MILLENDO THERAPEUTICS
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the financial statements and the
related notes to those statements included later in this Annual Report. In
addition to historical financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, beliefs and
expectations that involve risks and uncertainties. Our actual results and the
timing of events could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report,
particularly in Item 1A. "Risk Factors" and "Special Note Regarding
Forward-Looking Statements."
Overview
We are a biopharmaceutical company that was previously primarily focused on
developing novel treatments for endocrine diseases where current therapies do
not exist or are insufficient. The endocrine system is a collection of glands
that secrete hormones into the blood stream to regulate a number of functions,
including appetite, metabolism, growth, development and reproduction. Diseases
of the endocrine system can cause multiple and varied symptoms, including
appetite dysregulation, metabolic dysfunction, obesity, cardiovascular disease,
menstrual irregularity, hirsutism, and infertility.
We had been developing livoletide (AZP-531) as a potential treatment for
Prader-Willi syndrome ("PWS"), a rare and complex genetic endocrine disease
characterized by hyperphagia, or insatiable hunger. As previously announced, we
discontinued the development of livoletide as a potential treatment for PWS in
April 2020 , including the 9-month extension study and the initiation of the
Phase 3 ZEPHYR trial. The decision to discontinue the PWS program was based on
results from the Phase 2b ZEPHYR study, which showed that treatment with
livoletide did not result in a statistically significant improvement in
hyperphagia and food-related behaviors as measured by the Hyperphagia
Questionnaire for Clinical Trials (HQ-CT) compared to placebo. We do not expect
to incur future material expenses related to our livoletide program for the
treatment of PWS.
In an effort to streamline costs after discontinuing our PWS program, we eliminated employee positions representing approximately 30% of our prior headcount, which were completed in the second quarter of 2020. We also began evaluating
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--------------------------------------------------------------------------------corporate strategic plans to prioritize and allocate resources to our remaining product candidates at the time and any future pipeline assets.
We had also been developing nevanimibe (ATR-101) as a potential treatment for
patients with classic congenital adrenal hyperplasia ("CAH"), a rare, monogenic
adrenal disease that requires lifelong treatment with exogenous cortisol, often
at high doses. As we previously announced, we elected to cease investing in the
development of nevanimibe as a potential treatment for CAH in June 2020 . The
decision to cease investment in the CAH program was based on the interim review
of results from the Phase 2b clinical study and the changing competitive
environment. Results from 10 subjects, nine from cohort 1 and one from cohort 2,
with at least 12 weeks of treatment with nevanimibe in this open-label,
continuous dose escalation study showed that one patient (10%) met the primary
endpoint of achieving 17-hydroxyprogesterone (17-OHP) levels less than or equal
to 2-times the upper limit of normal. Treatment under the amended protocol with
dose titration starting at 500 mg BID improved tolerability of nevanimibe. We do
not expect to incur future material expenses related to our nevanimibe program
for the treatment of CAH as we are no longer developing this program.
We had also been developing a selective neurokinin 3-receptor (NK3R) antagonist
(MLE-301) as a potential treatment of vasomotor symptoms ("VMS"), commonly known
as hot flashes and night sweats, in menopausal women. As we previously
announced, in January 2021 , we discontinued further investment in MLE-301 for
the treatment of VMS based on an analysis of the pharmacokinetic and
pharmacodynamic data from the single ascending dose portion of the Phase 1
study. Given our limited expected financing options, we began exploring an
expanded range of strategic alternatives that included, but was not limited to,
the potential sale or merger of the Company or our assets.
In January 2021 , as a result of our decision to discontinue our investment in
MLE-301, our Board also approved a corporate restructuring plan (the "Plan")
furthering our ongoing efforts to align our resources with our current strategy
and operations. In connection with the Plan, we plan to reduce our workforce by
up to 85%, with the majority of the reduction in personnel expected to be
completed by April 15, 2021 . We initiated this reduction in force in January
2021 and expect to provide severance payments and continuation of group health
insurance coverage for a specified period to the affected employees. We have
also entered into retention arrangements with employees who are expected to
remain with the Company. We estimate that we will incur costs of approximately
$5.5 million for termination benefits and retention arrangements related to the
Plan, substantially all of which will be cash expenditures.
We had also been investigating nevanimibe (ATR-101) as a potential treatment for
patients with endogenous Cushing's syndrome ("CS"), a rare endocrine disease
characterized by excessive cortisol production from the adrenal glands. As a
result of slower than anticipated enrollment in our CS Phase 2 clinical trial,
we elected to discontinue the trial in August 2019 and are no longer developing
nevanimibe for the treatment of CS.
In 2020, we undertook a strategic review process, which was intended to result
in an actionable plan that leverages our assets, capital and capabilities to
maximize stockholder value. Following an extensive process of evaluating
strategic alternatives, including identifying and reviewing potential candidates
for a strategic acquisition or other transaction, on March 29, 2021 , we entered
into an Agreement and Plan of Merger (the "Merger Agreement"), with Tempest
Therapeutics, Inc. ("Tempest") under which the privately held Tempest will merge
with a wholly owned subsidiary of Millendo (the "Merger"). If the Merger is
completed, the business of Tempest will continue as the business of the combined
company.
We expect to devote significant time and resources to the completion of the
Merger. However, there can be no assurances that such activities will result in
the completion of the Merger. Further, the completion of the Merger may
ultimately not deliver the anticipated benefits or enhance shareholder value. If
the Merger is not completed, we will reconsider our strategic alternatives. We
consider one of the following courses of action to be the most likely
alternatives if the Merger is not completed:
•Dissolve and liquidate our assets. If, for any reason, the Merger does not
close, our Board may conclude that it is in the best interest of stockholders to
dissolve the Company and liquidate our assets. In that event, we would be
required to pay all of our debts and contractual obligations, and to set aside
certain reserves for potential future claims. There would be no assurances as to
the amount or timing of available cash remaining to distribute to stockholders
after paying our obligations and setting aside funds for reserves.
•Pursue another strategic transaction. We may resume the process of evaluating a potential strategic transaction in order to attempt another strategic transaction like the Merger.
•Operate our business. Although less likely than the alternatives above, our Board may elect to seek new product candidates for development.
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--------------------------------------------------------------------------------Historical Business and Programs
Since our inception inJanuary 2012 , our operations have focused on conducting preclinical studies and clinical trials, acquiring technology and assets, organization and staffing, business planning, and raising capital. We have devoted substantial effort and resources to acquiring our previous four product candidates, livoletide, nevanimibe, and MLE-301, as well as MLE4901, which we ceased developing in 2017. We acquired livoletide in connection with our acquisition of Alizé Pharma SAS, or Alizé, inDecember 2017 . We in-licensed nevanimibe from the Regents of theUniversity of Michigan , or theUniversity of Michigan , inJune 2013 . We licensed MLE-301 fromF. Hoffmann-La Roche Ltd andHoffman-La Roche Inc. (collectively, "Roche"), inOctober 2018 . We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the sale and issuance of common stock, preferred stock and convertible promissory notes, proceeds received from the OvaScience Merger as well as borrowings under term loans. Since inception, we have incurred significant operating losses and negative operating cash flows and there is no assurance that we will ever achieve or sustain profitability. Our net losses were$36.4 million and$44.6 million for the years endedDecember 31, 2020 and 2019, respectively. As ofDecember 31, 2020 , we had an accumulated deficit of$245.1 million . We expect to continue to incur significant expenses and operating losses for the foreseeable future.
Merger Agreement
After conducting a diligent and extensive process of evaluating strategic alternatives for the Company and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the careful evaluation and consideration of proposals from interested parties, and following extensive negotiation with Tempest, onMarch 29, 2021 , we,Mars Merger Corp. ("Merger Sub"), a wholly owned subsidiary of the Company, and Tempest entered into the Merger Agreement. Pursuant to the Merger Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Tempest, with Tempest continuing as a wholly owned subsidiary of the Company and the surviving corporation of the Merger. Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, (a) each outstanding share of Tempest common stock (including shares of Tempest common stock issued upon conversion of Tempest preferred stock and shares of Tempest common stock issued in the financing transaction described below) will be converted into the right to receive a number of shares of Millendo common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of Millendo common stock described below) calculated in accordance with the Merger Agreement (the "Exchange Ratio") and (b) each then outstanding Tempest stock option and warrant to purchase Tempest common stock will be assumed by Millendo, subject to adjustment as set forth in the Merger Agreement. Under the terms of the Merger Agreement, the Millendo board of directors may accelerate the vesting of any Millendo stock options that are outstanding as of immediately prior to the closing of the Merger. Under the Exchange Ratio formula in the Merger Agreement, upon the closing of the Merger, on a pro forma basis and based upon the number of shares of Millendo common stock expected to be issued in the Merger, pre-Merger Millendo shareholders will own approximately 18.5% of the combined company and pre-Merger Tempest stockholders will own approximately 81.5% of the combined company (assuming the financing transaction described below results in gross proceeds of approximately$30 million ). For purposes of calculating the Exchange Ratio, shares of Millendo common stock underlying Millendo stock options outstanding as of the immediately prior to the closing of the Merger with an exercise price per share of less than or equal to$5.00 (as adjusted for the reverse stock split described below) will be deemed to be outstanding and all shares of Tempest common stock underlying outstanding Tempest stock options, warrants and other derivative securities will be deemed to be outstanding. The Exchange Ratio will be adjusted to the extent that Millendo's net cash at closing is less than$15.3 million or greater than$18.7 million and based on the amount of the financing transaction described below, as further described in the Merger Agreement.
In connection with the Merger, Millendo will seek the approval of its
stockholders to (a) issue the shares of Millendo common stock issuable in
connection with the Merger under the rules of
Each of Millendo and Tempest has agreed to customary representations, warranties
and covenants in the Merger Agreement, including, among others, covenants
relating to (1) using reasonable best efforts to obtain the requisite approval
of its stockholders, (2) non-solicitation of alternative acquisition proposals,
(3) the conduct of their respective businesses during the period between the
date of signing the Merger Agreement and the closing of the Merger, (4) Millendo
using reasonable best
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efforts to maintain the existing listing of the Millendo common stock on Nasdaq
and Millendo causing the shares of Millendo common stock to be issued in
connection with the Merger to be approved for listing on Nasdaq prior to the
closing of the Merger, and (5) Millendo filing with the U.S. Securities and
Exchange Commission (the "SEC") and causing to become effective a registration
statement to register the shares of Millendo common stock to be issued in
connection with the Merger (the "Registration Statement").
Consummation of the Merger is subject to certain closing conditions, including,
among other things, the (1) approval by Millendo stockholders of the Millendo
Voting Proposals, (2) approval by the Tempest stockholders of the adoption of
the Merger Agreement, (3) Nasdaq's approval of the listing of the shares of
Millendo common stock to be issued in connection with the Merger, (4) the
effectiveness of the Registration Statement, and (5) the determination of
Millendo's net cash in accordance with the Merger Agreement. Each party's
obligation to consummate the Merger is also subject to other specified customary
conditions, including the representations and warranties of the other party
being true and correct as of the date of the Merger Agreement and as of the
closing date of the Merger, generally subject to an overall material adverse
effect qualification, and the performance in all material respects by the other
party of its obligations under the Merger Agreement required to be performed on
or prior to the date of the closing of the Merger. Millendo's obligation to
consummate the Merger also is subject to the completion of at least $25.0
million of the financing transaction described below.
The Merger Agreement contains certain termination rights of each of Millendo and
Tempest, including, subject to compliance with the applicable terms of the
Merger Agreement, the right of each party to terminate the Merger Agreement to
enter into a definitive agreement for a superior proposal. Upon termination of
the Merger Agreement under specified circumstances, Millendo may be required to
pay Tempest a termination fee of $1.4 million or reimburse Tempest's expenses up
to a maximum of $1.0 million and Tempest may be required to pay Millendo a
termination fee of $2.8 million or reimburse Millendo's expenses up to a maximum
of $1.0 million .
Concurrently with the execution of the Merger Agreement, (i) certain executive
officers, directors and stockholders of Tempest (solely in their respective
capacities as Tempest stockholders) holding approximately 87% of the outstanding
shares of Tempest capital stock have entered into support agreements with
Millendo and Tempest to vote all of their shares of Tempest capital stock in
favor of adoption of the Merger Agreement and against any alternative
acquisition proposals (the "Tempest Support Agreements") and (ii) certain
executive officers, directors and stockholders of Millendo (solely in their
respective capacities as Millendo stockholders) holding approximately 16% of the
outstanding shares of Millendo common stock have entered into support agreements
with Millendo and Tempest to vote all of their shares of Millendo common stock
in favor of the Millendo Voting Proposals and against any alternative
acquisition proposals (the "Millendo Support Agreements", and together with the
Tempest Support Agreements, the "Support Agreements").
Concurrently with the execution of the Merger Agreement, certain executive
officers, directors and stockholders of Tempest have entered into lock-up
agreements (the "Lock-Up Agreements") pursuant to which, subject to specified
exceptions, they agreed not to transfer their shares of Millendo common stock
for the 180-day period following the closing of the Merger. In addition, each of
Millendo and Tempest is obligated under the Merger Agreement to use reasonable
best efforts prior to the closing of the Merger to obtain a Lock-Up Agreement
from any person who will serve as a director or officer of Millendo following
completion of the Merger.
At the effective time of the Merger, the Board of Directors of Millendo is expected to consist of seven members, six of whom will be designated by Tempest and one of whom will be designated by Millendo.
Concurrently with the execution and delivery of the Merger Agreement, certain parties have entered into agreements with Tempest pursuant to which they have agreed, subject to the terms and conditions of such agreements, to purchase prior to the consummation of the Merger shares of Tempest common stock for an aggregate purchase price of approximately$30 million . The consummation of the transactions contemplated by such agreements is conditioned on the satisfaction or waiver of the conditions set forth in the Merger Agreement. Shares of Tempest common stock issued pursuant to this financing transaction will be converted into shares of Millendo common stock in the Merger in accordance with the Exchange Ratio. Financing InDecember 2019 , we sold 4,791,667 shares of our common stock pursuant to an underwriting agreement (the "Underwriting Agreement") withCitigroup Global Markets Inc. andSVB Leerink LLC , as representatives of the several underwriters named therein (the "Underwriters"), for net proceeds to us of approximately$26.5 million , after deducting underwriting discounts and commissions and other offering expenses payable by us. The price to the public in this offering was$6.00 per share and resulted in the sale of 4,166,667 shares of our common stock for net proceeds to us of approximately$23.0 million , after deducting underwriting discounts and commissions and other offering expenses. In addition, the Underwriters purchased an 43 -------------------------------------------------------------------------------- additional 625,000 shares of our common stock at the public offering price of$6.00 per share pursuant to a purchase option granted to them under the Underwriting Agreement, resulting in net proceeds to us of approximately$3.5 million , after deducting underwriting discounts and commissions. The offering was made pursuant to our registration statement on Form S-3 (Registration Statement No. 333-230749), which was declared effective by theSecurities and Exchange Commission onApril 18, 2019 , and a prospectus supplement thereunder. At-the-Market Equity Distribution Agreement InApril 2019 , we entered into an "at-the-market" ("ATM") equity distribution agreement withCitigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to$50.0 million . Subject to the terms of the ATM equity distribution agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. InMarch 2020 , we amended and restated the equity distribution agreement to includeSVB Leerink LLC as an additional sales agent for the ATM. InMarch 2020 , we sold 719,400 shares of our common stock under our ATM equity distribution agreement for net proceeds of approximately$5.5 million . We do not expect to sell additional shares under this ATM facility. Sales of our common stock pursuant to the ATM have been made pursuant to our registration statement on Form S-3 (Registration Statement No. 333-230749), which was declared effective by theSecurities and Exchange Commission onApril 18, 2019 . COVID-19 Business Update With the global impacts of the ongoing COVID-19 pandemic continuing in the fourth quarter of 2020, we are maintaining the business continuity plans we established and implemented in the first quarter of 2020, which are designed to address and mitigate the impact of the COVID-19 pandemic on our employees, operations and our business. While we are experiencing limited financial impacts from the pandemic at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, and results of operations, could be materially adversely affected. We continue to closely monitor the COVID-19 situation as we evolve our business continuity plans and response strategy. InMarch 2020 , our global workforce transitioned to working remotely. Throughout the fourth quarter of 2020, we continued our plan to allow some employees to return to the office voluntarily, which was based on a phased approach that is principles-based, flexible and local in design, with a focus on employee safety and optimal work environment. Our current plans remain fluid as federal, state and local guidelines, rules and regulations continue to evolve. OvaScience Merger OnDecember 7, 2018 ,OvaScience, Inc. , or OvaScience, now known asMillendo Therapeutics, Inc. completed its reverse merger or, the OvaScience Merger, with what was then known as "Millendo Therapeutics, Inc. ," or Private Millendo, in accordance with the terms of the Agreement and Plan of Merger and Reorganization dated as ofAugust 8, 2018 , as amended onSeptember 25, 2018 andNovember 1, 2018 , or the OvaScience Merger Agreement. OvaScience's shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business onFriday, December 7, 2018 under the ticker symbol "OVAS," commenced trading on The Nasdaq Capital Market, under the ticker symbol "MLND," onMonday, December 10, 2018 . InAugust 2018 , Private Millendo issued convertible promissory notes, or the Notes, to several of its existing investors and received cash proceeds of$8.0 million . The Notes accrued simple interest of 6.0% per annum. Additionally, immediately prior to the OvaScience Merger, Private Millendo issued and sold an aggregate of 1,320,129 shares of Private Millendo common stock for total net proceeds of approximately$20.1 million , or the Pre-Closing Financing, to certain existing stockholders of Private Millendo. In connection with the OvaScience Merger, each outstanding share of Private Millendo capital stock converted into shares of OvaScience's common stock, and each outstanding option or warrant to purchase Private Millendo capital stock converted into the right to receive shares of OvaScience's common stock. At the Closing of the OvaScience Merger, Private Millendo stockholders received an aggregate of 8,789,628 shares of OvaScience common stock, which includes 1,320,129 shares of common stock issued to the investors in the Pre-Closing Financing, Private Millendo option holders received options to purchase 1,874,158 shares of OvaScience common stock and Private Millendo warrant holders received warrants to purchase 17,125 shares of OvaScience common stock. In addition, upon the Closing of the OvaScience Merger, all principal and interest underlying the Notes converted into 499,504 shares of OvaScience common stock. 44 -------------------------------------------------------------------------------- Immediately following the OvaScience Merger, Private Millendo became a wholly-owned subsidiary of OvaScience. Upon consummation of the OvaScience Merger, or the Closing, OvaScience adopted the business plan of Private Millendo and discontinued the pursuit of OvaScience's business plan pre-Closing. The OvaScience Merger was accounted for as a reverse recapitalization with Private Millendo as the accounting acquirer. On the OvaScience Merger date, the primary pre-combination assets of OvaScience was cash, cash equivalents and marketable securities. At the time of the OvaScience Merger, OvaScience had net assets of$38.0 million , which was comprised primarily of cash, cash equivalents and marketable securities. Following the Closing of the OvaScience Merger, onDecember 7, 2018 , we issued and sold an aggregate of 1,230,158 shares of common stock to an institutional investor for$16.258065 per share, for total net proceeds of approximately$18.7 million . Integration of OvaScience Leading up to the closing date of the OvaScience Merger, OvaScience had agreed to terminate, assign or otherwise fully discharge substantially all obligations under all contracts to which OvaScience or its subsidiaries were a party, wind-down the operations, and dissolve certain subsidiaries. OvaScience has closed their offices and all employees were terminated or resigned prior to or at the closing. All operations are drawing to a close that were not already wound down prior to closing. Acquisition of Alizé InDecember 2017 , Private Millendo entered into agreements to acquire 100% of the outstanding ownership interests of Alizé, a privately held biotechnology company based inLyon, France focused on the development of a treatment for patients with PWS, through its lead product candidate, livoletide. InDecember 2017 , we acquired 83.6% of the issued and outstanding share capital of Alizé pursuant to a Share Sale and Contribution Agreement. The consideration included an upfront payment of$1.0 million , and the issuance of Private Millendo's Series A-1 preferred stock, Series B-1 preferred stock, and common-1 stock, which upon consummation of the OvaScience Merger were converted to shares of our common stock. InDecember 2018 , we acquired the remaining 16.4% of Alizé's issued and outstanding share capital from Otonnale SAS, or Otonnale. The consideration included a cash payment of$0.8 million and the issuance of the 442,470 shares of our common stock. The Share and Contribution Agreement with Alizé was accounted for as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in the livoletide development program. The$63.8 million in estimated fair value allocated to livoletide was expensed, as we determined the asset has no alternative future use. The total consideration given, net of cash acquired was$63.1 million . The assets acquired and liabilities assumed as of the acquisition date were$65.3 million and$2.2 million , respectively, for net assets acquired of$63.1 million . Components of Results of Operations Research and development expense Research and development expense consists primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include: •personnel expenses, including salaries, benefits and stock-based compensation expense; •costs of funding research performed by third-parties, including pursuant to agreements with contract research organizations, ("CROs"), as well as investigative sites and consultants that conduct our preclinical studies and clinical trials; •expenses incurred under agreements with contract manufacturing organizations ("CMOs"), including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials; •payments made under our third-party licensing agreements; •consultant fees and expenses associated with outsourced professional scientific development services; •expenses for regulatory activities, including filing fees paid to regulatory agencies; and •allocated expenses for facility costs, including rent, utilities, depreciation and maintenance. 45 -------------------------------------------------------------------------------- Milestone payment obligations incurred prior to regulatory approval of a product candidate, which are accrued when the event requiring payment of the milestone occurs are included in research and development expense. We typically use our employee, consultant and infrastructure resources across our development programs. We track certain outsourced development costs by product candidate, but do not allocate all personnel costs or other internal costs to specific product candidates. The following table summarizes our research and development expenses by product candidate, personnel expense and other expenses for the years endedDecember 31, 2020 and 2019, respectively: Year Ended December 31, 2020 2019 (in thousands) Livoletide expenses$ 8,086 $ 14,702 Nevanimibe expenses 965 2,899 MLE-301 expenses 5,211 2,723 Personnel expenses 5,501 6,559 Other expenses 611 960 Total$ 20,374 $ 27,843 Our research and development costs related to livoletide and nevanimibe have decreased significantly due to our decision to discontinue the livoletide and nevanimibe programs based on results from the Phase 2b ZEPHYR study in PWS and the Phase 2b clinical study in CAH, respectively. All costs, including estimated program closeout costs associated with these programs, were primarily recognized during the second quarter of 2020. Any revisions to estimated program closeout costs have been recognized as ofDecember 31, 2020 . Future expenses may be recorded as a result of changes to these estimated costs as closeout activities continue. Our research and development costs related to MLE-301 increased significantly due to preclinical studies and clinical trials during 2020, however, we expect future costs to decrease significantly due to our decision inJanuary 2021 to discontinue the MLE-301 program based on the data from the single ascending dose portion of the Phase 1 study. If we decide to resume product candidate development, the successful development of any future product candidates would be highly uncertain. We are also unable to predict when, if ever, material net cash inflows would commence from sales of any future product candidates that we may develop due to the numerous risks and uncertainties associated with clinical development, including risks and uncertainties related to: •the ongoing COVID-19 pandemic, including the potential impact on various aspects and stages of the clinical development process; •the number of clinical sites included in the trials; •the length of time required to enroll suitable patients; •the number of patients that ultimately participate in the trials; •the number of doses patients receive; •the duration of patient follow-up and number of patient visits; •the results of our clinical trials; •the establishment of commercial manufacturing capabilities; •the receipt of marketing approvals; and •the commercialization of product candidates. We may never succeed in obtaining regulatory approval for any future product candidates we may develop. General and administrative expense General and administrative expense consists primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees in executive, finance, accounting, business development, legal and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and 46 -------------------------------------------------------------------------------- maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property and corporate matters and fees for accounting, recruiting and consulting services. We expect our general and administrative expenses to increase during the first half of 2021 due to our corporate restructuring plan and the proposed Merger. Interest income, net Interest income represents amounts earned on our cash, cash equivalents and restricted cash balances. Results of operations Comparison of the years endedDecember 31, 2020 and 2019 Year Ended December 31, 2020 2019 (in thousands) Operating expenses: Research and development$ 20,374 $ 27,843 General and administrative 15,598 17,556 Loss from operations 35,972 45,399 Other expenses: Interest income, net (155) (1,038) Other loss 589 207 Net loss$ 36,406 $ 44,568 Research and development expense Research and development expense decreased by$7.5 million to$20.4 million for the year endedDecember 31, 2020 from$27.8 million for the year endedDecember 31, 2019 . The following table summarizes our research and development expenses for the years endedDecember 31, 2020 and 2019: Year Ended December 31, 2020 2019 (in thousands) Preclinical and clinical development expense$ 14,262 $
20,324
Compensation expense, other than stock-based compensation 4,524
5,260
Stock-based compensation expense 977
1,299
Other expenses 611
960
Total research and development expense$ 20,374 $
27,843
The increase in total research and development expense is attributable to: •a$6.1 million decrease in preclinical and clinical development expense primarily related to decrease spend due to discontinuing our development of the livoletide and nevanimibe programs offset by increased spend on MLE-301; •a$1.1 million decrease in compensation and stock-based compensation expenses primarily due to the reduction in force completed in the second quarter of 2020, as a result of the discontinuance of our livoletide program; and •a$0.3 million decrease in other expenses mainly related to a reduction in travel in connection with the COVID-19 pandemic and allocated overhead due to fewer research and development personnel. General and administrative expense General and administrative expense decreased by$2.0 million to$15.6 million for the year endedDecember 31, 2020 from$17.6 million for the year endedDecember 31, 2019 . The decrease was primarily due to lower professional fees and travel costs. Professional fees decreased$2.9 million mainly as a result of lower legal, accounting and consulting fees incurred as compared to the prior period. The decrease in these fees was due to lower expenditures on preparations for certain public 47 -------------------------------------------------------------------------------- reporting requirements in 2020 as compared to 2019, as well as lower consulting fees incurred related to assessing market opportunities for previous product candidates. Travel costs decreased$0.3 million as a result of a reduction in business travel in connection with the COVID-19 pandemic. These decreases were partially offset by increases in compensation expenses, including stock-based compensation, as well as increases in insurance, rent and facility related expenses. Compensation and stock-based compensation increased by$0.8 million as a result of termination benefits paid in connection with our reduction in force in the second quarter of 2020 and additional options granted in 2020. Insurance, rent and facility related expenses increased$0.4 million . These increases were due to higher insurance premiums and costs for additional leased office space compared to the prior period. Interest income, net Interest income, net decreased by$0.9 million to$0.2 million net interest income for the year endedDecember 31, 2020 from$1.0 million net interest income for the year endedDecember 31, 2019 . The change was primarily due to lower interest income received as a result of lower cash, cash equivalent and restricted cash balances and lower interest rates. Other loss Other loss increased by$0.4 million to$0.6 million for the year endedDecember 31, 2020 from$0.2 million for the year endedDecember 31, 2019 . The increase was due to higher foreign currency losses as a result of exchange rate fluctuations on transactions denominated in a currency other than our functional currency. Liquidity and Capital Resources The following table sets forth the primary uses of cash and cash equivalents for each year set forth below: Year Ended December 31, 2020 2019 (in thousands) Net cash used in operating activities$ (30,435) $ (41,222) Net cash (used in) provided by investing activities (26)
3,988
Net cash provided by financing activities 5,386
26,943
Effect of foreign currency exchange rate changes on cash 221
33
Net decrease in cash, cash equivalents and restricted cash
Uses of funds Operating activities During the year endedDecember 31, 2020 , we used$30.4 million of cash to fund operating activities. During the year endedDecember 31, 2020 , cash used in operating activities reflected our net loss of$36.4 million offset by non-cash charges of$5.7 million , principally related to stock-based compensation, amortization of our right-of-use assets and the foreign currency remeasurement loss and a net change in operating assets and liabilities of$0.3 million . During the year endedDecember 31, 2019 , we used$41.2 million of cash to fund operating activities. During the year endedDecember 31, 2019 , cash used in operating activities reflected our net loss of$44.6 million and a net change in operating assets and liabilities of$2.0 million , offset by non-cash charges of$5.4 million , principally related to stock-based compensation. Investing activities During the year ended December 31 2020, we paid$26,000 in purchases of property and equipment. During the year endedDecember 31, 2019 , we received$4.4 million in net proceeds from the sale of marketable securities offset by$0.4 million in purchases of property and equipment. Financing activities During the year endedDecember 31, 2020 , we received proceeds of$5.5 million received from the issuance of common stock, net of issuance costs paid. See Note 1 of our Consolidated Financial Statements for additional information related to the issuance of common stock. 48 -------------------------------------------------------------------------------- During the year endedDecember 31, 2019 , we received proceeds of$0.5 million from the exercise of options and warrants, and$26.7 million in proceeds received from the issuance of common stock, net of issuance costs paid. See Note 1 of our Consolidated Financial Statements for additional information related to the issuance of common stock. These proceeds were offset by$0.2 million for the repayment of debt. Funding requirements We expect our expenses to decrease as a result of our discontinuing the development of livoletide, nevanimibe and MLE-301 as compared to previous operations. However, we expect to continue to incur costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to liquidate our assets. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. InApril 2019 , we entered into an "at-the-market" ("ATM") equity distribution agreement withCitigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to$50.0 million . Subject to the terms of the ATM equity distribution agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. InMarch 2020 , we amended and restated the equity distribution agreement to includeSVB Leerink LLC as an additional sales agent for the ATM. InMarch 2020 , we sold 719,400 shares of our common stock under our ATM equity distribution agreement for net proceeds of approximately$5.5 million . We do not expect to sell additional shares under this ATM facility. As ofDecember 31, 2020 , we had cash, cash equivalents and restricted cash of$38.7 million , which we believe are sufficient to fund our planned operations through at least the next 12 months. Our future capital requirements will depend on the results of our ongoing strategic evaluation, including whether we complete the Merger with Tempest. If the Merger is not completed, we will reconsider our strategic alternatives which may include a dissolution of the company, pursuit of another strategic transaction or the continued operation of product development. In the event we resume product candidate development, our future capital requirements will depend on many factors, including: •the scope, progress, results and costs of any future preclinical studies and clinical trials; •the scope, prioritization and number of any future research and development programs; •the costs, timing and outcome of regulatory review of any future product candidates; •our ability to establish and maintain any future collaborations on favorable terms, if at all; •the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any; •the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing any future intellectual property rights and defending intellectual property-related claims; •the extent to which we acquire or in-license other product candidates and technologies; •the costs of securing manufacturing arrangements for commercial production; and •the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market any future product candidates. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, any future product candidates, if approved, may not achieve commercial success. If we elect to resume product candidate development, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these 49 -------------------------------------------------------------------------------- securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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 funds through additional 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. If we are unable to raise additional funds through equity or debt financings 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. Contractual Obligations and Commitments The following table summarizes our commitments to settle contractual obligations atDecember 31, 2020 : Year Ended December 31 2020, Less than 1 1 to 3 3 to 5 More than Year Years Years 5 Years Total (in thousands) Operating leases (1)$ 760 $ 1,589 $ 302 $ -$ 2,651 Long-term debt (2) 239 61 - - 300 Licensing arrangements (3) 20 - - - 20 (4) Total$ 1,019 $ 1,650 $ 302 $ -$ 2,971 (4) __________________________ (1)Reflects obligations pursuant to our office leases inAnn Arbor, Michigan . (2)Reflects obligations pursuant to our advance agreement withBpifrance Financing. InDecember 2017 , in connection with our acquisition of Alizé, we assumed €0.7 million of debt that Alizé had outstanding withBpifrance Financing. No interest is charged or accrued with respect to the debt. We are required to make quarterly principal payments between €17,500 to €50,000 per quarter through maturity. In addition to the quarterly payments, we could be obligated to pay, if applicable, no later thanMarch 31 of each year starting fromJanuary 1, 2016 , a reimbursement annuity equal to 20% of the proceeds generated by us from license, assignment or revenue-generating use of the livoletide program. We are permitted to repay the debt at any time. (3)Reflects obligations pursuant to our license agreements with theUniversity of Michigan , other than contingent obligations to make milestone and royalty payments where the amount, likelihood and timing of such payments are not fixed or determinable. Contingent payments pursuant to our license agreements withErasmus University Medical Center and Roche are also excluded from the above table. (4)We are obligated to pay theUniversity of Michigan minimum royalties of$20,000 per year from 2020 to 2023 and$0.2 million per year beginning in 2024 through expiration of the term of the license agreement. All such amounts due afterDecember 31, 2023 are excluded from the table above because the duration of the license agreement is not determinable. OnMarch 5, 2021 , we notified theUniversity of Michigan of our decision to terminate the UM License Agreement, which termination shall be effective as ofApril 30, 2021 , as agreed with theUniversity of Michigan . As a result, we expect our expenditures under this agreement to decrease in the year endingDecember 31, 2021 . The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty. Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. 50
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Critical Accounting Policies Our Consolidated Financial Statements are prepared in accordance withU.S. GAAP. The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of expenses during the reported period. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. Research and development expenses Research and development expense consists primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. At the end of each reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the service provided, we may record net prepaid or accrued expense relating to these costs. As ofDecember 31, 2020 , we had not made any material adjustments to our prior estimates of accrued research and development expenses. Stock-based compensation We measure expense for all stock options based on the estimated fair market value of the award on the grant date. We use the Black-Scholes option pricing model to value our stock option awards. We recognize compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. We have issued awards where vesting is subject to a performance condition and the recognition is based on the derived service period. Expense for awards with performance conditions would be estimated and adjusted on a quarterly basis based upon our assessment of the probability that the performance condition will be met. We have not issued awards where vesting is subject to a market condition. The fair market value of our common stock is determined based on the closing price of our common stock on theNasdaq Capital Market. Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for a description of recent accounting pronouncements applicable to its Consolidated Financial Statements.
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