). We expect to
complete proof-of-concept animal study by the end of 2021.
3
Results of Operations for the Three and Six Months Ended June 30, 2021 compared
to the Three and Six Months Ended June 30, 2020
Revenue
There was no revenue during three and six months ended June 30, 2021, compared
with $554,000 and $1,015,000 for the three and six months ended June 30, 2020,
respectively. The revenue in 2020 was from the Collaboration Agreement with
Merck that has transitioned from reimbursed research and development at the
Company to Merck for continued evaluation for clinical development (See Note 8 -
Licenses and Collaborations in the notes to the condensed consolidated financial
statements under Item I, above, for more information). We do not expect to
generate any revenues in 2021, except to the extent we receive any milestone
payments under our Collaboration Agreement.
Research and Development Expense
Research and development expense consist primarily of compensation-related costs
for our employees dedicated to research and development activities and for our
Scientific Advisory Board members, as well as lab supplies, lab services, and
facilities and equipment costs related to our research and development programs.
Total research and development expenses for the three months ended June 30, 2021
and 2020 was $2,747,000 and $1,976,000, respectively. The increase of $771,000
was primarily due increases in COVID-19 and influenza programs advancement.
Total research and development expenses for the six months ended June 30, 2021
and 2020 was $4,324,000 and $3,259,000, respectively. The increase of $1,065,000
was primarily due increases in COVID-19 and influenza programs advancement.
We expect research and development expenses to continue increase in 2021 as we
advance our pandemic influenza A (CC-42344) into clinical trials this year and
progress our pre-clinical COVID-19 program towards clinical development.
General and Administrative Expense
General and administrative expense includes compensation-related costs for our
employees dedicated to general and administrative activities, legal fees, audit
and tax fees, consultants and professional services, and general corporate
expenses.
General and administrative expenses for the three months ended June 30, 2021 and
2020 was $1,081,000 and $2,028,000, respectively. The decrease of $947,000 was
primarily due to reduced professional fees further described below.
General and administrative expenses for the six months ended June 30, 2021 and
2020 was $2,242,000 and $3,167,000, respectively. The decrease of $925,000 was
primarily due to reduced professional fees resulting from the conclusion of
certain previously reported legal matters.
Interest Expense, Net
Interest expense for the three months ended June 30, 2021 and 2020 was $2,000.
Interest expense for the six months ended June 30, 2021 and 2020 was $3,000 and
$4,000, respectively. The decrease for the six months ended June 30, 2021 was
due to changes in the finance lease agreements.
Other Income/(Expense)
In accordance with U.S. GAAP, we record other income or expense based upon the
computed change in fair value of our outstanding warrants that are accounted for
as liabilities. The fair value of our outstanding warrants is inversely related
to the fair value of the underlying common stock; as such, an increase in the
price of our common stock during a given period generally results in other
expense. Conversely, a decrease in the price of our common stock generally
results in other income. The change in the fair value of derivative liabilities
for the six months ended June 30, 2021 and 2020 was $10,000 and ($70,000),
respectively.
Income Taxes
No income tax benefit or expense was recognized for the three and six months
ended June 30, 2021 and 2020. The Company's effective income tax rate was 0.0%
for the three and six months ended June 30, 2021 and 2020. As a result of the
Company's cumulative losses, management has concluded that a full valuation
allowance against the Company's net deferred tax assets is appropriate.
Net Loss
As a result of the above factors, for the three and six months ended June 30,
2021 was $3,821,000 and $6,559,000, respectively, compared with a net loss of
$3,495,000 and $5,485,000 for the three and six months ended June 30, 2020,
respectively, as a result of revenue and expenses described above.
Liquidity and Capital Resources
Net cash used by operating activities was $4,394,000 for the six months ended
June 30, 2021 compared with net cash used by operating activities of $4,388,000
for the same period in 2020. This was primarily due to reduction of expenditures
related to the Collaboration Agreement with Merck during the six months ended
June 30, 2021 as the program transitioned expenditures to Merck.
Net cash used for investing activities was approximately $40,000 for the six
months ended June 30, 2021 compared with $220,000 net cash used for the same
period in 2020. For the six months ended June 30, 2021 the level of investments
decreased compared to June 30, 2020 due to finalization of laboratory expansion.
Net cash provided by financing activities totaled $38,486,000 for the six months
ended June 30, 2021 compared with $16,505,000 for the same period in 2020. This
decrease was primarily due to sufficient capital needs during the six months
ended June 30, 2021, which resulted in reduced equity offerings as compared to
the six months ended June 30, 2020.
4
The Company has not yet established an ongoing source of revenue sufficient to
cover its operating costs. The Company had $67,112,000 cash on June 30, 2021 and
believes this is sufficient to maintain planned operations for at leastthe next
36 months.
We have focused our efforts on research and development activities, including
through collaborations with suitable partners. We have been profitable on a
quarterly basis, but have never been profitable on an annual basis. We have no
products approved for sale and have incurred operating losses and negative
operating cash flows on an annual basis since inception.
The Company's interim consolidated financial statements are prepared using
generally accepted accounting principles in the United States of America
applicable to a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
Historically, public and private equity offerings have been our principal source
of liquidity. During the six months ended June 30, 2021, the Company had the
following offerings of its Common Stock.
The Company is party to the At-The-Market Offering Agreement, dated July 1, 2020
("ATM Agreement") with H.C. Wainwright & Co., LLC ("Wainwright"), pursuant to
which the Company may issue and sell over time and from time to time, to or
through Wainwright, up to $10,000,000 of shares of the Company's common stock.
During January 2021, the Company sold 1,030,000 shares of its common stock
pursuant to the ATM Agreement for net proceeds of approximately $2,072,000.
There were no sales under the ATM Agreement during the three months ended June
30, 2021.
On May 4, 2021, the Company entered into an underwriting agreement with H.C.
Wainwright & Co., LLC, pursuant to which the Company agreed to issue and sell
26,000,000 shares of the Company's common stock at a public offering price of
$1.54 per share, less underwriting discounts and commissions (the "Offering").
The Company received approximately $36.4 million in net proceeds from the
Offering, after deducting underwriting discounts and estimated offering
expenses. The Offering closed on May 7, 2021.
As the Company continues to incur losses, achieving profitability is dependent
upon the successful development, approval and commercialization of its product
candidates, and achieving a level of revenues adequate to support the Company's
cost structure. The Company may never achieve profitability, and unless and
until it does, the Company will continue to need to raise additional capital.
Management intends to fund future operations through additional private or
public equity offerings and through arrangements with strategic partners or from
other sources. There can be no assurances, however, that additional funding will
be available on terms acceptable to the Company, or at all, and any equity
financing may be very dilutive to existing shareholders.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements regarding
the future effectiveness of our product candidates, our plans for the future
development of preclinical and clinical drug candidates, the expected time of
achieving certain value driving milestones in our programs, including the
planned initiation of the Phase 1 Influenza A study in the third quarter of
2021, the expected identification of an additional SARS-CoV-2 preclinical 3CL
lead for oral administration in 2021, the expected initiation of two
IND-enabling studies in the COVID-19 program in the first half of 2022, the
anticipated completion of proof-of-concept animal study in our norovirus program
by the end of 2021, our expectations regarding future operating results, and
future liquidity. The words "believe," "may," "estimate," "continue,"
"anticipate," "intend," "should," "plan," "could," "target," "potential," "is
likely," "will," "expect" and similar expressions, as they relate to us, are
intended to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial
needs.
5
The results anticipated by any or all of these forward-looking statements might
not occur. Important factors that could cause actual results to differ from
those in the forward-looking statements include the risks and uncertainties the
impact of the COVID-19 pandemic on our Company, our collaboration partners,
CROs, CMOs, and on the national and global economy, including raw material and
test animal shortages and othersupply chain disruptions and other business
interruptions, the ability of our CROs to recruit volunteers for, and to proceed
with, clinical trials, possible delays resulting from the lockdown in Australia,
the cooperation of the FDA in accelerating development in our COVID-19 program,
the achievement by Merck of certain milestones under the Collaboration
Agreement, our ability to successfully identify, enter into and maintain
additional strategic collaborations for further development of our product
candidates, future results of planned research and, if successful, clinical
trials, general risks arising from clinical trials, receipt of regulatory
approvals, development of effective treatments and/or vaccines by competitors,
including as part of the programs financed by the U.S. government, and any
additional costs related to unfavorable future outcome of pending litigation or
any unanticipated claims. Further information on our risk factors is contained
in our filings with the SEC, including our Annual Report on Form 10-K for the
year ended December 31, 2020. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as the result of new information,
future events or otherwise.
Critical Accounting Policies and Estimates
In our Annual Report on Form 10-K for the year ended December 31, 2020, we
disclosed our critical accounting policies and estimates upon which our
financial statements are derived.
Accounting estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
these estimates
Goodwill. As of June 30, 2021, the Company had a goodwill of $19,092,000.
Goodwill is tested at least annually for impairment or when events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable, by assessing qualitative factors or performing a quantitative
analysis in determining whether it is more. The Company's last annual impairment
assessment was on November 30, 2020.
Readers are encouraged to review these disclosures in the Company's Annual
Report on Form 10-K for the year ended December 31, 2020 in conjunction with the
review of this report.
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COCRYSTAL PHARMA, INC. 
