You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. You should read the "Risk Factors" section in Part II, Item 1A. of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
OVERVIEW
We are a clinical stage biopharmaceutical company that is developing small molecule drugs that we discovered through the application of our DCE Platform. Selective incorporation of deuterium into known molecules has the potential, on a case-by-case basis, to provide better pharmacokinetic or metabolic properties, thereby enhancing their clinical safety, tolerability or efficacy. Our pipeline consists of clinical stage candidates targeting autoimmune and CNS disorders, and a number of preclinical compounds that we are currently assessing.
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CTP-543
CTP-543 Opportunity CTP-543 is an oral JAK1 and JAK2 inhibitor that we are developing for the treatment of moderate-to-severe alopecia areata, a disease that currently has no approved treatments. Alopecia areata is a serious, chronic autoimmune disease affecting approximately 700,000 Americans at any given time that results in partial or complete loss of hair on the scalp and/or body. CTP-543 was discovered by applying our deuterium chemistry technology to modify ruxolitinib, a JAK inhibitor, which is commercially available under the name Jakafi® inthe United States for the treatment of certain blood disorders and for graft versus host disease. The FDA has granted CTP-543 Breakthrough Therapy designation for the treatment of adult patients with moderate-to-severe alopecia areata and Fast Track designation for the treatment of alopecia areata. Clinical Development of CTP-543 We have completed three Phase 2 trials of CTP-543 for the treatment of moderate-to-severe alopecia areata to support the advancement of the program into Phase 3 development. InSeptember 2019 , we announced topline results from a Phase 2 double-blind, randomized, dose-ranging trial to evaluate three sequential doses of CTP-543 (4, 8 and 12 mg twice-daily) and a placebo control in 149 patients with moderate-to-severe alopecia areata. Patients treated with either 8 mg twice-daily or 12 mg twice-daily of CTP-543 met the primary efficacy endpoint with statistically significant differences (p <0.001) relative to 22 -------------------------------------------------------------------------------- placebo in the percentage of patients achieving a ? 50% relative change from baseline at 24 weeks. The 8 mg twice-daily and 12 mg twice-daily groups were also significantly different from placebo in the number of patients achieving ? 75% and ? 90% relative change in Severity of Alopecia Tool, or SALT, score between baseline at 24 weeks. A numerically but not statistically greater percentage of patients treated with the 4 mg twice-daily dose of CTP-543 met the primary efficacy endpoint. At 24 weeks, patients treated with 8 mg twice-daily and 12 mg twice-daily compared to placebo also rated significantly greater improvement in their alopecia areata on the Patient Global Impression of Improvement Scale. Treatment with CTP-543 was generally well tolerated. The most common side effects in the 8 mg or 12 mg twice-daily groups were headache, nasopharyngitis, upper respiratory tract infection, acne, nausea and low-density lipoprotein increase. One serious adverse event of facial cellulitis was reported in the 12 mg twice-daily group as possibly related to treatment; however, after a brief interruption, treatment continued and this patient completed the trial. No thromboembolic events were reported during the trial. InJune 2020 , we released new data analyses from our Phase 2 dose-ranging trial of CTP-543. The new data analyses revealed that statistically significant results were reported for the 8 mg twice-daily and 12 mg twice-daily doses of CTP-543 at more stringent response thresholds, which may be more clinically meaningful to patients, and positive findings were reported for clinician and patient reported outcome measures of scalp hair loss. At 24 weeks, 26% and 42% of patientswho received CTP-543 in the 8 mg twice-daily and 12 mg twice-daily cohorts, respectively, achieved an absolute SALT score ? 20 (p <0.05 vs. placebo), indicating a clinically-meaningful 80 percent or greater scalp hair present. Data from the Clinician Global Impression of Improvement scale showed 75% of clinicians rated the response in the 12 mg twice-daily cohort and 61% of clinicians rated the response in the 8 mg twice-daily cohort as "much improved" or "very much improved" at 24 weeks. For both doses, there was a statistically significant difference from placebo (p <0.001). InDecember 2019 , we announced that we completed an open label Phase 2 trial evaluating 8 mg twice-daily compared to 16 mg once-daily dosing of CTP-543 in 57 patients with moderate-to-severe alopecia areata. Results in the 8 mg twice-daily arm were consistent with the previously-reported 8 mg twice-daily results from our Phase 2 dose-ranging trial of CTP-543. The trial measured the relative change in SALT score between baseline and 24 weeks. Treatment was generally well tolerated in both arms of the study. All but one of the patientswho completed this trial elected to continue in an ongoing open label long-term extension study. A second open label Phase 2 trial evaluating 12 mg twice-daily compared to 24 mg once-daily dosing of CTP-543 in patients with moderate-to-severe alopecia areata was completed in 2020. We intend to utilize the 8 mg twice-daily and 12 mg twice-daily doses in our clinical development program for CTP-543 going forward.
As of
We conducted an end of Phase 2 meeting with the FDA inMarch 2020 and announced our plans to advance CTP-543 into Phase 3 evaluation, which we expect to initiate in the fourth quarter of 2020. The planned Phase 3 program for CTP-543 will include two randomized, double-blind, placebo-controlled clinical trials in adults at sites inthe United States ,Canada andEurope . The CTP-543 Phase 3 program will evaluate the percentage of patients receiving 8 mg twice-daily, 12 mg twice-daily or placebo twice-daily that achieve a SALT score of 20 or less after 24 weeks of dosing in patients with moderate-to-severe alopecia areata. CTP-692 CTP-692 Opportunity CTP-692 is a selective deuterated analog of the endogenous amino acid D-serine, a key molecule that activates NMDA receptors in areas of the brain that are widely believed to play key roles in schizophrenia. Based on published nonclinical and clinical effects of D-serine, we believe that CTP-692 has the potential to help restore NMDA receptor activity in key areas of the brain to improve clinical outcomes in patients with schizophrenia. Population studies have shown that levels of D-serine measured in the plasma and cerebrospinal fluid of patients with schizophrenia are, on average, significantly lower than healthy controls. Genome-wide association studies demonstrate that genetic changes that alter glutamatergic transmission, including by reducing NMDA neurotransmission and by reducing D-serine exposure, substantially increase the likelihood of becoming schizophrenic. Academic studies have demonstrated that oral dosing of D-serine can result in dose-dependent improvement in positive, negative and cognitive symptoms in patients with schizophrenia when added to D2-modulating antipsychotics, with the exception of clozapine. However, nonclinical studies have demonstrated that D-serine can cause nephrotoxicity in rats. In addition, in some patientswho received high doses of D-serine, clinical findings suggesting renal impairment were observed. As a result, the clinical development of D-serine has historically been limited. In nonclinical studies in rats, when administered at doses where D-serine resulted in causing significantly increased blood levels of serum creatinine and blood urea nitrogen, indicating renal toxicity, CTP-692 did not cause changes in blood levels of those 23 -------------------------------------------------------------------------------- markers, suggesting that CTP-692 could have reduced toxicity and a larger therapeutic window.Administration of CTP-692 in rats also resulted in greater plasma exposure and higher brain to plasma ratios than did similar doses of D-serine. It therefore may be better-suited for development as a human therapeutic agent. CTP-692 will initially be developed as an adjunctive therapy along with standard antipsychotic medicines in patients with schizophrenia. Clinical Development of CTP-692 The Phase 1 program was designed to assess the safety, tolerability and pharmacokinetics of CTP-692 in healthy volunteers. The Phase 1 program included three studies: a crossover comparison of CTP-692 versus D-serine, a single-ascending dose study that also assessed the effect of food on the pharmacokinetics of CTP-692, and a multiple-ascending dose trial assessing CTP-692 dosed orally over seven days. In the crossover study, a single dose of CTP-692 was found to result in greater plasma exposure than did the same amount of D-serine. In the single- and multiple-ascending dose trials, CTP-692 was evaluated across doses ranging from 0.5 to 4 grams compared to placebo in a total of 72 volunteers. CTP-692 demonstrated a favorable safety, tolerability and pharmacokinetic profile with no serious adverse events reported. Importantly, key blood and urine markers of kidney function did not indicate any signs of renal impairment. InDecember 2019 , we initiated a double-blind, randomized, placebo-controlled Phase 2 trial to evaluate the safety and efficacy of CTP-692 as an adjunctive treatment for schizophrenia. Approximately 300 adult patientswho are stable on an antipsychotic medication will be randomized to receive 1, 2 or 4 grams of CTP-692 or placebo once-daily. The primary outcome measure is the change in the Positive and Negative Syndrome Scale (PANSS) total score at 12 weeks compared to baseline. We currently expect to complete enrollment of this clinical trial by year-end 2020. Preclinical Pipeline We are currently assessing a number of preclinical assets as potential development candidates. COLLABORATION PRODUCT CANDIDATES In addition to our wholly owned development programs, we have entered into collaborative arrangements with companies to develop deuterium-modified versions of their marketed products. Our partners are currently responsible for all development and future commercialization activities under these arrangements. In each of these collaborations, the deuterium-modified compound was independently discovered by us. For example, onFebruary 24, 2012 , we entered into a development and license agreement withAvanir Pharmaceuticals, Inc. , or Avanir, a subsidiary ofOtsuka Pharmaceuticals Co., Ltd. for the worldwide rights to develop, manufacture and commercialize AVP-786. AVP-786 is a combination of deudextromethorphan hydrobromide (d6-DM) and quinidine sulfate (Q), a CYP2D6 inhibitor, being investigated for the treatment of neurologic and psychiatric disorders. In 2019, Avanir completed two Phase 3 trials evaluating AVP-786 for the treatment of agitation associated with dementia of the Alzheimer's type. The second of the Phase 3 trials did not meet its primary or key secondary endpoints; however, following additional data analysis, Avanir decided to continue developing AVP-786 for the treatment of agitation associated with dementia of the Alzheimer's type. Two additional Phase 3 trials and an open label long-term extension study for Alzheimer's agitation are ongoing, and an additional Phase 3 trial is planned. Additionally, Avanir is conducting a Phase 2/3 trial evaluating AVP-786 for the treatment of negative symptoms of schizophrenia. ASSET PURCHASE AGREEMENT WITH VERTEX PHARMACEUTICALS FOR CTP-656 InJuly 2017 , we completed the sale of worldwide development and commercialization rights to CTP-656 and other assets related to the treatment of cystic fibrosis to Vertex. CTP-656, now known as VX-561, is an investigational cystic fibrosis transmembrane conductance regulator, or CFTR, potentiator that has the potential to be used as part of future once-daily combination regimens of CFTR modulators that treat the underlying cause of cystic fibrosis. We received$160 million in cash upon closing, and if VX-561 is approved as part of a combination regimen to treat cystic fibrosis, we are eligible to receive up to$90 million in the form of two additional milestones based on marketing approval inthe United States and agreement for reimbursement in the first of theUnited Kingdom ,Germany orFrance . COVID-19 PANDEMIC InMarch 2020 , theWorld Health Organization declared the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), which causes coronavirus disease 2019, or COVID-19, as a pandemic, which continues to spread throughoutthe United States and worldwide. We could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic or other public health crisis, such as the COVID-19 pandemic, including but not limited to potential delays in our clinical trials. The ultimate extent of the impact of any epidemic, 24 -------------------------------------------------------------------------------- pandemic or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot predict the extent to which our business, financial condition and results of operations may be affected by the COVID-19 pandemic, but we are monitoring the situation closely. 25 -------------------------------------------------------------------------------- FINANCIAL OPERATIONS OVERVIEW Since our inception in 2006, we have devoted substantially all of our resources to our research and development efforts, including activities to develop our DCE Platform and our core capabilities in deuterium chemistry, identify potential product candidates, undertake nonclinical studies and clinical trials, manufacture clinical trial material in compliance with current good manufacturing practices, or cGMPs, provide general and administrative support for these operations and establish our intellectual property. We have generated an accumulated deficit of$228.1 million since inception throughJune 30, 2020 and will require substantial additional capital to fund our research and development. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the public offering and private placement of our equity, debt financing, funding from collaborations and patent assignments, an asset sale and other arrangements. Our operating results may fluctuate significantly from year to year, depending on the timing and magnitude of cash payments received pursuant to collaboration and licensing arrangements and other agreements and the timing and magnitude of clinical trial and other development activities under our current development programs. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities as we continue research and development efforts and develop and conduct additional nonclinical studies and clinical trials with respect to our product candidates. We do not expect to generate revenue from product sales unless and until we, or our collaborators, obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. If we obtain, or believe that we are likely to obtain, marketing approval for any product candidates for which we retain commercialization rights, and intend to commercialize a product, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We expect to seek to fund our operations through a combination of equity offerings, debt financings, collaboration and licensing arrangements and other sources for at least the next several years. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would force us to delay, limit, reduce or terminate our research and development programs and could have a material adverse effect on our financial condition and our ability to develop our products. We will need to generate significant revenues to achieve sustained profitability, and we may never do so. Revenue We have not generated any revenue from the sales of products. All of our revenue to date has been generated through collaboration, license and research arrangements with collaborators and nonprofit organizations for the development and commercialization of product candidates, a patent assignment agreement and an asset sale. The terms of these agreements may include one or more of the following types of payments: non-refundable license fees, payments for research and development activities, payments based upon the achievement of specified milestones, payment of license exercise or option fees relating to product candidates and royalties on any net product sales. To date, we have received non-refundable upfront payments, several milestone payments, payments for research and development services provided to our collaborators, a change in control payment pursuant to a patent assignment agreement and a payment for the sale of an asset. However, we have not yet earned any license exercise or option fees, sales-based milestone payments or royalty revenue as a result of product sales. In the future, we will seek to generate revenue from a combination of product sales and milestone payments and royalties on product sales in connection with our current collaborations, our asset sale with Vertex or other collaborations we may enter into. 26 -------------------------------------------------------------------------------- Research and development expenses Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include: •employee-related expenses, including salary, benefits, travel and stock-based compensation expense; •expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials; •the cost of acquiring, developing and manufacturing clinical trial materials; •facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; •platform-related lab expenses, which includes costs related to synthesis, analysis and in vitro and in vivo characterization of deuterated compounds to support the selection and progression of potential product candidates; •expenses related to consultants and advisors; and •costs associated with nonclinical activities and regulatory operations. Research and development costs are expensed as 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 and our clinical sites. A significant portion of our research and development costs have been external costs, which we track on a program-by-program basis. These external costs include fees paid to investigators, consultants, central laboratories and contract research organizations in connection with our clinical trials, and costs related to acquiring and manufacturing clinical trial materials. Our internal research and development costs are primarily personnel-related costs, depreciation and other indirect costs. We do not track our internal research and development expenses on a program-by-program basis, as they are deployed across multiple projects under development. The successful development of any of our product candidates is highly uncertain. As such, at this time, we cannot reasonably predict with certainty the duration and completion costs of the current or future clinical trials of any of our product candidates or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain marketing approval. We may never succeed in achieving marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including: •the scope and rate of progress of our ongoing as well as any additional clinical trials and other research and development activities; •successful enrollment in and completion of clinical trials, including on account of the COVID-19 pandemic and its impact on clinical trial sites; •conduct of and results from ongoing as well as any additional clinical trials and research and development activities; •significant and changing government regulation; •the terms and timing and receipt of any marketing approvals; •the performance of our collaborators; •our ability to manufacture any of our product candidates that we are developing or may develop in the future; and •the expense and success of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including potential claims that we infringe other parties' intellectual property. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the cost and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other research and development activities beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, due to the increased size and duration of later-stage clinical trials and the manufacturing that is typically required for those later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress, but we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined 27 -------------------------------------------------------------------------------- with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans. General and administrative expenses General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, business development and human resource functions. Other general and administrative expenses include facility-related costs, depreciation and other expenses not allocated to research and development expense and professional fees for directors, accounting and legal services and expenses associated with obtaining and maintaining patents. In both 2020 and 2019, we incurred expenses for intellectual property matters related to CTP-543. We anticipate that our general and administrative expenses will increase in the future as our pipeline grows and matures. Additionally, if and when we believe that a marketing approval of the first product candidate that we intend to commercialize on our own appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales, marketing and distribution of our product candidates. Investment income Investment income consists of interest income earned on cash equivalents and investments. The amount of investment income earned in any particular period may vary primarily as a result of the amount of cash equivalents and investments held during the period and the types of securities included in our portfolio during the period. Our current investment policy is to maintain a diversified investment portfolio ofU.S. government-backed securities and money market mutual funds consisting ofU.S. government-backed securities. Unrealized loss on marketable equity securities Unrealized loss on marketable equity securities consists of changes in the fair value of shares of common stock of Processa held by us, as discussed further in Note 8 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Income taxes We record a provision or benefit for income taxes on pre-tax income or loss based on our estimated effective tax rate for the year. As ofJune 30, 2020 , we forecast an ordinary pre-tax loss for the year endedDecember 31, 2020 and maintain a full valuation allowance on our deferred tax assets. During the three and six months endedJune 30, 2020 , we recorded a benefit for income taxes of$85 thousand for interest accrued under the installment sales method for the sale of CTP-656 to Vertex. CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements.
There have been no material changes to our critical accounting policies as
detailed in our Annual Report on Form 10-K for the fiscal year ended
PENDING AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS For detailed information regarding recently issued accounting pronouncements and the actual and expected impact on our condensed consolidated financial statements, see Note 2 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS Discussion of the three and six months endedJune 30, 2020 The following table summarizes our results of operations for the three and six months endedJune 30, 2020 . 28 --------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2020 2020 Revenue: License and research and development revenue $ 6,387 $ 6,394 Operating expenses: Research and development 14,788 28,774 General and administrative 4,731 9,403 Total operating expenses 19,519 38,177 Loss from operations (13,132) (31,783) Investment income 355 918 Unrealized loss on marketable equity securities (299) (2,688) Loss before income taxes (13,076) (33,553) Income tax benefit (85) (85) Net loss $ (12,991) $ (33,468)
License and research and development revenue
Total revenue was$6.4 million for both the three and six months endedJune 30, 2020 . The revenue recognized in the 2020 periods was primarily attributable to the expiration of two licensing options under our collaboration agreement with Celgene. Research and development expenses The following table summarizes our research and development expenses for the three and six months endedJune 30, 2020 , with our external research expenses separately classified by program and our internal research expenses separately classified by category. Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2020 2020 CTP-543 external costs $ 3,626 $ 6,556 CTP-692 external costs 4,951 9,259 External expenses for other programs 151 495 Employee and contractor-related expenses 4,728 9,784 Facility and other expenses 1,332 2,680 Total research and development expenses $ 14,788$ 28,774 Research and development expenses were$14.8 million and$28.8 million for the three and six months endedJune 30, 2020 , respectively. CTP-543 expenses primarily related to clinical development, including preparations for the Phase 3 clinical trial that is expected to begin in the fourth quarter of 2020. CTP-543 expenses decreased by$1.4 million and$2.4 million in the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 , respectively, primarily due to the completion of the Phase 2 dose-ranging clinical trial in the third quarter of 2019. CTP-692 expenses increased by$2.2 million and$2.5 million in the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 , respectively. These CTP-692 expenses, and their increase from the prior period, were primarily attributable to the ongoing Phase 2 dose-ranging clinical trial. External expenses for other programs consisted of costs incurred to develop our research pipeline. External expenses for other programs decreased by$0.5 million and$1.5 million in the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 , respectively, primarily due to a decrease in lab activity due to the COVID-19 pandemic, and due to the payment made during the first quarter of 2019 to the non-profit organization Fast Forward related to the Cipla Agreement, as discussed further in Note 8 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Employee-related expenses consisted primarily of cash compensation and non-cash stock-based compensation expenses. Facility-related expenses consisted primarily of rent and maintenance of our premises. General and administrative expenses 29 --------------------------------------------------------------------------------
The following table summarizes our general and administrative expenses for the
three and six months ended
Three Months Ended June Six Months Ended June 30, 30, (in thousands) 2020 2020 Employee salaries and benefits $ 2,688 $ 5,397 External professional service and legal expenses 998 1,886 Facility, technology and other expenses 970 1,970 Depreciation and amortization 75 150 Total general and administrative expenses $ 4,731 $ 9,403 General and administrative expenses decreased by$0.2 million and$1.2 million in the 2020 periods compared to the three and six months endedJune 30, 2019 , respectively, primarily due to a decrease in legal expenses. Investment income Investment income was$0.4 million and$0.9 million for the three and six months endedJune 30, 2020 , respectively, and consisted of interest income earned on cash equivalents and investments. Unrealized loss on marketable equity securities Unrealized loss on marketable equity securities was$0.3 million and$2.7 million for the three and six months endedJune 30, 2020 , respectively, and consisted of changes in the fair value of shares of common stock of Processa held by us, as discussed further in Note 8 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Income Tax Benefit During the three and six months endedJune 30, 2020 , we recorded a benefit for income taxes of$85 thousand for interest accrued under the installment sales method for the sale of CTP-656 to Vertex. Discussion of the three and six months endedJune 30, 2019 The following table summarizes our results of operations for the three and six months endedJune 30, 2019 . Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2019 2019 Revenue: License and research and development revenue $ 49 $ 1,054 Operating expenses: Research and development 14,496 30,286 General and administrative 4,978 10,587 Total operating expenses 19,474 40,873 Loss from operations (19,425) (39,819) Investment income 883 1,750 Unrealized loss on marketable equity securities (126) (2,425) Net loss $ (18,668) $ (40,494)
License and research and development revenue
30 -------------------------------------------------------------------------------- Total revenue was$49 thousand and$1.1 million for the three and six months endedJune 30, 2019 , respectively. The revenue recognized in the 2019 periods was primarily related to the Cipla Agreement, as discussed further in Note 8 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Research and development expenses The following table summarizes our research and development expenses for the three and six months endedJune 30, 2019 , with our external research expenses separately classified by program and our internal research expenses separately classified by category. Three Months Ended Six Months Ended June June 30, 30, (in thousands) 2019 2019 CTP-543 external costs $ 5,018 $ 8,951 CTP-692 external costs 2,758 6,789 External expenses for other programs 629 1,988 Employee and contractor-related expenses 4,692 9,761 Facility and other expenses 1,399 2,797 Total research and development expenses $ 14,496 $ 30,286 Research and development expenses were$14.5 million and$30.3 million for the three and six months endedJune 30, 2019 , respectively. CTP-543 expenses primarily related to clinical development, including multiple Phase 2 clinical trials. CTP-692 expenses were primarily attributable to the Phase 1 clinical trials and manufacturing costs to support the continued advancement of the program. External expenses for other programs consisted of costs incurred to develop our research pipeline and a$0.5 million payment to the non-profit organization Fast Forward in the first quarter of 2019 under a pre-existing CTP-354 agreement, which was triggered by the upfront payment that Cipla paid to us under the Cipla Agreement. Employee-related expenses consisted primarily of cash compensation and non-cash stock-based compensation expenses. Facility-related expenses consisted primarily of rent and maintenance of our premises. General and administrative expenses The following table summarizes our general and administrative expenses for the three and six months endedJune 30, 2019 . Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2019 2019 Employee salaries and benefits $ 2,747 $ 5,747 External professional service and legal expenses 1,197 2,808 Facility, technology and other expenses 959 1,876 Depreciation and amortization 75 156 Total general and administrative expenses $ 4,978$ 10,587 Investment income Investment income was$0.9 million and$1.8 million for the three and six months endedJune 30, 2019 , respectively, and consisted of interest income earned on cash equivalents and investments. Unrealized loss on marketable equity securities Unrealized loss on marketable equity securities was$0.1 million and$2.4 million for the three and six months endedJune 30, 2019 , respectively, and consisted of changes in the fair value of shares of common stock of Processa held by us, as discussed further in Note 8 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
OFF-BALANCE SHEET ARRANGEMENTS
31 -------------------------------------------------------------------------------- CONCERT PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC . 32 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES We have incurred cumulative losses and negative cash flows from operations since our inception inApril 2006 , and as ofJune 30, 2020 , we had an accumulated deficit of$228.1 million . We generated net income for the fiscal year endedDecember 31, 2015 due to a one-time payment fromAuspex Pharmaceuticals, Inc. , or Auspex, under a change in control provision described in our patent assignment agreement and again for the fiscal year endedDecember 31, 2017 from the closing of our sale of CTP-656 to Vertex, but we anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, additional collaborations and licensing arrangements, and other sources. We have financed our operations to date primarily through the public offering and private placement of our equity, debt financing and funding from collaborations, patent assignments and an asset sale. InFebruary 2014 , we completed our initial public offering whereby we sold 6,649,690 shares of common stock at a price to the public of$14.00 per share, raising aggregate net proceeds of$83.1 million . InMarch 2015 , we sold 3,300,000 shares of common stock through an underwritten public offering at a price to the public of$15.15 per share, raising aggregate net proceeds of$46.7 million . InJanuary 2020 , we sold 5,735,283 shares of common stock through an underwritten public offering at a price to the public of$9.92 per share. At the same time, we sold to a certain existing investor pre-funded warrants to purchase up to an aggregate of 1,800,000 shares of common stock at a purchase price of$9.919 per pre-funded warrant, which represents the per share public offering price for the common stock less the$0.001 per share exercise price for each pre-funded warrant. The aggregate net proceeds from theJanuary 2020 offering was$70.1 million . InJune 2015 , we received proceeds of$50.2 million in connection with the change in control payment from Auspex, relating to Teva Pharmaceutical Industries Ltd.'s acquisition of Auspex. InJuly 2017 , the asset purchase contemplated by the Vertex Agreement was completed, and Vertex paid us$160 million in cash consideration. As a result of the COVID-19 pandemic, enrollment of new patients in our clinical trials has slowed and the timelines to complete our clinical trials may be delayed. Our assessment of our liquidity and capital resources includes an estimate of the financial impacts of these changes. As ofJune 30, 2020 , we had cash and cash equivalents and investments of$144.7 million . Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held inU.S. government-backed securities and money market mutual funds consisting ofU.S. government-backed securities. Cash flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below: Six Months Ended June 30, (in thousands) 2020 2019 Net cash (used in) provided by: Operating activities$ (32,524) $ (18,025) Investing activities (64,033) 42,896 Financing activities 70,608 1,073
Net (decrease) increase in cash and cash equivalents and restricted cash
$ (25,949) $ 25,944 Operating activities. The cash used for operating activities generally approximates our net loss adjusted for non-cash items and changes in operating assets and liabilities. During the six months endedJune 30, 2020 , our operating activities used cash of$32.5 million as compared to cash used by operating activities of$18.0 million during the six months endedJune 30, 2019 . Cash used in operating activities during both the six months endedJune 30, 2020 and 2019 was primarily driven by our development activities associated with CTP-543 and CTP-692, our wholly owned development programs. 33 -------------------------------------------------------------------------------- Investing activities. Net cash provided by investing activities consisted of proceeds from the maturity of investments, purchases of investments and purchases of fixed assets. Net cash provided by maturities of investments for the six months endedJune 30, 2020 and 2019 was$81.2 million and$92.6 million , respectively. Net cash used in purchases of investments for the six months endedJune 30, 2020 and 2019 was$145.2 million and$49.2 million , respectively. Purchases of fixed assets for the six months endedJune 30, 2020 and 2019 were$0.1 million and$0.5 million , respectively. The increase in the purchases of investments during the six months endedJune 30, 2020 is primarily due to the management of funds received from theJanuary 2020 public offering of common stock and pre-funded warrants, as discussed further in Note 13 in the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Financing activities. During the six months endedJune 30, 2020 and 2019, our financing activities provided cash of$70.6 million and$1.1 million , respectively. The cash provided by financing activities during the six months endedJune 30, 2020 was primarily attributable to the proceeds from theJanuary 2020 public offering of common stock and pre-funded warrants. Additionally, the Company received proceeds of$0.5 million and$1.0 million from the exercise of stock options during the six months endedJune 30, 2020 and 2019, respectively.
Operating capital requirements
We do not anticipate commercializing any of our product candidates for several years. Although we generated net income for the fiscal years endedDecember 31, 2017 and 2015 due to one-time payments from Vertex and Auspex, respectively, we anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek marketing approvals for, our product candidates, and begin to commercialize any approved products for which we retain commercialization rights. We are subject to all of the risks incident in the development of new drug products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, as well as additional risks stemming from the unproven nature of deuterated drugs. Based on our current expectations, including with respect to our development plans, we believe that our existing cash and cash equivalents and investments as ofJune 30, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2021. However, we will require additional capital for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates. To date, we have not generated any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we, or our collaborators, obtain marketing approval of and commercialize one of our current or future product candidates. Because our product candidates are in various stages of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete development and commercialization of our product candidates or whether or when we will achieve profitability. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional collaborations, strategic alliances and licensing arrangements, and other arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone payments under our agreements with them, we do not have any additional committed external sources of funds. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the issuance of securities with rights senior to those of our common stock. We may become subject to covenants under any future indebtedness that could limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business. Our expectation with respect to the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including those discussed in the "Risk Factors" section of this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected. 34
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