The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our Condensed Consolidated
Financial Statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our audited consolidated financial statements and
related notes for the year ended December 31, 2020 included in our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on
March 25, 2021. Some of the statements contained in this discussion and analysis
or set forth elsewhere in this Quarterly Report on Form 10-Q, including
information with respect to our plans and strategy for our business, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. The words "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intend," "may," "might," "plan," "potential," "predict," "project,"
"should," "target," "would," and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We have based these forward-looking statements on our
current expectations and projections about future events. The following
information and any forward-looking statements should be considered in light of
factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly
including those risks identified in Part II-Item 1A "Risk Factors" and our other
filings with the SEC.
Our actual results and timing of certain events may differ materially from the
results discussed, projected, anticipated or indicated in any forward-looking
statements. We caution you that forward-looking statements are not guarantees of
future performance and that our actual results of operations, financial
condition and liquidity and the development of the industry in which we operate
may differ materially from the forward-looking statements contained in this
Quarterly Report on Form 10-Q. Statements made herein are as of the date of the
filing of this Quarterly Report on Form 10-Q with the SEC and should not be
relied upon as of any subsequent date. Even if our results of operations,
financial condition and liquidity and the development of the industry in which
we operate are consistent with the forward-looking statements contained in this
Quarterly Report on Form 10-Q, they may not be predictive of results or
developments in future periods. We disclaim any obligation, except as
specifically required by law and the rules of the SEC, to publicly update or
revise any such statements to reflect any change in our expectations or in
events, conditions or circumstances on which any such statements may be based or
that may affect the likelihood that actual results will differ from those set
forth in the forward-looking statements.
We caution readers not to place undue reliance on any forward-looking statements
made by us, which speak only as of the date they are made.
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Overview
We are a clinical-stage biopharmaceutical company focused on the development and
commercialization of the investigational therapy Haduvio (nalbuphine ER) to
treat serious neurologically mediated conditions. We are developing Haduvio for
the treatment of chronic pruritus associated with prurigo nodularis and chronic
cough in patients with idiopathic pulmonary fibrosis, or IPF. We are also
developing Haduvio in levodopa-induced dyskinesia, or LID, in patients with
Parkinson's disease.
We are conducting a Phase 2b/3 clinical trial of Haduvio, which we refer to as
the Phase 2b/3 PRISM trial, in patients with severe pruritus associated with
prurigo nodularis. The Phase 2b/3 PRISM trial is a randomized, double-blind,
placebo controlled, two-arm treatment study that is designed to evaluate the
safety and anti-pruritic efficacy of Haduvio in patients in the United States,
or U.S., and Europe. In accordance with the protocol for the Phase 2b/3 PRISM
trial, we conducted a sample size re-estimation, or SSRE, analysis in July 2020,
following such time as approximately 45% of the initial targeted number of
subjects in the trial were evaluable for the primary endpoint. Based on the
analysis, the independent Data Monitoring Committee, or DMC, recommended that
the Phase 2b/3 PRISM trial should continue and that the trial size should
increase from an initial enrollment target of 240 to 360 subjects, which
maintains the statistical power for the primary endpoint. Based on the DMC's
recommendation, we have increased the planned trial size to 360 subjects. The
pace of enrollment in the trial was impacted by the pandemic caused by the novel
coronavirus, or COVID-19, which pandemic we refer to as the COVID-19 pandemic,
as new subject screening and most subject enrollment were temporarily halted in
March 2020. Our sites began to restart subject screening and enrollment during
May and June 2020. We currently have more than 60 active sites globally and
approximately 90% of the planned 360 subjects have enrolled in the trial.
Subject to the uncertainties associated with the COVID-19 pandemic, we expect to
report top-line data in the first half of 2022. If the Phase 2b/3 PRISM trial is
successful, we expect that we will use the Phase 2b/3 PRISM trial and an
additional Phase 3 clinical trial that we believe we will need to conduct to
support the submission of a new drug application , or NDA, to the U.S. Food and
Drug Administration, or FDA, a marketing authorization application, or MAA, to
the European Medicines Agency, or EMA, and an MAA to the Medicines and
Healthcare Products Regulatory Agency in the United Kingdom, or MHRA, for
Haduvio for the treatment of pruritus associated with prurigo nodularis.
We are also conducting a Phase 2 clinical trial of Haduvio for chronic cough in
patients with IPF, which we refer to as the Phase 2 CANAL trial. The Phase 2
CANAL trial is a randomized, double-blind, placebo controlled, two-treatment,
two-period, crossover study that is designed to evaluate the efficacy, safety,
tolerability and dosing of Haduvio for chronic cough in patients with IPF. This
trial is designed to enroll approximately 60 subjects with a goal to have 44
study completers. We are conducting the trial at multiple sites in the U.K. Due
to the COVID-19 pandemic and the specific at-risk nature of IPF patients, our
clinical sites had previously halted their enrollment and treatment of subjects
in this trial in March 2020. While subject screening and enrollment resumed at
certain clinical trial sites in the fourth quarter of 2020, all sites in the
trial paused screening again in December 2020, in response to a shelter-in-place
directive from the U.K. government. This shelter-in-place directive expired in
March 2021, and the remaining COVID-19 pandemic related restrictions were lifted
in July 2021. The U.K. government may choose to reinstate any and/or all of the
restrictions in the future depending on COVID-19 infection rates. Screening
activity has resumed and is steadily progressing at most sites following the
lifting of the shelter-in-place directive. However, we expect that some sites
may take longer to resume their trial activity as the clinical research related
infrastructure was disrupted by the COVID-19 pandemic and that other sites may
cease to participate in the trial entirely. Subject to the uncertainties
associated with the COVID-19 pandemic related restrictions in the U.K., we
expect to report top-line data for this trial in the first half of 2022.
With respect to LID, we have written the protocol for a Phase 2 clinical trial
for LID in patients with Parkinson's disease. We plan to determine next steps in
the program once we complete the Phase 2b/3 PRISM and Phase 2 CANAL trials.
We are currently focusing our financial and operational resources on completing
the Phase 2b/3 PRISM and the Phase 2 CANAL trials. After we receive top-line
data from both of these trials, we will evaluate additional indications for
which we may choose to pursue the development of Haduvio.
Since commencing operations in 2011, we have devoted substantially all our
efforts and financial resources to the clinical development of Haduvio. We have
not generated any revenue from product sales and, as a result, we have never
been profitable and have incurred net losses in each year since commencement of
our operations. As of September 30, 2021, we had an accumulated deficit of
$172.4 million, primarily as a result of research and development and general
and administrative expenses. We do not expect to generate product revenue unless
and until we obtain marketing approval for and commercialize Haduvio for the
treatment of pruritus associated with prurigo nodularis, chronic cough in
patients with IPF or LID in patients with Parkinson's disease and we can provide
no assurance that we will ever generate revenue or profits.
In June 2020, we entered into an at-the-market Sales Agreement with SVB Leerink
LLC, or SVB Leerink, which we refer to as the ATM Sales Agreement, under which
we may issue and sell shares of common stock, from time to time, having an
aggregate offering price of up to $12.0 million. Sales of common stock under the
ATM Sales Agreement may be made by any method that is deemed an "at-the-market"
offering as defined in Rule 415(a)(4) under the Securities Act of 1933, or the
Securities Act, as amended. We are not obligated to make any sales of our common
stock under the ATM Sales Agreement. We began making sales pursuant to the ATM
Sales Agreement in July 2020 and as of September 30, 2021, we had issued and
sold an aggregate of 3,583,394 shares of
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common stock for gross proceeds of $10.9 million, before deducting estimated
commissions and allocated fees of $0.8 million. Under the terms of the October
2021 Private Placements, as described below, we agreed to not issue and sell
additional shares under the ATM Sales Agreement on or prior to January 4, 2022.
In August 2020, we entered into a loan and security agreement, or the SVB Loan
Agreement, with Silicon Valley Bank, or SVB pursuant to which SVB provided a
term loan, or the SVB Term Loan, to us in the original principal amount of $14.0
million. On the first business day of each month, we are required to make
monthly interest payments and commencing on March 1, 2022, we will be required
to repay the SVB Term Loan in 24 consecutive installments of principal plus
monthly payments of accrued interest. All outstanding principal and accrued and
unpaid interest under the SVB Term Loan and all other outstanding obligations
with respect to the SVB Term Loan are due and payable in full on February 1,
2024. The SVB Loan Agreement permits voluntary prepayment of all, but not less
than all, of the SVB Term Loan, subject to a prepayment premium. In July 2021,
we and SVB entered into an amendment to the SVB Loan Agreement, which we refer
to as the Loan Amendment, that modified the conditions under which we will be
required to cash collateralize the outstanding amounts owed to them under the
SVB Loan Agreement. For further discussion of the SVB Term Loan and the Loan
Amendment, see "-Liquidity and Capital Resources".
On October 5, 2021 and October 18, 2021, we issued and sold in two private
placements, or the October 2021 Private Placements, in the aggregate (i)
4,225,053 shares of our common stock and accompanying warrants to purchase an
aggregate of 8,450,106 shares of our common stock, and (ii) pre-funded warrants
to purchase up to an aggregate of 4,926,069 shares of our common stock and
accompanying warrants to purchase an aggregate of 9,852,138 shares of our common
stock. Each share of our common stock and accompanying common stock warrants
were sold together at a combined price of $1.62, and each pre-funded warrant and
accompanying common stock warrants were sold together at a combined price of
$1.619, for gross proceeds of approximately $14.8 million. Each pre-funded
warrant has an exercise price of $0.001 per share, became exercisable
immediately upon issuance and will continue to be exercisable until exercised in
full. Of the accompanying common stock warrants, warrants to purchase an
aggregate of 9,151,122 shares will expire in April 2025 and warrants to purchase
an aggregate of 9,151,122 shares will expire in October 2028. The accompanying
common stock warrants have an exercise price of $1.37 per share and became
exercisable immediately upon issuance.
As of September 30, 2021, we had cash and cash equivalents of $29.3 million and
in October 2021 we received approximately $14.8 million in gross proceeds from
the October 2021 Private Placements. We believe that our existing cash and cash
equivalents will not enable us to fund our operating expenses and capital
expenditure requirements for 12 months from the date of issuance of the
Condensed Consolidated Financial Statements included in this Quarterly Report on
Form 10-Q. After considering various risks and uncertainties as prescribed by
Accounting Standards Update No. 2014-15, Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern (Subtopic 205-40), we concluded
that there is substantial doubt about our ability to continue as a going concern
as of the date of issuance of the Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q without additional capital. We
have based our estimate as to how long we expect our existing cash and cash
equivalents to continue to fund our operations on assumptions that may prove to
be wrong and we could use our available capital resources sooner than we expect.
See "-Liquidity and Capital Resources." Our future viability beyond that point
is dependent on our ability to raise additional capital to finance our
operations.
We expect to incur substantial expenditures in the foreseeable future as we
advance Haduvio through clinical development, the regulatory approval process
and, if approved, commercial launch activities. Specifically, in the near term,
we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM
trial in patients with pruritus associated with prurigo nodularis and the
additional Phase 3 clinical trial we believe we will be required to conduct to
support the submission of an NDA to the FDA for Haduvio for the treatment of
pruritus associated with prurigo nodularis, our ongoing Phase 2 CANAL trial in
chronic cough in patients with IPF, the development and validation of our
commercial manufacturing process for Haduvio and other development activities,
including potentially commencing Phase 2 clinical trials for the treatment of
LID in patients with Parkinson's disease. In addition, we may continue to incur
additional expenses as a result of the COVID-19 pandemic and related clinical
trial delays and interruptions.
We will need substantial additional funding to support our continuing operations
and pursue our growth strategy. Until such time as we can generate significant
revenue from sales of Haduvio, if ever, we expect to finance our operations
through the sale of equity, debt financings or other capital sources, including
potential collaborations with other companies or other strategic transactions.
Adequate funding may not be available to us on acceptable terms or at all. If we
fail to raise capital or enter into such agreements as and when needed, we may
have to significantly delay, scale back or discontinue the development and
commercialization of Haduvio for one or more indications or delay our efforts to
expand our product pipeline.
Impacts of the COVID-19 Pandemic
The COVID-19 pandemic and government measures taken in response thereto have had
a significant impact, both direct and indirect, on segments of the global
economy and have interrupted our clinical trial activities, disrupted our
business operations and have the potential to interrupt our supply chain. We
have experienced restrictions and delays at our existing clinical sites. For
example, in our ongoing Phase 2b/3 PRISM trial, new subject screening and most
enrollment was temporarily halted due to the COVID-19 pandemic in March 2020.
Many of our sites restarted subject screening and enrollment throughout May and
June 2020. Furthermore, multiple sites in the Phase 2b/3 PRISM trial required
some remote monitoring of subject data, although all sites have
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now re-opened for in-person monitoring visits. We also experienced slower
recruitment activities in the Phase 2b/3 PRISM trial worldwide through the
latter part of 2020 and the beginning of 2021 due to the resurgence of COVID-19.
In addition, the clinical sites in our ongoing Phase 2 CANAL trial temporarily
suspended enrollment and treatment of subjects in the trial due to the
vulnerability of IPF patients to COVID-19 and as a result, we amended the
protocol for the trial to reduce the number of in-person subject visits and
procedures. While subject screening and enrollment for our Phase 2 CANAL trial
resumed at certain clinical trial sites in the fourth quarter of 2020, all sites
in the trial paused screening again in December 2020 in response to a
shelter-in-place directive from the U.K. government. This shelter-in-place
directive expired in March 2021 and the other COVID-19 pandemic related
restrictions were lifted in July 2021. The U.K. government may choose to
reinstate any and/or all of the restrictions in the future depending on COVID-19
infection rates. Screening activity has resumed and is steadily progressing at
most sites following the lifting of the shelter-in-place directive. However, we
expect that some sites may take longer to resume their trial activity as the
clinical research related infrastructure was disrupted by the COVID-19 pandemic
and that other sites may cease to participate in the trial entirely. The
COVID-19 pandemic may also adversely affect our ability to recruit and retain
principal investigators and site staff who, as healthcare providers, may have
heightened exposure to COVID-19, and may result in further disruptions to our
clinical trials due to prioritization of hospital and medical resources toward
the outbreak, restrictions on travel of patients and healthcare providers,
potential unwillingness of patients to enroll in trials at this time or the
inability of patients to comply with clinical trial protocols if quarantines or
travel restrictions impede patient movement or interrupt healthcare services.
The response to the COVID-19 pandemic may also redirect resources of regulators
in a way that could adversely impact our ability to progress towards regulatory
approvals and we may face impediments to regulatory meetings and approvals
relating to our clinical trials due to measures intended to limit in-person
interactions.
The COVID-19 pandemic may also affect employees of third-party contract research
organizations located in affected geographies that we rely upon to carry out our
clinical trials. The spread of COVID-19 or another infectious disease, could
also negatively affect the operations at our third-party suppliers, which could
result in delays or disruptions in the supply of drug product used in our
clinical trials.
We have taken temporary precautionary measures intended to help minimize the
risk of the virus to our employees, including allowing employees to work
remotely part of the week and suspending non-essential travel worldwide for our
employees.
Components of Operating Results
Operating Expenses
Research and Development Expenses
All of our research and development expenses consist of expenses incurred in
connection with the development of Haduvio. These expenses include
personnel-related costs, including stock-based compensation, consulting costs,
contract manufacturing costs and fees paid to clinical research organizations,
or CROs, to conduct certain research and development activities on our behalf.
We do not allocate all of our costs by each indication for which we are
developing Haduvio, as a significant amount of our development activities
broadly support all indications. In addition, several of our departments support
our Haduvio drug candidate development program and we do not identify internal
costs for each potential indication.
We expect our research and development expenses to increase over the next few
years as we pursue our development program, pursue regulatory approval of
Haduvio in the U.S., Europe and other jurisdictions outside the U.S. and prepare
for a possible commercial launch of Haduvio. Predicting the timing or the cost
to conduct our Haduvio development program and prepare for a possible commercial
launch of Haduvio is difficult and delays may occur because of many factors
including factors outside of our control. For example, if the FDA or other
regulatory authorities were to require us to conduct clinical trials beyond
those that we currently anticipate or if we experience significant delays in
enrollment in any of our clinical trials, whether as a result of the COVID-19
pandemic or otherwise, we could be required to expend significant additional
financial resources and time on our development program. Furthermore, we are
unable to predict when or if, Haduvio will receive regulatory approval in the
U.S. or elsewhere with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related
costs, including stock-based compensation for personnel in executive, finance,
commercial and other administrative functions; professional fees for legal,
consulting and accounting services; as well as rent and other general operating
expenses not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase as a
result of increased personnel costs, including stock-based compensation and
expanded infrastructure.
Other (Expense) Income, Net
Change in Fair Value of Term Loan Derivative Liability
In connection with the SVB Term Loan, upon the occurrence of the Phase 3 Event,
the interest rate on the SVB Term Loan will increase by 2.00%. For further
discussion of the Phase 3 Event, see "Interest Expense". This contingent
interest rate increase
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represents a free-standing financial instrument. Accordingly, we accounted for
the contingent interest rate increase as a derivative under Accounting Standards
Codification or ASC, 815, Derivatives and Hedging and therefore, we recorded a
term loan derivative liability for the contingent interest rate increase at its
fair value. We adjust this liability to fair value at each reporting date it
remains outstanding. We recognized changes in the fair value of this term loan
derivative in our statements of operations as a component of other (expense)
income, net.
Other Expense
Other expense consists of the value of the shares of our common stock that we
issued to Lincoln Park Capital Fund, LLC, or Lincoln Park, as a commitment fee
as consideration for Lincoln Park's commitment to purchase shares of our common
stock under the common stock purchase agreement, or the LPC Purchase Agreement,
we entered into with Lincoln Park in June 2021.
Interest Income
Interest income consists of interest earned from money market funds on our cash
and cash equivalents.
Interest Expense
In August 2020, we entered into the SVB Loan Agreement under which we borrowed
$14.0 million under a term loan or the SVB Term Loan. In connection with the SVB
Term Loan, we recognize interest expense which includes amortization of deferred
financing charges, accretion of loan discount-financing costs, accrual of the
final payment fee, amortization of the term loan discount-interest and the
stated interest on the SVB Term Loan. The SVB Term Loan bears interest at a
floating rate per annum equal to the greater of (A) the prime rate plus 1.00%
and (B) 4.25%. If SVB receives evidence satisfactory to it that we have (i)
received positive data for the Phase 2b/3 PRISM trial sufficient to advance
Haduvio into a second Phase 3 clinical trial for chronic pruritus associated
with prurigo nodularis and (ii) raised sufficient financing to fund such Phase 3
clinical trial and our operations, which we refer to together as the Phase 3
Event, the interest rate under the SVB Term Loan will be adjusted to a floating
rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25%. The
SVB Term Loan requires interest-only payments until March 2022. We will then be
required to repay the SVB Term Loan in 24 consecutive installments of principal
plus monthly payments of accrued interest. All outstanding principal and accrued
and unpaid interest under the SVB Term Loan and all other outstanding
obligations with respect to the SVB Term Loan are due and payable in full on
February 1, 2024.
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the periods
indicated (in thousands):
Three Months Ended September 30,
2021 2020 Change
Operating expenses:
Research and development $ 4,718 $ 4,828 $ (110 )
General and administrative 2,229 2,416 (187 )
Total operating expenses 6,947 7,244 (297 )
Loss from operations (6,947 ) (7,244 ) 297
Other (expense) income:
Change in fair value of term loan
derivative liability (5 ) - (5 )
Interest income 2 3 (1 )
Interest expense (303 ) (148 ) (155 )
Total other expense, net (306 ) (145 ) (161 )
Loss before income taxes (7,253 ) (7,389 ) 136
Income tax (expense) benefit (2 ) 11 (13 )
Net loss $ (7,255 ) $ (7,378 ) $ 123
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Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods indicated (in thousands):
Three Months Ended September 30,
2021 2020 Change
Clinical development expenses $ 3,175 $ 3,683 $ (508 )
Personnel and related expenses 1,018 704 314
Consulting expenses and professional fees 377 334 43
Stock-based compensation expenses 91 82 9
Other research and development expenses 57 25 32
Total research and development expenses $ 4,718 $ 4,828 $ (110 )
Research and development expenses for the three months ended September 30, 2021
decreased to $4.7 million from $4.8 million for the corresponding period in
2020, primarily due to decreased purchases of clinical trial supplies. This
decrease was partially offset by an increase in personnel-related expenses as a
result of an increase in our employee headcount. For the periods presented, all
of our research and development expenses related to our development activity for
Haduvio.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30,
2021 decreased to $2.2 million from $2.4 million for the corresponding period in
2020. The decrease was primarily due to decreased market research costs as well
as lower stock-based compensation expense as a result of employee terminations,
which were partially offset by higher legal and other professional fees.
Other Expense, Net
Other expense, net for the three months ended September 30, 2021 was $0.3
million compared to $0.1 million for the corresponding period in 2020. This
change was primarily due to a $0.2 million increase in interest expense due to a
full quarter's recognition of interest expense on the SVB Term Loan as the SVB
Term Loan was entered into in August 2020.
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the periods
indicated (in thousands):
Nine Months Ended September 30,
2021 2020 Change
Operating expenses:
Research and development $ 16,805 $ 15,768 $ 1,037
General and administrative 7,398 7,528 (130 )
Total operating expenses 24,203 23,296 907
Loss from operations (24,203 ) (23,296 ) (907 )
Other (expense) income:
Change in fair value of term loan derivative
liability 29 - 29
Other expense (375 ) - (375 )
Interest income 7 174 (167 )
Interest expense (893 ) (148 ) (745 )
Total other (expense) income, net (1,232 ) 26 (1,258 )
Loss before income taxes (25,435 ) (23,270 ) (2,165 )
Income tax benefit 15 35 (20 )
Net loss $ (25,420 ) $ (23,235 ) $ (2,185 )
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Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods indicated (in thousands):
Nine Months Ended September 30,
2021 2020 Change
Clinical development expenses $ 11,223 $ 12,453 $ (1,230 )
Personnel and related expenses 3,460 2,104 1,356
Consulting expenses and professional fees 1,375 850 525
Stock-based compensation expenses 593 259 334
Other research and development expenses 154 102 52
Total research and development expenses $ 16,805 $ 15,768 $ 1,037
Research and development expenses for the nine months ended September 30, 2021
increased to $16.8 million from $15.8 million for the corresponding period in
2020, primarily due to an increase in personnel-related expenses as a result of
an increase in our employee headcount, including an increase in stock-based
compensation associated with the increase in employee headcount. Consulting and
professional fees were also higher. These increases were partially offset by
decreased clinical development expenses related to decreased purchases of
clinical trial supplies and decreased expenses reflecting the completion of our
Phase 1b clinical trial in patients with chronic liver disease in the first half
of 2020. These decreased clinical development expenses were partially offset by
increased costs associated with increased activity and enrollment in our ongoing
Phase 2b/3 PRISM trial. For the periods presented, all of our research and
development expenses related to our development activity for Haduvio.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2021
decreased to $7.4 million from $7.5 million for the corresponding period in
2020. The decrease was primarily due to decreased market research costs as well
as lower stock-based compensation expense as a result of employee terminations,
which were partially offset by higher legal and other professional fees.
Other (Expense) Income, Net
Other (expense) income, net for the nine months ended September 30, 2021 was an
expense of $1.2 million compared to income of less than $0.1 million for the
corresponding period in 2020. This change was primarily due to a $0.7 million
increase in interest expense due to a full nine months of recognition of
interest expense on the SVB Term Loan as the SVB Term Loan was entered into in
August 2020, as well as an increase of $0.4 million related to the value of the
shares of our common stock that we issued to Lincoln Park as consideration for
Lincoln Park's commitment to purchase shares of our common stock under the LPC
Purchase Agreement. Also contributing to the change was a decrease in interest
income of $0.2 million, primarily due to lower market interest rates and lower
average cash balances.
Liquidity and Capital Resources
Since our inception, we have not generated any revenue and have incurred
significant operating losses and negative cash flows from our operations. Prior
to the completion of our initial public offering, or the IPO, and concurrent
private placement in May 2019, we financed our operations primarily through
private placements of our preferred stock and convertible notes as well as
borrowings under our prior term loan with Solar Capital, Ltd. and Square 1 Bank,
or the Solar Term Loan. From inception to our IPO, we raised an aggregate of
$102.2 million in gross proceeds from sales of our preferred stock and
convertible notes and borrowed $15.0 million under the Solar Term Loan. As of
June 30, 2018, all amounts owed under the Solar Term Loan had been paid in full.
In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO and
1,500,000 shares of common stock in a concurrent private placement, in each case
at an offering price of $10.00 per share, for combined net proceeds of $62.1
million after deducting aggregate underwriting discounts and commissions and
private placement agent fees of $4.9 million and other offering expenses of $3.0
million.
In June 2020, we entered into the ATM Sales Agreement, under which we may issue
and sell shares of common stock, from time to time, having an aggregate offering
price of up to $12.0 million. Sales of common stock under the ATM Sales
Agreement may be made by any method that is deemed an "at-the-market" offering
as defined in Rule 415(a)(4) under the Securities Act. We are not obligated to
make any sales of our common stock under the ATM Sales Agreement. We began
making sales pursuant to the ATM Sales Agreement in July 2020 and as of
September 30, 2021 we had issued and sold an aggregate of 3,583,394 shares of
common stock for gross proceeds of $10.9 million, before deducting estimated
commissions and allocated fees of $0.8 million. Under the terms of the October
2021 Private Placements, we agreed to not issue or sell additional shares under
the ATM Sales Agreement on or prior to January 4, 2022.
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SVB Loan Agreement
In August 2020, we entered into the SVB Loan Agreement with SVB, pursuant to
which SVB provided the SVB Term Loan in the original principal amount of $14.0
million. The proceeds from the SVB Term Loan may be used by us for working
capital and general corporate purposes. The SVB Term Loan bears interest at a
floating rate per annum equal to the greater of (A) the prime rate plus 1.00%
and (B) 4.25%. If SVB receives evidence satisfactory to it that we have (i)
received positive data for the Phase 2b/3 PRISM trial, sufficient to advance
Haduvio into a second Phase 3 clinical trial for prurigo nodularis and (ii)
raised sufficient financing to fund such Phase 3 clinical trial and our
operations, the interest rate under the SVB Term Loan will be adjusted to a
floating rate equal to the greater of (A) the prime rate plus 3.00% and (B)
6.25%. On the first business day of each month, we are required to make monthly
interest payments and commencing on March 1, 2022, we will be required to repay
the SVB Term Loan in 24 consecutive installments of principal plus monthly
payments of accrued interest. All outstanding principal and accrued and unpaid
interest under the SVB Term Loan and all other outstanding obligations with
respect to the SVB Term Loan are due and payable in full on February 1,
2024. The SVB Loan Agreement permits voluntary prepayment of all, but not less
than all, of the SVB Term Loan, subject to a prepayment premium. Such prepayment
premium would be 3.00% of the principal amount of the SVB Term Loan if prepaid
prior to the first anniversary of the date on which we entered into the SVB Term
Loan or the Effective Date, 2.00% of the principal amount of the SVB Term Loan
if prepaid on or after the first anniversary of the Effective Date, but prior to
the second anniversary of the Effective Date and 1.00% of the principal amount
of the SVB Term Loan if prepaid on or after the second anniversary of the
Effective Date but prior to February 1, 2024. Upon repayment in full of the SVB
Term Loan, we will be required to pay a final payment fee equal to $1.2 million.
The SVB Term Loan and related obligations under the SVB Loan Agreement are
secured by substantially all of our properties, rights and assets, except for
our intellectual property (which is subject to a negative pledge under the SVB
Loan Agreement). The SVB Loan Agreement contains customary representations,
warranties, events of default and covenants. The occurrence and continuation of
an event of default could cause interest to be charged at the rate that is
otherwise applicable plus 5.00% (unless SVB elects to impose a smaller increase)
and would provide SVB with the right to accelerate all obligations under the SVB
Loan Agreement and exercise remedies against us and the collateral securing the
SVB Term Loan and other obligations under the SVB Loan Agreement, including
foreclosure against assets securing the SVB Term Loan and other obligations
under the SVB Loan Agreement, including our cash.
On July 6, 2021, we and SVB entered into the Loan Amendment. The Loan Amendment
modifies the conditions under which we are required to cash collateralize
outstanding amounts owed to SVB under the SVB Loan Agreement. Under the Loan
Amendment, if we fail to receive positive data in our Phase 2b/3 PRISM trial or,
prior to June 30, 2022, fail to raise sufficient net proceeds from the sale of
equity securities to finance our planned second Phase 3 clinical trial of
Haduvio for prurigo nodularis and our ongoing operations, each of which we refer
to as a Milestone Condition, we will be required to deposit unrestricted and
unencumbered cash equal to 100% of the principal amount of the SVB Term Loan
then outstanding in a cash collateral account with SVB, which can be used by SVB
to prepay the SVB Term Loan at any time. In addition, the Loan Amendment
provides that if we fail to maintain at least $20.0 million in unrestricted and
unencumbered cash in our accounts with SVB at any time prior to the satisfaction
of all the Milestone Conditions, we will be required to cash collateralize all
outstanding amounts owed to SVB under the SVB Loan Agreement. We would also have
been required to cash collateralize all outstanding amounts owed to SVB under
the SVB Loan Agreement if we did not raise at least $15.0 million in net
proceeds from the sale of equity securities during the period from June 1, 2021
through October 31, 2021. We satisfied this equity funding condition through a
combination of equity issuances under our ATM Sales Agreement and the proceeds
from the October 2021 Private Placements.
Private Placements
On October 5, 2021 and October 18, 2021, we issued and sold in two private
placements in the aggregate (i) 4,225,053 shares of our common stock and
accompanying warrants to purchase an aggregate of 8,450,106 shares of our common
stock, and (ii) pre-funded warrants to purchase up to an aggregate of 4,926,069
shares of our common stock and accompanying warrants to purchase an aggregate of
9,852,138 shares of our common stock. Each share of our common stock and
accompanying common stock warrants were sold together at a combined price of
$1.62, and each pre-funded warrant and accompanying common stock warrants were
sold together at a combined price of $1.619, for gross proceeds of approximately
$14.8 million. Each pre-funded warrant has an exercise price of $0.001 per
share, became exercisable immediately upon issuance and will continue to be
exercisable until exercised in full. Of the accompanying common stock warrants,
warrants to purchase an aggregate of 9,151,122 shares will expire in April 2025
and warrants to purchase an aggregate of 9,151,122 shares will expire in October
2028. The accompanying common stock warrants have an exercise price of $1.37 per
share and became exercisable immediately upon issuance.
Equity Purchase Agreement
On June 18, 2021, we entered into the LPC Purchase Agreement with Lincoln Park
for an equity line financing. The LPC Purchase Agreement provides that, subject
to the terms and conditions set forth therein, we have the right, but not the
obligation, to sell to Lincoln Park and Lincoln Park is obligated to purchase up
to $15.0 million of shares of common stock at our sole discretion, over a
24-month period commencing on July 23, 2021. We filed a registration statement
on Form S-1 covering the resale of shares of common stock that are issued to
Lincoln Park under the LPC Purchase Agreement, which was declared effective on
July 14, 2021. As part of the LPC Purchase Agreement, we issued 170,088 shares
of our common stock to Lincoln Park as consideration for its
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commitment to purchase shares of our common stock under the LPC Purchase
Agreement. Under the terms of the October 2021 Private Placements, we agreed to
not issue or sell additional shares under the LPC Purchase Agreement on or prior
to April 6, 2023.
Cash Flows
As of September 30, 2021, we had cash and cash equivalents of $29.3 million. Our
cash and cash equivalents are primarily held in money market accounts. The
following table summarizes our cash flows for each of the periods presented
below (in thousands):
Nine Months Ended September 30,
2021 2020 Change
Net cash used in operating activities $ (22,717 ) $ (20,076 ) $ (2,641 )
Net cash used in investing activities
- (27 ) 27
Net cash provided by financing activities 7,034 16,083 (9,049 )
Net decrease in cash and cash equivalents $ (15,683 ) $ (4,020 ) $ (11,663 )
Operating Activities
During the nine months ended September 30, 2021, operating activities used
$22.7 million of net cash, resulting from our net loss of $25.4 million and net
changes in our operating assets and liabilities of $0.1 million, partially
offset by non-cash charges of $2.8 million. The non-cash charges consisted
primarily of stock-based compensation expense of $2.0 million, $0.4 million of
accretion/accrual of term loan discounts and debt issuance costs and $0.4
million of other expense associated with the value of the shares of our common
stock that we issued to Lincoln Park as consideration for Lincoln Park's
commitment to purchase shares of our common stock under the LPC Purchase
Agreement. Changes in our operating assets and liabilities consisted of a $0.2
million decrease in accrued expenses and other liabilities, a $0.1 million
increase in prepaid expenses and other current assets and a $0.2 million
increase in accounts payable. The decrease in accrued expenses and other
liabilities was primarily due to decreased accruals for research, development
and clinical trial work performed by our CROs and decreased accruals related to
non-income based taxes, partially offset by an increase in accrued consulting
and professional fees. The increase in prepaid expenses and other current assets
was primarily due to an increase in prepayments of our corporate insurance
policies. The increase in accounts payable was primarily due to the timing of
vendor invoices.
During the nine months ended September 30, 2020, operating activities used $20.1
million of cash, resulting from our net loss of $23.2 million, partially offset
by changes in our operating assets and liabilities of $1.2 million, net and
non-cash charges of $2.0 million. Changes in our operating assets and
liabilities for the nine months ended September 30, 2020 consisted of a $1.2
million increase in accrued expenses, a $0.3 million decrease in accounts
payable and a $0.3 million decrease in prepaid expenses and other current
assets. The increase in accrued expenses was primarily due to increased accruals
for research, development and clinical trial work performed by our CROs and
increased accruals related to professional fees. The decrease in accounts
payable was primarily due to the timing of vendor invoices. The decrease in
prepaid expenses and other current assets was primarily due to a refund of
prepayments made to one of our vendors, which we received in the first quarter
of 2020, partially offset by increases in prepaid expenses due to prepayments of
our corporate insurance policies. The non-cash charges for the nine months ended
September 30, 2020 consisted primarily of stock-based compensation expense of
$1.9 million.
Investing Activities
During the nine months ended September 30, 2021 and 2020, we used an
insignificant amount of cash in investing activities.
Financing Activities
During the nine months ended September 30, 2021, net cash provided by financing
activities was $7.0 million, primarily consisting of gross cash proceeds of
$7.7 million from sales of our common stock under the ATM Sales Agreement before
deducting estimated commissions and allocated fees of $0.6 million, partially
offset by payments of offering costs of $0.4 million and payments of financing
costs of $0.1 million associated with the First Amendment to the SVB Loan
Agreement.
During the nine months ended September 30, 2020, net cash provided by financing
activities was $16.1 million, primarily consisting of cash proceeds from the SVB
Term Loan of $14.0 million and gross cash proceeds of $2.5 million from sales of
our common stock under the ATM Sales Agreement, before deducting estimated
commissions and fees of $0.2 million.
Funding Requirements
We expect to incur substantial expenditures in the foreseeable future as we
advance Haduvio through clinical development, the regulatory approval process
and, if approved, commercial launch activities. Specifically, in the near term,
we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM
trial, the additional Phase 3 clinical trial we believe we will need to conduct
to support the submission of an NDA to the FDA and a MAA to the EMA for Haduvio
for the treatment of pruritus associated with prurigo nodularis, our ongoing
Phase 2 CANAL trial, the costs of commercialization activities, including
manufacturing capabilities, for Haduvio and other development activities
including potentially commencing Phase 2 clinical trials for the treatment of
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LID in patients with Parkinson's disease. In addition, we have incurred and may
continue to incur additional expenses as a result of the COVID-19 pandemic and
resulting clinical trial delays and interruptions. Furthermore, we expect to
continue to incur additional costs associated with operating as a public
company, including significant legal, accounting, investor relations and other
expenses.
We will need substantial additional funding to support our continuing operations
and pursue our growth strategy. Until such time as we can generate significant
revenue from sales of Haduvio, if ever, we expect to finance our operations
through public or private equity offerings, debt financings, collaborations and
licensing arrangements or other sources to achieve our business objectives.
Adequate additional financing may not be available to us on acceptable terms or
at all. Our future funding requirements, both short-term and long-term, will
depend on many factors, including:
• the scope, progress, timing, costs and results of clinical trials of
Haduvio for the treatment of pruritus associated with prurigo nodularis, as
well as the scope, progress, timing, costs and results of clinical trials
of Haduvio for other serious neurologically mediated conditions, including
our ongoing Phase 2b/3 PRISM trial and our ongoing Phase 2 CANAL trial, as
well as any future product candidates;
• the number and characteristics of indications for which we seek to develop
Haduvio or any future product candidates and their respective development
requirements;
• the outcome, timing and costs of clinical and nonclinical trials and of
seeking regulatory approvals, including the costs of supportive clinical
studies such as our planned human abuse liability, or HAL, study and a
potential Thorough QT, or TQT, study;
• the costs associated with the manufacture of necessary quantities of
Haduvio or any future product candidate for clinical development in
connection with regulatory submissions;
• the costs of commercialization activities for Haduvio for the treatment of
pruritus associated with prurigo nodularis or for any other serious
neurologically mediated conditions or for any future product candidates
that receive marketing approval, if any, including the costs and timing of
establishing product sales, marketing, distribution and manufacturing
capabilities;
• subject to receipt of marketing approvals, revenue, if any, received from
commercial sales of Haduvio for the treatment of pruritus associated with
prurigo nodularis or for any other serious neurologically mediated
conditions or from any future product candidates;
• our ability to identify potential collaborators for Haduvio for the
treatment of pruritus associated with prurigo nodularis or for any future
product candidates and the terms and timing of any collaboration agreement
that we may establish for the development and any commercialization of such
product candidates;
• the extent to which we acquire or in-license rights to other potential
product candidates or technologies and the terms and timing of any such
acquisition or licensing arrangements;
• our headcount growth and associated costs as we expand our research and
development activities and establish a commercial infrastructure;
• the costs of preparing, filing and prosecuting patent applications,
maintaining, expanding and protecting our intellectual property rights and
defending against intellectual property-related claims;
• the effect of competing technologies and market developments;
• our ability to establish and maintain healthcare coverage and adequate
reimbursement for our products;
• the costs of operating as a public company;
• our ability to continue as a going concern; and
• the impact of the COVID-19 pandemic on the scope, progress, timing, costs
and results of our ongoing and planned clinical trials of Haduvio.
We believe that our existing cash and cash equivalents, including the proceeds
from our October 2021 Private Placements, will enable us to fund our operating
expenses and capital expenditure requirements into the fourth quarter of 2022,
without giving effect to the rights of SVB under the SVB Loan Agreement if we
fail to achieve either of the Milestone Conditions or fail to maintain at least
$20.0 million in unrestricted and unencumbered cash in our accounts with SVB at
any time prior to the satisfaction of the Milestone Conditions. If we fail to
achieve any of the Milestone Conditions or to maintain the minimum cash
requirement and SVB cash collateralizes the amounts then owed to SVB under the
SVB Loan Agreement or uses such amounts to prepay the SVB Term Loan, the period
for which we will be able to fund our operating expenses and capital expenditure
requirements will be significantly shorter.
We have based our estimates as to how long we expect we will be able to fund our
operations on assumptions that may prove to be wrong and we could use our
available capital resources sooner than we currently expect, in which case we
would be required to obtain additional financing and financing may not be
available to us on acceptable terms, on a timely basis or at all. Our failure to
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raise capital as and when needed would have a negative impact on our financial
condition and our ability to pursue our business strategy.
We do not have any committed external source of funds. Accordingly, we will be
required to obtain further funding through public or private equity offerings,
debt financings, collaborations, licensing arrangements or other sources to
complete the clinical development and commercialization of Haduvio for pruritus
associated with prurigo nodularis or any other indication. If we raise
additional funds by issuing equity securities, our stockholders may experience
dilution. Any debt financing into which we enter would result in fixed payment
obligations and may involve agreements that include grants of security interests
on our assets and restrictive covenants that limit our ability to take specific
actions, such as incurring additional debt, making capital expenditures,
granting liens over our assets, redeeming stock or declaring dividends, that
could adversely impact our ability to conduct our business. For example, in
connection with the SVB Term Loan, we granted a security interest on all of our
assets, excluding our intellectual property, agreed to a negative pledge on our
intellectual property, agreed to restrictive covenants including, subject to
certain exceptions, covenants that prohibit us from transferring all or any part
of our business or property, changing our business, liquidating or dissolving,
merging with or acquiring another entity, entering into a transaction that will
result in a change in control, incurring additional indebtedness, creating any
lien on our property, paying dividends or redeeming stock, making payments on
subordinated debt or entering into material transactions with affiliates and
agreed to cash collateralize the SVB Term Loan in certain circumstances. Future
debt securities or other financing arrangements could contain similar or more
restrictive negative covenants. In addition, securing financing could require a
substantial amount of time and attention from our management and may divert a
disproportionate amount of their attention away from day-to-day activities,
which may adversely affect our management's ability to oversee the development
of our product candidates. Any debt financing or additional equity that we raise
may contain terms that could adversely affect our common stockholders.
If we are unable to raise sufficient capital as and when needed, we may be
required to delay, reduce or abandon our product development programs or
commercialization efforts. If we raise additional funds through collaborations
or marketing, distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to future revenue streams or product
candidates or grant licenses on terms that may not be favorable to us.
Critical Accounting Policies and Use of Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these
Condensed Consolidated Financial Statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the Condensed
Consolidated Financial Statements, as well as the reported expenses incurred
during the reporting periods. Our estimates are based on our historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe that the following critical accounting policies are most important to
understanding and evaluating our reported financial results: research and
development expense; stock-based compensation expense; income tax; and fair
value measurements. Our critical accounting policies are described in the notes
to the consolidated financial statements and under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Use of Estimates" in our Annual
Report on Form 10-K for the year ended December 31, 2020. During the nine months
ended September 30, 2021, there were no material changes to our critical
accounting policies.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements,
as defined in the rules and regulations of the SEC. See Note 11 to our Condensed
Consolidated Financial Statements included elsewhere in this Quarterly Report on
Form 10-Q for discussion regarding our commitments and contingent commitments.
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted Accounting Standards Update No. 2019-12-Income
Taxes (Topic 740), which simplifies the accounting for income taxes. The
adoption of the new guidance did not affect our Condensed Consolidated Financial
Statements.
Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements during the nine months ended
September 30, 2021 which could be expected to materially impact our Condensed
Consolidated Financial Statements.
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