Unless the context otherwise requires, all references in this section to the
"Company," "we," "us," or "our" refer to the business of
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our plans, estimates, and beliefs that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled "Risk Factors" included elsewhere in this report.
Overview
We are a late-stage clinical biopharmaceutical company focused on developing therapies for the local treatment of solid tumors. Our therapy platform, RenovoRx Trans-Arterial Micro-Perfusion, or RenovoTAMP™ utilizes approved chemotherapeutics with validated mechanisms of action and well-established safety and side effect profiles with the goal of increasing their efficacy, improving their safety, and widening their therapeutic window. RenovoTAMP combines our patented FDA cleared delivery system, RenovoCath®, with small molecule chemotherapeutic agents that can be forced across the vessel wall using pressure, targeting these anti-cancer drugs locally to the solid tumors. Our first product candidate, RenovoGemTM, is a drug and device combination consisting of intra-arterial gemcitabine and RenovoCath. FDA has determined that RenovoGem will be regulated as, and if approved we expect will be reimbursed as, a new oncology drug product. We have secured FDA Orphan Drug Designation for RenovoGem in our first two indications: pancreatic cancer and cholangiocarcinoma, or CCA. We have completed Phase 1/2 and observational registry studies in locally advanced pancreatic cancer, or LAPC, demonstrating safety and a median overall survival rate of 27.9 months in patients treated with RenovoGem and radiation versus expected survival rate (historical control) of 12-15 months in patients only receiving intravenous (IV) systemic chemotherapy dosed at 1,000mg/m2. RenovoGem is currently being evaluated in a Phase 3 registration Investigational New Drug, or IND, clinical trial and we expect to report data from a planned interim data readout in the second half of 2022. As we prepared the FDA Pre-Investigational New Drug, or Pre-IND, application for our second indication, hilar cholangiocarcinoma (cancer that occurs in the bile ducts that lead out of the liver and join with the gallbladder, also called hilar cholangiocarcinoma, or HCCA), we discovered an alternative approach to treat this patient population with our therapy platform that we believe may be more efficient. We have launched animal studies to explore this alternative approach and will file the Pre-IND application for our second indication once we have validated the preferable approach for our therapy for HCCA patients. We anticipate completing these preclinical studies for the alternative treatment pathway for HCCA during the first half of 2022 and launching the appropriate study in 2023. In addition, we may evaluate RenovoGem in other indications, potentially including locally advanced lung cancer, locally advanced uterine tumors, and glioblastoma, and develop other chemotherapeutic agents for intra-arterial delivery via RenovoCath.
Since our inception, we have devoted substantially all of our efforts to
developing our cancer therapy platform and product candidates, raising capital
and organizing and staffing our company. To date, we have financed our
operations with proceeds from the issuance of convertible preferred stock and
convertible notes. Through
We have incurred significant operating losses and generated negative cash flows
from operations since our inception. As of
? Advance clinical development of RenovoGem and our platform technology by continuing to enroll patients in our ongoing TIGeR-PaC Phase 3 clinical trial, expanding the number of clinical trials including our planned clinical trial in HCCA, and advancing RenovoGem through preclinical and clinical development in additional indications; ? Hire additional research, development, engineering, and general and administrative personnel; ? Maintain, expand, enforce, defend, and protect our intellectual property portfolio; and ? Expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company. 20
In addition to the variables described above, if and when any of our product candidates successfully complete development, we will incur substantial additional costs associated with establishing a sales, marketing, medical affairs and distribution infrastructure to commercialize products for which we may obtain marketing approval, regulatory filings, marketing approval, and post-marketing requirements, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.
As a result, we will need significant additional funding to support our continuing operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity issuances, debt financings and collaborations, licenses or other similar arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts and additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements or other strategic transactions in the future, we may have to relinquish valuable rights to our technologies or future revenue streams or 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 development or future commercialization efforts.
Impact of COVID-19
In
In response to public health directives and orders and to help minimize the risk of the virus to employees, we have taken precautionary measures, including implementing work-from home and/or hybrid work policies for our employees. The COVID-19 pandemic also has negatively affected, and we expect will continue to negatively affect, our clinical studies. For example, we have faced challenges in conducting our Phase 3 clinical trial, including recruiting subjects and accommodating patient visits. Additionally, our service providers and their operations may be disrupted, temporarily closed or experience worker or supply shortages, which could result in additional disruptions or delays in shipments of purchased materials or the continued development of our product candidates. To date, we have not suffered material supply chain disruptions.
We are not able to estimate the duration of the pandemic and the potential
impact on our business. As the global pandemic of COVID-19 continues to evolve,
it could continue to result in significant long-term disruption of global
financial markets, reducing our ability to raise additional capital when needed
and on acceptable terms, if at all, which could negatively affect our liquidity.
The extent to which the COVID-19 pandemic impacts our clinical development and
regulatory efforts will depend on future developments that are highly uncertain
and cannot be predicted with confidence, such as the duration of the outbreak,
vaccine and infection rates, new travel restrictions, quarantines and social
distancing requirements in
Components of Our Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements.
21 Operating Expenses Research and Development
Research and development expenses consist of costs related to the research and development of our platform technology. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing the service of third-party clinical trial sites and contract research organizations to assist us with the execution of our clinical trials. In addition, we have FDA 510(k) clearance for the RenovoCath delivery device, which comprises part of the RenovoGem product. Accordingly, we are able to charge our clinical trial sites for the RenovoCath delivery device. To date, payments from clinical trial sites in consideration for RenovoCath delivery devices have been adequate to cover our direct manufacturing costs. Any payments we receive from clinical trial sites as consideration for use of RenovoCath delivery devices offset our research and development expenses. We expect our research and development expenses to increase for the foreseeable future as we continue the development of our product candidates and enroll subjects in our ongoing clinical Phase 3 trial, initiate future clinical trials and pursue regulatory approval of our product candidates. It is difficult to predict with any certainty the duration and costs of completing our current or future clinical trials of our product candidates or if, when or to what extent we will achieve regulatory approval and generate revenue from the commercialization and sale of our product candidates. The duration, costs and timing of clinical trials and other development of our product candidates will depend on a variety of factors, including uncertainties in clinical trial enrollment, timing and extent of future clinical trials, development of new product candidates and significant and changing government regulation. We may never succeed in achieving regulatory approval for any of our product candidates.
Our research and development expenses include:
? expenses incurred under agreements with clinical trial sites, contract research organizations, and consultants that conduct our clinical trials, ? costs of acquiring and developing clinical trial materials, ? personnel costs, including salaries, benefits, bonuses, and stock-based compensation for employees engaged in preclinical and clinical research and development, ? costs related to compliance with regulatory requirements, ? travel expenses, and ? facilities, insurance, and other allocated expenses which include direct and allocated expenses for rent, insurance and other general overhead costs.
Research and development costs are expensed as incurred. Costs for certain development activities, such as clinical trials and preclinical studies, are recognized based on evaluation of progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by third party vendors.
Due to the impact of the COVID-19 pandemic and work-from-home policies and other operational limitations mandated by federal, state, and local governments as a result of the pandemic, certain of our research and development activities have been delayed and may be further delayed until such operational limitations are lifted.
General and Administrative
General and administrative expenses consist of salaries, benefits, and
stock-based compensation for personnel in executive, finance and administrative
functions, professional services and associated costs related to accounting,
tax, audit, legal, intellectual property and other matters, consulting costs,
conferences, travel and allocated expenses for rent, insurance and other general
overhead costs. Following the listing of our common stock on Nasdaq, we expect
to continue to incur additional expenses as a result of operating as a public
company, including costs to comply with the rules and regulations of the
22 Other Income (Expenses), Net Interest Income (Expense) Net
Interest expense consists of charges relating to the amortization of the debt
discount and debt issuance costs as well as interest on amounts outstanding on
our convertible notes. In
Interest income is earned from cash deposited in our money market account.
Other Income, Net
Other income, net primarily represents the mark-to-market adjustment on the
derivative liability resulting from the 2020 and 2021 Convertible Notes. Upon
the completion of our IPO in
Gain (Loss) on Loan Extinguishment
The gain (loss) on loan extinguishment represents the loss from the conversion and settlement of our 2020 and 2021 Convertible Notes as well as the gain on loan extinguishment from the forgiveness and cancellation of our PPP loan.
Income Tax Expense
We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. Deferred income tax assets and liabilities are recorded net and classified as noncurrent on the balance sheets. A valuation allowance is provided against our deferred income tax assets when their realization is not reasonably assured.
We are subject to income taxes in the federal and state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize tax liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is more-likely-than-not (greater than 50%) of being realized upon settlement. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
On
23 Results of Operations
The following table summarizes the significant components of our results of operations for the periods presented (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Statements of Operations Data: Operating expenses: Research and development$ 767 $ 727 $ 1,938 $ 1,934 General and administrative 628 183 1,377 631 Total operating expenses 1,395 910 3,315 2,565 Loss from operations (1,395 ) (910 ) (3,315 ) (2,565 ) Other income (expense), net Interest expense, net (208 ) (186 ) (835 ) (355 ) Other income, net 170 - 119 - Gain (loss) on loan extinguishment (78 ) - 62 - Total other expense, net (116 ) (186 ) (654 ) (355 ) Net loss$ (1,511 ) $ (1,096 ) $ (3,969 ) $ (2,920 )
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30, Change 2021 2020 $ % (unaudited)
Operating expenses:
Research and development
628 183 445 243 % Total operating expenses 1,395 910 485 53 % Loss from operations (1,395 ) (910 ) (485 ) 53 % Other income (expense), net Interest expense, net (208 ) (186 ) (22 ) 12 % Other income, net 170 - 170 100 % Loss on loan extinguishment (78 ) - (78 ) 100 % Total other expense, net (116 ) (186 ) 70 (38 )% Net loss$ (1,511 ) $ (1,096 ) $ (415 ) 38 % Research and Development
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
24 Interest Expense, Net
Interest expense, net for the three months ended
Other Income, Net
Other income, net for the three months ended
Loss on Loan Extinguishment
The loss on loan extinguishment, representing the unamortized debt discount on
our 2020 and 2021 Convertible Notes, of
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30, Change 2021 2020 $ % (unaudited)
Operating expenses:
Research and development
(3,315 ) (2,565 ) (750 ) 29 % Other income (expense), net Interest expense, net (835 ) (355 ) (480 ) 135 % Other income, net 119 - 119 100 % Gain on loan extinguishment 62 - 62 100 % Total other expense, net (654 ) (355 ) (299 ) 84 % Net loss$ (3,969 ) $ (2,920 ) $ (1,049 ) 36 % Research and Development
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
25 Interest Expense, Net
Interest expense, net for the nine months ended
Other Income, Net
Other income, net for the nine months ended
On
Gain on Loan Extinguishment
The gain on loan extinguishment of
Liquidity and Capital Resources
For the three and nine months ended
As of
Based on our current operating plan, we expect that our current cash and cash
equivalents as of
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses and negative cash flows from our operations. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever.
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We have financed our operations primarily through the issuance and sale of
convertible preferred stock and convertible debt. Through the date of this
report, we have raised an aggregate of
Cash Flows
Our primary uses of cash are to fund our operations including research and development and general and administrative expenses. We will continue to incur operating losses in the future and expect that our research and development and general and administrative expenses will continue to increase as we continue our research and development efforts with respect to clinical development of our product candidates and further develop our platform. We expect that we will use a substantial portion of the net proceeds of this offering, in combination with our existing cash and cash equivalents, for these purposes and for the increased expenses associated with being a public company. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
The following table summarizes our cash flows for the periods indicated (in thousands): Nine Months Ended September 30, 2021 2020 (unaudited) Net cash provided by (used in): Operating activities$ (3,358 ) $ (2,558 ) Investing activities (15 ) - Financing activities 19,303 2,746
Increase in cash and cash equivalents
Cash used in operating activities for the nine months ended
Net cash used in investing activities for the nine months ended
Cash Provided by Financing Activities
Net cash provided by financing in the nine months ended
Contractual Obligations and Other Commitments
As of the date of this report, we have no contractual obligations or other
commitments. In
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Critical Accounting Policies and Significant Judgments and Estimates
The accompanying management's discussion and analysis of our financial condition
and results of operations are based upon our unaudited condensed interim
financial statements and the related disclosures, which have been prepared in
accordance with accounting principles generally accepted in
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective, or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) we are required to make assumptions about matters that are highly uncertain at the time of the estimate? and (ii) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Clinical Trial Expenses
We make payments in connection with our Phase 3 clinical trial under contracts with clinical trial sites and contract research organizations that support conducting and managing clinical trials. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. A portion of the obligation to make payments under these contracts depends on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones.
Expenses related to clinical trials are accrued based on estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), the accruals are adjusted accordingly. Revisions to contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
Stock-Based Compensation
We calculate the fair value of stock options using the Black-Scholes option pricing model, which incorporates various assumptions including the fair value of our common stock, volatility, expected life, and risk-free interest rate. Compensation related to service-based awards is recognized starting on the grant date on a straight-line basis over the vesting period, which is generally four years.
Determining the grant date fair value of options using the Black-Scholes option pricing model requires management to make assumptions and judgments. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. The assumptions and estimates are as follows:
Fair Value of Common Stock-Given the absence of a public trading market prior to the Company's IPO, our Board of Directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included but were not limited to: (i) contemporaneous third-party valuations of common stock; (ii) the prices for preferred stock sold to outside investors; (iii) the rights and preferences of preferred stock relative to common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of the business, given prevailing market conditions. The methodology to determine the fair value of our common stock included estimating the fair value of the enterprise using the "backsolve" method, which is a market approach that assigns an implied enterprise value by accounting for all share class rights and preferences based on the latest round of financing. The total equity value implied was then applied in the context of an option pricing model to determine the value of each class of our shares.
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Expected Term-The expected term represents the period that the stock-based awards are expected to be outstanding. We determine the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. For stock options granted to non-employees, the expected term equals the remaining contractual term of the option from the vesting date.
Expected Volatility-Given the absence of a public trading market, the expected volatility was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in our industry that are either similar in size, stage, or financial leverage, over a period equivalent to the expected term of the awards.
Risk-Free Interest Rate-The risk-free interest rate is calculated using the
average of the published interest rates of
Dividend Rate-The dividend yield assumption is zero as we have no plans to make dividend payments.
The determination of the fair value of our common stock after our IPO on
Convertible Instruments and Embedded Derivatives
We evaluate all our agreements to determine whether such instruments have
derivatives or contain features that qualify as embedded derivatives. We account
for certain redemption features that are associated with the terms of
convertible notes as liabilities at fair value and adjust the instruments to
their fair value at the end of each reporting period. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each reporting
date, with changes in the fair value reported in other income (expense), net in
the statements of operations. Derivative instrument liabilities are classified
in the balance sheets as current or non-current based on whether net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date. As of
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" as defined in the JOBS Act. Under the JOBS
Act, companies have extended transition periods available for complying with new
or revised accounting standards. We have elected this exemption to delay
adopting new or revised accounting standards. We will remain an emerging growth
company until the earlier of (1)
? we may present only two years of audited financial statements, plus unaudited interim condensed financial statements for any interim period, and related Management's Discussion and Analysis of Financial Condition and Results of Operations; ? we may avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; ? we may provide reduced disclosure about our executive compensation arrangements; and ? we do not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.
We have elected to take advantage of certain reduced disclosure obligations in this Quarterly Report on Form 10-Q and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
We are also a "smaller reporting company," meaning that the market value of our
stock held by non-affiliates plus the proposed aggregate amount of gross
proceeds to us as a result of this offering is less than
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies to our interim financial statements included elsewhere in this report.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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