UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019March 31, 2020
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number001-13467
HedgePath Pharmaceuticals,Inhibitor Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 30-0793665 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4830 W. Kennedy Blvd., Suite 600 Tampa, FL | 33609 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number (including area code):813-509-2417813-509-2420
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” inRule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act: None.
As of August 12, 2019May 1, 2020 there were 370,446,185 shares of company common stock issued and outstanding.
HedgePath Pharmaceuticals,Inhibitor Therapeutics, Inc.
Quarterly Report on Form10-Q
HEDGEPATH PHARMACEUTICALS,INHIBITOR THERAPEUTICS, INC.
AS OF JUNE 30, 2019MARCH 31, 2020 AND DECEMBER 31, 20182019
| (Unaudited) | (Unaudited) | |||||||||||||||
| June 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 2,025,200 | $ | 1,108,713 | $ | 302,688 | $ | 803,816 | ||||||||
Prepaid expenses | 38,007 | 41,296 | 48,239 | 42,450 | ||||||||||||
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Total current assets | 2,063,207 | 1,150,009 | 350,927 | 846,266 | ||||||||||||
Other long-term assets | 68,346 | 82,992 | 46,377 | 53,700 | ||||||||||||
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Total assets | $ | 2,131,553 | $ | 1,233,001 | $ | 397,304 | $ | 899,966 | ||||||||
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| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 195,348 | $ | 384,829 | $ | 154,240 | $ | 315,940 | ||||||||
Dividends payable | 99,178 | 99,945 | 150,685 | 100,822 | ||||||||||||
Other liabilities | 10,242 | 215,876 | 40,975 | 14,339 | ||||||||||||
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Total current liabilities | 304,768 | 700,650 | 345,900 | 431,101 | ||||||||||||
Deferred revenue, related party | 3,000,000 | 500,000 | 3,000,000 | 3,000,000 | ||||||||||||
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Total liabilities | 3,304,768 | 1,200,650 | 3,345,900 | 3,431,101 | ||||||||||||
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Commitments and contingencies (note 5) | — | — | ||||||||||||||
Stockholders’ (deficit) equity: | ||||||||||||||||
Stockholders’ deficit: | ||||||||||||||||
Series A Preferred Stock, $0.0001 par value; 500,000 shares authorized; no shares issued and outstanding | — | — | — | — | ||||||||||||
Series B Convertible, Redeemable, Preferred Stock, $0.0001 par value; 7,246,377 shares authorized; 5,797,102 shares issued and outstanding at June 30, 2019 and December 31, 2018 | 3,960,866 | 3,960,866 | ||||||||||||||
Series B Convertible, Redeemable, Preferred Stock, $0.0001 par value; 7,246,377 shares authorized; 5,797,102 shares issued and outstanding at March 31, 2020 and December 31, 2019 | 3,960,866 | 3,960,866 | ||||||||||||||
Undesignated Preferred Stock, $0.0001 par value; 2,253,623 shares authorized; no shares issued or outstanding | — | — | — | — | ||||||||||||
Common stock, $0.0001 par value; 500,000,000 shares authorized; 370,446,185 and 370,084,064 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively | 37,045 | 37,008 | ||||||||||||||
Common stock, $0.0001 par value; 500,000,000 shares authorized; 370,446,185 shares issued and outstanding at March 31, 2020 and December 31, 2019 | 37,045 | 37,045 | ||||||||||||||
Additionalpaid-in capital | 49,327,674 | 49,015,120 | 49,401,772 | 49,384,953 | ||||||||||||
Accumulated deficit | (54,498,800 | ) | (52,980,643 | ) | (56,348,279 | ) | (55,913,999 | ) | ||||||||
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Total stockholders’ (deficit) equity | (1,173,215 | ) | 32,351 | |||||||||||||
Total stockholders’ deficit | (2,948,596 | ) | (2,531,135 | ) | ||||||||||||
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Total liabilities and stockholders’ (deficit) equity | $ | 2,131,553 | $ | 1,233,001 | ||||||||||||
Total liabilities and stockholders’ deficit | $ | 397,304 | $ | 899,966 | ||||||||||||
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See notes to condensed financial statements
HEDGEPATH PHARMACEUTICALS,INHIBITOR THERAPEUTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
Revenues: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
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Expenses: | ||||||||||||||||||||||||
Research and development | 303,596 | 528,875 | 500,370 | 1,202,845 | ||||||||||||||||||||
Research and development expenses | 97,455 | 196,774 | ||||||||||||||||||||||
General and administrative | 331,904 | 355,531 | 926,730 | 856,377 | 287,987 | 594,826 | ||||||||||||||||||
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Total Expenses: | 635,500 | 884,406 | 1,427,100 | 2,059,222 | 385,442 | 791,600 | ||||||||||||||||||
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Loss from operations | (635,500 | ) | (884,406 | ) | (1,427,100 | ) | (2,059,222 | ) | (385,442 | ) | (791,600 | ) | ||||||||||||
Interest income | 2,809 | 2,490 | 8,121 | 6,712 | 1,025 | 5,312 | ||||||||||||||||||
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Net loss | $ | (632,691 | ) | $ | (881,916 | ) | (1,418,979 | ) | (2,052,510 | ) | (384,417 | ) | (786,288 | ) | ||||||||||
Preferred stock dividend | (49,863 | ) | (29,918 | ) | (99,178 | ) | (56,548 | ) | (49,863 | ) | (49,315 | ) | ||||||||||||
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Net loss applicable to common stockholders | $ | (682,554 | ) | $ | (911,834 | ) | (1,518,157 | ) | (2,109,058 | ) | $ | (434,280 | ) | $ | (835,603 | ) | ||||||||
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Basic and diluted net loss applicable to common stockholders per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
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Weighted average common stock shares outstanding – basic and diluted | 370,446,185 | 369,723,717 | 370,418,176 | 369,669,708 | 370,446,185 | 370,389,855 | ||||||||||||||||||
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See notes to condensed financial statements
HEDGEPATH PHARMACEUTICALS,INHIBITOR THERAPEUTICS, INC.
CONDENSED STATEMENTSSTATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018
(Unaudited)
| Preferred Stock – Series B | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balances, January 1, 2019 | 5,797,102 | $ | 3,960,866 | 370,084,064 | $ | 37,008 | $ | 49,015,120 | $ | (52,980,643 | ) | $ | 32,351 | |||||||||||||||
Issuance of common stock for payment of dividends on Preferred Stock | — | — | 362,121 | 37 | 99,909 | — | 99,946 | |||||||||||||||||||||
Stock based compensation | — | — | — | — | 131,031 | — | 131,031 | |||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | (49,315 | ) | (49,315 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (786,288 | ) | (786,288 | ) | |||||||||||||||||||
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Balances, March 31, 2019 | 5,797,102 | $ | 3,960,866 | 370,446,185 | $ | 37,045 | $ | 49,246,060 | $ | (53,816,246 | ) | $ | (572,275 | ) | ||||||||||||||
Stock based compensation | — | — | — | — | 81,614 | — | 81,614 | |||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | (49,863 | ) | (49,863 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (632,691 | ) | (632,691 | ) | |||||||||||||||||||
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Balances, June 30, 2019 | 5,797,102 | $ | 3,960,866 | 370,446,185 | $ | 37,045 | $ | 49,327,674 | $ | (54,498,800 | ) | $ | (1,173,215 | ) | ||||||||||||||
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| Mezzanine Equity Preferred Stock–Series B | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | Preferred Stock – Series B | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2018 | — | $ | — | 369,599,266 | $ | 36,960 | $ | 48,403,523 | $ | (48,273,920 | ) | $ | 166,563 | |||||||||||||||||||||||||||||||||||||||||||||
Sale of Preferred Stock and Common Stock warrants to related party, net (note 1) | 3,478,261 | 2,360,866 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2020 | 5,797,102 | $ | 3,960,866 | 370,446,185 | $ | 37,045 | $ | 49,384,953 | $ | (55,913,999 | ) | $ | (2,531,135 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | 16,819 | — | 16,819 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends, related party | — | — | — | — | — | (49,863 | ) | (49,863 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (384,417 | ) | (384,417 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
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Balances, March 31, 2020 | 5,797,102 | $ | 3,960,866 | 370,446.185 | $ | 37,045 | $ | 49.401,772 | $ | (56,348,279 | ) | $ | (2,948,596 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Preferred Stock – Series B | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2019 | 5,797,102 | $ | 3,960,866 | 370,084,064 | $ | 37,008 | $ | 49,015,120 | $ | (52,980,643 | ) | $ | 32,351 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for payment of dividends on Preferred Stock | — | — | 362,121 | 37 | 99,909 | — | 99,946 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | — | — | 75,000 | 7 | 208,236 | — | 208,243 | — | — | — | — | 131,031 | — | 131,031 | ||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | (26,630 | ) | (26,630 | ) | (49,315 | ) | (49,315 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (1,170,594 | ) | (1,170,594 | ) | — | — | — | — | — | (786,288 | ) | (786,288 | ) | ||||||||||||||||||||||||||||||||||||||||
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Balances, March 31, 2018 | 3,478,261 | 2,360,866 | 369,674,266 | $ | 36,967 | $ | 48,611,759 | $ | (49,471,144 | ) | $ | (822,418 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon warrant exercise | — | — | 100,000 | 10 | 11,990 | — | 12,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | 83,953 | — | 83,953 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | (29,918 | ) | (29,918 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | (881,916 | ) | (881,916 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2019 | 5,797,102 | $ | 3,960,866 | 370,446,185 | $ | 37,045 | $ | 49,246,060 | $ | (53,816,246 | ) | $ | (572,275 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Balances, June 30, 2018 | 3,478,261 | $ | 2,360,866 | 369,774,266 | $ | 36,977 | $ | 48,707,702 | $ | (50,382,978 | ) | $ | (1,638,299 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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See notes to condensed financial statements
HEDGEPATH PHARMACEUTICALS,INHIBITOR THERAPEUTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018
(Unaudited)
| Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||
Operating activities: | ||||||||||||||||
Net loss | $ | (1,418,979 | ) | $ | (2,052,510 | ) | $ | (384,417 | ) | $ | (786,288 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Stock based compensation | 212,645 | 292,196 | 16,819 | 131,031 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Prepaid expense and other assets | 17,935 | 35,243 | 1,534 | 2,467 | ||||||||||||
Accounts payable and other current liabilities | (395,114 | ) | (196,151 | ) | (135,064 | ) | (325,199 | ) | ||||||||
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Net cash used in operating activities | (1,583,513 | ) | (1,921,222 | ) | (501,128 | ) | (977,989 | ) | ||||||||
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Financing activities: | ||||||||||||||||
Proceeds from the exercise of common stock warrants | — | 12,000 | ||||||||||||||
Proceeds from the sale of preferred stock and common stock warrants, related party, net (note 1) | — | 2,360,866 | ||||||||||||||
Proceeds from advances of royalties, related party | 2,500,000 | — | ||||||||||||||
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Advances of royalties, related party | — | 1,000,000 | ||||||||||||||
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Net cash provided by financing activities | 2,500,000 | 2,372,866 | — | 1,000,000 | ||||||||||||
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Net change in cash and cash equivalents | 916,487 | 451,644 | (501,128 | ) | 22,011 | |||||||||||
Cash and cash equivalents at beginning of period | 1,108,713 | 344,113 | 803,816 | 1,108,713 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 2,025,200 | $ | 795,757 | $ | 302,688 | $ | 1,130,724 | ||||||||
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Non-cash financing activities: | ||||||||||||||||
Issuance of common stock for payment of preferred stock dividend | $ | 99,946 | $ | — | ||||||||||||
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Issuance of common stock for payment of Preferred Stock dividend | $ | — | $ | 99,946 | ||||||||||||
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Accrued, but unpaid dividends | $ | 99,178 | $ | 56,548 | $ | 49,863 | $ | 49,315 | ||||||||
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See notes to condensed financial statements
HEDGEPATH PHARMACEUTICALS,INHIBITOR THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018
(Unaudited)
| 1. | Corporate overview: |
Overview
The accompanying unaudited condensed financial statements of HedgePath Pharmaceuticals,Inhibitor Therapeutics, Inc., a Delaware corporation (the “Company”, “HPPI”“INTI”, “we”, “us” or similar terminology), have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2019,March 31, 2020, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018,2019, which are included in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2018,2019, which was filed with the SEC on March 7, 201930, 2020 (the “2018“2019 Annual Report”). The accompanying condensed balance sheet as of December 31, 20182019 has been derived from the audited financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements.
As used herein, the term “Common Stock” means the Company’s common stock, $0.0001 par value per share.
The results of operations for the three and six month periodsthree-month period ended June 30, 2019March 31, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year. Readers of this Quarterly Report are strongly encouraged to review the risk factors relating to the Company which are set forth in the 20182019 Annual Report and ourthe Company’s other filings with the SEC.
Nature of the Business and Background
The Company is a pharmaceutical development company that is seeking to discover, developfocused on developing and ultimately commercializecommercializing innovative therapeutics for patients with certain cancers and certainnon-cancerous proliferation disorders. The Company has also explored and expects to continue to explore acquiring or licensing other innovative preclinical and clinical stage therapeutics addressing unmet needs and orphan indications beyond cancer.
The Company’s current primary focus is on the development of therapies initially for prostate and also lung cancerscancer in the U.S. market after assigningutilizing SUBA-Itraconazole, a patented, oral formulation of the rights to its initial indication targeting basal cell carcinomadrug itraconazole currently approved by the U.S. Food and Drug Administration (“FDA”) and marketed as an anti-fungal, for which the Company holds an exclusive U.S. license in patients with Basal Cell Carcinoma Nevus Syndrome (“BCCNS”) tothe licensed field from the Company’s majority stockholder, Mayne Pharma Ventures Pty LtdLtd. (“Mayne Pharma”), in December 2018.
The Company’s primary proposed therapy. SUBA-Itraconazole is based upon the use of SUBA™-Itraconazole, which is a patented, oral formulation of the currently marketed anti-fungal drug itraconazole. SUBA-Itraconazole is licensed to the Company by Mayne Pharma on an exclusive basis in the United States in the field of certain cancers (including prostate(prostate and lung cancer) and certainnon-cancerous proliferation disorders pursuant to the Third Amended and Restated Supply and License Agreement (“Third Amended SLA”) between the Company and Mayne Pharma, dated December 17, 2018. Previously, the Company conducted a Phase 2b trial studying the use of SUBA-Itraconazole targeting basal cell carcinoma in patients with Basal Cell Carcinoma Nevus Syndrome (“SUBA-Itraconazole BCCNS”). Mayne Pharma assumed control of the clinical and regulatory program for SUBA-Itraconazole BCCNS in December 2018 (the “Third SLA”).pursuant to the Third Amended SLA in exchange for (among other consideration) a 9% quarterly cash royalty on future net sales, if any, of SUBA-Itraconazole BCCNS in the United States.
The Company demonstrated in its previous Phase 2b trial infor SUBA-Itraconazole BCCNS that the dosing of oral capsules of SUBA-Itraconazole affects the Hedgehog signaling pathway, a major regulator of many fundamental cellular processes, which, in turn, can impact the development and growth of cancers such as basal cell carcinoma. Itraconazole has been approved by the U.S. Food and Drug Administration (“FDA”)FDA for, and has been extensively used to, treat fungal infections and has an extensive history of safe and effective use in humans. The Company has developed, optioned and licensed intellectual property andknow-how related to the treatment of cancer patients using itraconazole and certain itraconazole analogues.
In November 2019, the Company filed an Investigational New Drug Application (“IND”) to commence Phase 2b testing of SUBA-Itraconazole as a treatment for late-stage, castrate resistant prostate cancer (this product candidate is referred to as SUBA-Itraconazole Prostate). In December 2019, the Company received authorization from FDA to launch such Phase 2b of SUBA-Itraconazole Prostate. The Company’s 2020 goal for SUBA-Itraconazole Prostate is (assuming it obtains adequate funding and assuming no material delays due to the novel coronavirus outbreak) to commence the human testing of SUBA-Itraconazole Prostate in conjunction with chemotherapy for the treatment of late-stage prostate cancer.
INHIBITOR THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(Unaudited)
| 1. | Corporate overview (continued): |
Manufacturing and Product Supply and Relationship with Mayne Pharma
The Company does not have any production facilities or manufacturing personnel. The Third Amended SLA provides for the supply to the Company of specially formulated capsules of SUBA-Itraconazole, manufactured by Mayne Pharma under cGMP (current good manufacturing practice) standards, for use by the Company in its clinical trials and for the future commercial supply following FDA approvals, if obtained.
Pursuant to the Third Amended SLA, Mayne Pharma is obligated to supply the Company with its patented formulation of SUBA-Itraconazole in a particular oral dose formulation for the treatment of human patients with certain cancers andnon-cancerous proliferation disorders for as long as the Third Amended SLA is in effect. The Company is required to perform specified development activities and to commercialize SUBA-Itraconazole for the treatment of cancer in the United States.
HEDGEPATH PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
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Overview of December 2018 Transactions with Mayne Pharma
On December 17, 2018 (the “Effective Date”), the Company entered into the following related agreements (collectively, the “Transaction Documents”):
An agreement, by and among the Company, and Mayne Pharma, and Mayne Pharma International, an affiliate of Mayne Pharma (the “Agreement”);
The Third Amended SLA, which amended and restated the Company’s Second Amended and Restated Supply and License Agreement with Mayne Pharma, dated as of May 15, 2015 (as amended immediately prior to the Effective Date, the “Second Amended SLA”); and
Amended and Restated Sublicense Agreement, by and between the Company and Mayne Pharma International, which amends and restates that certain Sublicense Agreement, dated August 31, 2015, between the Company and Mayne Pharma International, as amended.
In addition, pursuant to the terms of the Agreement, the Company and Mayne Pharma agreed to vote in favor of the adoption of an Amended and Restated Certificate of Designation (the “Amended and Restated COD”) for the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), which amended and restated the terms of the Series B Preferred Stock (originally issued to Mayne Pharma on January 8, 2018) to remove the redemption rights of the Series B Preferred Stock as described below. At June 30, 2019, all 5,797,102 outstanding shares the Series B Preferred Stock are held by Mayne Pharma.
The Transaction Documents resulted from negotiations regarding the existing right of Mayne Pharma under the Second Amended SLA to elect to assume control of the regulatory and clinical development program for SUBA-Itraconazole for the treatment of BCCNS (such product candidate “SUBA-Itraconazole BCCNS”) in exchange for a royalty on any future net sales of SUBA-Itraconazole BCCNS by Mayne Pharma in the United States if an FDA New Drug Application (“NDA”) was not accepted for filing by FDA by December 31, 2018 (subject to limited extension if the NDA were filed in December 2018). Based on unforeseen requirements imposed by FDA in September 2018, the Company determined that it would be unable to responsibly file the SUBA-Itraconazole BCCNS NDA by this deadline, and thus the Company commenced negotiations with Mayne Pharma to transfer SUBA-Itraconazole BCCNS in advance of December 31, 2018 on negotiated terms deemed beneficial to the Company.
The Transaction Documents were negotiated and approved on behalf of the Company by a special committee of disinterested, independent members of the Company’s Board of Directors (the “Board”) which was formed on October 26, 2018 for such purpose. The special Board committee consisted of three members of the Board who were each disinterested with respect to Mayne Pharma.
December 2018 Agreement with Mayne Pharma
Pursuant to the terms of the Agreement, on the Effective Date, Mayne Pharma (in its capacity as the holder of more than 50% of the outstanding voting securities of the Company) executed and delivered to the Company a stockholder consent which consented to the taking of the following actions: (a) the adoption of the Amended and Restated COD; (b) the election of each E. Brendan Magrab, W. Mark Watson, Dr. R. Dana Ono, Stefan J. Cross and Robert D. Martin (each a current member of the Board, except Brendan Magrab, who resigned effective June 30, 2019) to serve on the Board for aone-year term that expires at the next annual meeting of the Company’s stockholders or until his earlier death, resignation or removal; and (c) the approval of an increase in the size of the Company’s 2014 Equity Incentive Plan (as amended, the “EIP”) by 11,000,000 shares of common stock from 32,583,475 shares to 43,583,475 shares.
In addition, pursuant to the Agreement, for the period beginning on the Effective Date and ending three (3) years from the Effective Date, in the event that the Company asks its stockholders (whether at a meeting of stockholders or pursuant to a written consent of stockholders) to vote on or approve a proposal to effect a reverse split of the Company capital stock for the purpose of uplisting the common stock to a U.S. national securities exchange (a “Reverse Stock Split Proposal”), Mayne Pharma (on behalf of itself and its affiliates) agreed to vote or cause to be voted (in person, by proxy or by action by written consent, as applicable) all shares of the Company’s voting capital stock that either Mayne Pharma then owns or over which Mayne Pharma has voting control in favor of the adoption and approval of any such Reverse Stock Split Proposal. No assurances are given that the Company will seek an uplisting to a U.S. national securities exchange or implement a reverse stock split of its Common Stock.
HEDGEPATH PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
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Also, pursuant to the Agreement, Mayne Pharma consented and agreed (under the terms of agreements previously executed with the Company) to an increase in the number of shares of common stock that the Company may issue under the EIP to 17,624,000 shares from the previous limit of 6,624,000 shares, with the agreement and understanding that such increase will be utilized by the Company during the period from the Effective Date through December 31, 2021.
December 2018 - Third Amended and Restated Supply and License Agreement with Mayne Pharma
Pursuant to the Third Amended SLA, as of the Effective Date, Mayne Pharma assumed control of the regulatory and clinical development program for SUBA-Itraconazole BCCNS and immediately assumed responsibility for all expenses related to exploiting the SUBA-Itraconazole product in the BCCNS field, provided that the Company continues to be responsible for all liabilities related to the product in the United States prior to the Effective Date. The Third Amended SLA will continue in effect on an exclusive basis in the United States on substantially the same terms as were provided for under the Second Amended SLA, except as described below.
In consideration of the transfer to Mayne Pharma of the SUBA-Itraconazole BCCNS clinical data and regulatory rights, the Company will receive the following consideration:
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HEDGEPATH PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
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With respect to each Advance made by Mayne Pharma prior to the receipt of FDA approval of an NDA for SUBA-Itraconazole BCCNS, each $0.75 increment of each such Advance will be credited and set off against each $1.00 increment of Royalty owed to the Company, and with respect to each Advance made by Mayne Pharma following the receipt of FDA approval of an NDA for SUBA-Itraconazole BCCNS, each $0.85 increment of each such Advance will be credited and set off against each $1.00 increment of Royalty owed to the Company. In addition, if, prior to June 30, 2021, the Company has not fulfilled the Equity Funding Achievement, Mayne Pharma shall have the right to satisfy all of its remaining Royalty obligations by making a single lump sum payment to the Company in an amount equal to seventy percent (70%) of the fair market value of the remaining royalties payable to the Company as determined by an independent appraisal process. The Third Amended SLA also gives Mayne Pharma the right to convert the Company’s rights licensed from Mayne Pharma under the Third Amended SLA to anon-exclusive license if the FDA has not approved an NDA filed by the Company for the Product in part of the Field within eight (8) years from the Effective Date.
December 2018 Amended and Restated Sublicense Agreement
The Amended and Restated Sublicense Agreement amends and replaces a similar agreement entered into between the Company and Mayne Pharma International, dated as of May 15, 2015, under which Mayne Pharma International sublicensed to the Company the exclusive U.S. rights to two certain third-party patents relating to the use of itraconazole as a treatment for cancer andage-related macular degeneration. The Amended and Restated Sublicense Agreement amends the required payments to Mayne Pharma for certain development-related milestone payments related to SUBA-Itraconazole BCCNS and allows for the termination of the Amended and Restated Sublicense Agreement if the Third Amended SLA expires or is terminated.
| 2. | Liquidity and management’s plans: |
The Company had cash and cash equivalents of approximately $1.6$0.3 million as of August 12, 2019.March 31, 2020. Based on the Company’s current operational plan and budget, and taking into account the recent reduction in the Company’s salary obligations, as described in Note 6, the Company expects that it has sufficient cash to manage its business into the third quarter of 2020, although this estimation assumes the Company does not begin any clinical trials, acquire options or rights to additionalother drug development opportunities or otherwise face unexpected events, costs or contingencies, any of which could affect the Company’s cash requirements. Available resources may be consumed more rapidly than anticipated, potentially resulting in the need for additional funding. Additionally, and although named as only a nominal defendant in the civil action discussed in Note 5, the Company will have a role due to its technical connection with the matter in dispute. Extended legal proceedings could drain valuable time and resources away from the Company’s operations (including clinical and pre-clinical programs) and may also impede any future efforts to raise additional capital.
The Company intends to finance additional research and development, commercialization and distribution efforts and its working capital needs primarily through:
proceeds from public and private financings (including, most recently, financing from our majority shareholder, Mayne Pharma) and, potentially, from other strategic transactions;transactions (including potential royalty-related financing transactions);
royalty revenue from Mayne Pharma from sales in the U.S. of SUBA-Itraconazole BCCNS upon and assuming approval by FDA (after earned royalties have been applied to any advances dueroyalties advanced under Third Amended SLA)SLA, although it is uncertain if and when such FDA approval will be obtained);
proceeds from the exercise of outstanding warrants previously issued in private financings to investors (including, potentially, warrants held by our majority shareholder, Mayne Pharma);investors;
potential partnerships with other pharmaceutical companies to assist in the supply, manufacturing and distribution of our products for which we would expect to receive upfront milestone and royalty payments;
potential licensing and joint venture arrangements with third parties, including other pharmaceutical companies where we would receive funding based onout-licensing our product; and
government or private foundation grants or loans which would be awarded to us to further develop our current and future anti-cancer therapies.therapies, or government payroll protection or similar programs available as a result of the novel coronavirus outbreak.
However, there is a risk that none of these plans will be implemented in a manner necessary to sustain the Company for an extended period of time and that the Company will be unable to obtain additional financing when needed on commercially reasonable terms, if at all. In particular, the Company is presently subject to shareholder litigation (see Note 5 – Legal Proceedings). The existence of the Action and the Class Action (as defined below) and the uncertainty surrounding their outcome has impeded the Company’s ability to secure additional funding and may continue to do so for so long as the outcome of the Action and the Class Action is uncertain. While the Company believes the Company may have further clarity on the Action during the third quarter of 2020 when the court in which the Action is pending is anticipated to rule on the defendants’ motion to dismiss, such ruling may be adverse to the defendants or create additional uncertainties or may be further delayed due to the novel coronavirus outbreak, which could continue to hamper the Company’s ability to raise capital. If adequate funds are not available when needed, the Company may be required to significantly reduce
HEDGEPATH PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
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or refocus operations or to obtain funds through arrangements that may require the Company to relinquish rights to technologies or potential markets, any of which could have a material adverse effect on the Company, its viability, its financial condition and its results of operations beyond the third quarter of 2020.Company. In addition, on January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization (“WHO”) declared the novel coronavirus outbreak a lackpublic health emergency of adequate fundsinternational concern and on March 12, 2020 the WHO announced the outbreak was a pandemic. On January 31, 2020 the U.S. Health and Human Services Secretary declared a public health emergency, and subsequently state and local governments have imposed various restrictions on public activity. The Company has maintained operations virtually during the outbreak, but the impact of the outbreak currently is unknown and rapidly evolving. The related health crisis has adversely affected the U.S. and global economy, resulting in an economic downturn that has impacted the financial markets and the Company’s ability to raise capital.
INHIBITOR THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(Unaudited)
| 2. | Liquidity and management’s plans (continued): |
As a result of the foregoing circumstances, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may forceresult should the Company be unable to cease operations.continue as a going concern.
| 3. | Summary of Significant Accounting Policies: |
Estimates
The preparation of condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Revenue Recognition
The Company currently has no ongoing source of revenues. Miscellaneous income, including interest, is recognized when earned by the Company. Deferred revenue represents cash received for royalties in advance of being earned. Such payments are reflected as deferred revenue until recognized under the Company’s revenue recognition policy. Deferred revenue would be classified as current if management believes the Company will be able to recognize the deferred amount as revenue within twelve months of the balance sheet date. Deferred revenue will be recognized when the product is sold and the related royalty is earned. Currently,Since all deferred revenue is related to the SUBA-Itraconazole BCCNS product which is yet to be approved by FDA. As such,FDA, the Company has determined that 100% of the advances of the royalty received by Mayne Pharma should be classified as anon-currentnon-current. liability. At June 30,March 31, 2020 and December 31, 2019, deferred revenue consisted of $3.0 million of royalties advanced by Mayne Pharma under the Third Amended SLA. There was $0.5 million in deferred revenue at December 31, 2018.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At times, the Company may maintain cash balances in excess of Federal Deposit Insurance Corporation insured amounts which is $250,000 for substantially all depository accounts. As of June 30, 2019,March 31, 2020, the Company had approximately $1.8 million inno excess of the amount covered by Federal Deposit Insurance Corporation with one financial institution.Corporation.
Research and Development Expenses
Research and development costs are expensed in the period in which they are incurred and include the expenses paid to third parties who conduct research and development activities on behalf of the Company and purchasedin-process research and development.
Stock-Based Compensation
The Company accounts for stock-based awards to employees andnon-employees using Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 – Accounting for Share-Based Payments, which provides for the use of the fair value based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Fair values of restricted stock units issued are determined by the Company based predominantly on the trading price of the common stock on the date of grant. Fair value of each common stock option is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatility is based on historical volatility of a peer group’s common stock and other factors estimated over the expected term of the options. The expected term of the options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield.
In applying the Black-Scholes option pricing model for options issued in February 2019 and June 2019March 2020 that vest in February 2020,on the first anniversary of the grant date, the assumptions were as follows: expected price volatility of 85.4% and 85.33%, respectively;97.4%; risk-free interest rate of 2.51% and 1.83%, respectively;0.52%; weighted average expected life in years of 6 and 5 years, respectively;5.5; and no dividend yield. The value of these awards is based upon their grant-date fair value. That cost is recognized over the period during which the employee is required to provide service in exchange for the award. Forfeitures are recorded as incurred.
HEDGEPATH PHARMACEUTICALS,INHIBITOR THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2020 AND 2019 AND 2018
(Unaudited)
| 3. | Summary of Significant Accounting Policies (continued): |
Income Taxes
Deferred tax assets and liabilities are recognized for future tax consequences attributed to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that are expected to apply to the differences in the periods that they are expected to reverse. These differences occur primarily in share-based compensation.
Recent accounting pronouncements:
In February 2016, the FASB issued ASU2016-02, “Leases,” which created a new Topic, ASC Topic 842 and established the core principle that a lessee should recognize the assets, representingrights-of-use, and liabilities to make lease payments, that arise from leases. For leases with a term of 12 months or less, a lessee is permitted to make an election under which such assets and liabilities would not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term. This standard was effective for the Company beginning in 2019 and was adopted by the Company for the year beginning January 1, 2019. The Company has evaluated the impact of this guidance on its financial statements and has determined that it had no material impact, as the Company has no leasing arrangements with terms greater than 12 months.
Management has considered all recent accounting pronouncements issued, but not effective, and does not believe that they will have a significantmaterial impact on the Company’s financial statements.
| 4. | Stockholders’ Equity: |
Employee Stock Plans
On March 20, 2020, members of the Company’s Board of Directors were awarded 4.5 million stock options pursuant to the 2014 Equity Incentive Plan (the “EIP”) with an exercise price of $0.05 and a Black-Scholes value of $0.038 that vest on the first anniversary of the grant date. The grant date fair value of common stock options was determined using the Black-Scholes model on the date of issuance and the number of shares expected to vest. The total Black-Scholes value of the March 20, 2020 stock options grants was approximately $0.2 million.
On February 3, 2019, members of the Company’s Board membersof Directors were awarded approximately 3.0 million stock options pursuant to the EIP with an exercise price of $0.076 and grant date fairBlack-Scholes value of $0.054 that vest on the first anniversary of the grant date. The grant date fair value of common stock options was determined using the Black-Scholes model on the date of issuance and the number of shares expected to vest. The total grant date fairBlack-Scholes value of the February 3, 2019 stock optionoptions grants was approximately $0.2 million.
On June 3,December 12, 2019, a new member of the Company issued 25,000Company’s Board of Directors was awarded 210,000 stock options to its newly appointed Chairman of the Board pursuant to the EIP with an exercise price of $0.073$0.05 and grant date fairBlack-Scholes value of $0.05$0.029 that vestvested on February 3, 2020. The grant date fair value of common stock options was determined using the Black-Scholes model on the date of issuance and the number of shares expected to vest. The total grant date fairBlack-Scholes value of the June 3,December 12, 2019 stock option grantsoptions grant was approximately $1,250.$6,090.
Total stock-based compensation for the sixthree months ended June 30, 2019March 31, 2020 was approximately $0.2$0.02 million and is related to common stock options issued pursuant to the EIP in 20182019 and 2019.2020 as mentioned above. The expense is classified as general and administrative expense in the accompanying condensed statements of operations. As of June 30, 2019,March 31, 2020, there were 5,422,6859,502,685 outstanding common stock options under the EIP of which 3,424,0005,002,685 were vested. There was approximately $0.1$0.2 million in unamortized stock-based compensation at June 30, 2019.March 31, 2020.
| 5. | Legal Proceedings: |
SubsequentThe Company may from time to time become a party to various legal proceedings arising in the period end, onordinary course of business. Except as discussed below, the Company is not the subject of any pending legal proceedings.
On July 9, 2019, Hedgepath, LLC (“HPLLC”), a significant minority stockholder of the Company and an investment vehicle associated with the Company’s former Executive Chairman, filed a civil action captionedHedgepath, LLC v. Magrab, et alal.., Civil ActionNumber2019-0529-JTL, in the Delaware Court of Chancery (the “Action”) against the Company’s directors and President and Chief Executive Officer, and a former director (collectively the “Individual Defendants”). On September 27, 2019, the Individual Defendants and Mayne Pharma each filed a motion to dismiss the Action.
On December 3, 2019, HPLLC filed the Verified Amended and Supplemental Complaint. In the complaintComplaint in the Action, purportedly brought directly and derivatively on behalf of the Company, HPLLC alleges claims for breach of fiduciary duty, declaratory judgement, and dilution of stockholder equity, against the Company’s directors and President and Chief Executive Officer, a former director of the Company,Individual Defendants and Mayne Pharma in connection with (i) the previously announced issuance of certain Company equity securities to Mayne Pharma on or about January 8, 2018, (ii) Mayne Pharma’s alleged influence over the timing and conduct of the Company’sprevious clinical trialstrial of SUBA-Itraconazole for the treatment of BCCNS, and (iii) previously announced amendments to the Supply and License Agreement, as amended (presently memorialized at the Third Amended SLA), between the Company and Mayne Pharma and certain transactions contemplated thereby. The complaintComplaint also alleges claims for breach of fiduciary duty and fraudulent misrepresentation in connection with allegedly false and misleading statements included in Company press releases and filings with the SEC. The complaintComplaint seeks unspecified damages, equitable and other relief from the defendants. The Company’s director and officer insurance has
INHIBITOR THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(Unaudited)
| 5. | Legal Proceedings (continued): |
reimbursed all of the Company’s legal costs to date from HPLLC’s initial inquiry related to this matter. Legal costs associated directly with the Company as a nominal defendant will be payable by the Company until certain retention amounts are reached. Such costs have been nominal through March 31, 2020 and are included in general and administrative expenses for the current period.
On January 10, 2020, the Individual Defendants and Mayne Pharma each filed a motion to dismiss the Complaint. Those motions are pending as of the date of this Report, and a hearing on those motions was scheduled on March 26, 2020, but was postponed to June 2020 due to the coronavirus outbreak. The Company believes it may have further clarity on this matter during the third quarter of 2020 when the court in which the Action is pending is anticipated to rule on the defendants’ motion to dismiss. However, due to the coronavirus outbreak, there can be no certainty that the court in which the Action is pending will rule on the defendants’ motion to dismiss during the third quarter of 2020.
The Company believes the Action is legally and factually baseless, and the named director and officer defendantsIndividual Defendants intend to defend themselves vigorously.
Additionally, on March 23, 2020, a Stockholder Class Action Complaint was filed in the Delaware Court of Chancery by a Company stockholder and purported class representative Samuel P. Sears, commencing litigation captioned Sears v. Magrab et al., C.A. No.2020-0215-JTL (the “Class Action”). The Class Action followed a request for, and subsequent provision of, certain books and records of the Company may from timepursuant to time become8 Del. C. § 220. The defendants named in the Class Action are identical to those named in the Action, with the exception that the Company is not a party to various legal proceedings arisingthe litigation. The Class Action asserts two direct breach of fiduciary dutyclaims-one against Mayne, the other against the IndividualDefendants-and the facts underlying those claims almost entirely mirror those alleged in the ordinary courseAction.
The Company believes the Class Action is legally and factually baseless, and the Individual Defendants intend to defend themselves vigorously.
| 6. | Subsequent events |
On April 10, 2020, the Compensation Committee of business.the Board of Directors of the Company (the “Committee”) approved a reduction in the annual base salaries for each of Nicholas J. Virca, the Company’s President and Chief Executive Officer (“Virca”), and Garrison J. Hasara, the Company’s Chief Financial Officer, Treasurer, Secretary and Chief Compliance Officer (“Hasara”) in order to allow the Company to preserve cash resources and to compensate Virca and Hasara in a manner commensurate with their current respective levels of activity with the Company. Accordingly, effective as of the regular pay period following the Committee’s approval, Virca’s annual base salary was reduced from $270,000 to $120,000, and Hasara’s annual base salary was reduced from $202,500 to $180,000. Aside from the reductions in annual base salary, there were no changes made to the Virca and Hasara employment letter agreements, dated December 31, 2018 and later modified on or about June 14, 2019 and December 31, 2019.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis should be read in conjunction with the Condensed Financial Statements and Notes thereto included elsewhere in this Quarterly Report. This discussion contains certain forward-looking statements that involve risks and uncertainties. The Company’s actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in the Company’s other filings with the SEC. See “Cautionary Note Regarding Forward Looking Statements” below.
As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, unless otherwise indicated, the terms “the Company”, “we”, “us”, “our” and similar terminology refer to HedgePath Pharmaceuticals,Inhibitor Therapeutics, Inc.
Critical Accounting Policies
See Note 3 of the Notes to Condensed Financial Statements included in Item 1 of this Quarterly Report for a summary of significant accounting policies and information on recently issued accounting pronouncements.
Results of Operations
For the three months ended June 30, 2019March 31, 2020 compared to the three months ended June 30, 2018March 31, 2019
Research and Development Expenses. We recognized approximately $0.3$0.1 million in research and development expenses during the three months ended June 30, 2019March 31, 2020 compared to approximately $0.5$0.2 million for the three months ended June 30, 2018.March 31, 2019. Research and development expenses for the three months ended June 30,March 31, 2020 primarily included salary expenses and expenses related tofollow-up with the FDA on the Investigational New Drug application for use of SUBA-Itraconazole for prostate cancer that was cleared by the FDA in late 2019. The expenses for the three months ended March 31, 2019 primarily included salary expenses and expenses related to preparation for the filing of an Investigational New Drug application for use of SUBA-Itraconazole for prostate cancer. The expenses for the three months ended June 30, 2018 primarily included salary expenses, stock-based compensation, and expenses related to our clinical trial for BCCNS which concluded in 2018. Other expenses in both periods included legal expenses relating to patents and clinical trial insurance. The decrease of $0.2 million is due primarily to a reduction in clinical trial related expenses as a result of Mayne Pharma assuming control of the regulatory and clinical development program for SUBA-Itraconazole BCCNS in December 2018 and immediately assuming responsibility for all expenses related to exploiting the SUBA-Itraconazole BCCNS product in the BCCNS field in exchange for a 9% quarterly cash royalty and other considerations as discussed in Note 1.
General and Administrative Expenses. We recognized approximately $0.3 million in general and administrative expenses during the three months ended June 30,March 31, 2019 compared to $0.4$0.6 million for the three months ended June 30,March 31, 2018. General and administrative expenses consisted primarily of compensation and related costs for corporate administrative staff and Board members, facility expenditures, professional fees, consulting and taxes. The decrease is due primarily to a decrease in legal fees duringwages as a result in the reduction in the number of employees as well as a reduction in stock compensation expense due to the timing of the vesting of issued stock options. Our expenses are expected to decrease further in the second quarter ended June 30, 2019.of 2020 due to the decrease in salaries of our Chief Executive Officer and our Chief Financial Officer.
Interest Income.We recognized interest income of $2,809$1,025 during the three months ended June 30, 2019March 31, 2020 compared to $2,490$5,312 for the three months ended June 30, 2018March 31, 2019 for interest earned on cash balances in our money market account.
For the six months ended June 30, 2019 compared to the six months ended June 30, 2018
Research and Development Expenses. We recognized approximately $0.5 million in research and development expenses during the six months ended June 30, 2019 compared to approximately $1.2 million for the six months ended June 30, 2018. Research and development expenses for the six months ended June 30, 2019 primarily included salary expenses and expenses related to preparation for the filing of an Investigational New Drug application for use of SUBA-Itraconazole for prostate cancer. The expenses for the six months ended June 30, 2018 primarily included salary expenses, stock-based compensation, and expenses related to our clinical trial for BCCNS which concluded in 2018. Other expenses in both periods included legal expenses relating to patents and clinical trial insurance. The decrease of $0.7 million is due primarily to a reduction in clinical trial related expenses as a result of Mayne Pharma assuming control of the regulatory and clinical development program for SUBA-Itraconazole BCCNS in December 2018 and immediately assuming responsibility for all expenses related to exploiting the SUBA-Itraconazole BCCNS product in the BCCNS field in exchange for a 9% quarterly cash royalty and other considerations as discussed in Note 1.
General and Administrative Expenses. We recognized approximately $0.9 million in general and administrative expenses during the six months ended June 30, 2019 compared to $0.9 million for the six months ended June 30, 2018. General and administrative expenses in both periods consisted primarily of compensation and related costs for corporate administrative staff and Board members, facility expenditures, professional fees, consulting and taxes.
Interest Income.We recognized interest income of $8,121 during the six months ended June 30, 2019 compared to $6,712 for the six months ended June 30, 2018 for interest earned on cash balances in our money market account.
Liquidity and Capital Resources
We had approximately $0.3 million cash and cash equivalents of approximately $1.6 million as of August 12, 2019.on hand at March 31, 2020. Based on our current operational plan and budget, and taking into account the recent reduction in our salary obligations, we expect that we will have sufficient cash to manage our business into the third quarter of 2020, although this estimation assumes we do not begin any clinical trials, acquire options or rights to additionalother drug development opportunities or otherwise face unexpected events, costs or contingencies, any of which could affect the Company’sour cash requirements. Available resources may be consumed more rapidly than anticipated, potentially resulting in the need for additional funding. Additionally, and although named as only a nominal defendant in the civil action discussed in Note 5 in the accompanying financial statements, the Company will have a role due to its technical connection with the matter in dispute. Extended legal proceedings could drain valuable time and resources away from the Company’s operations (including clinical and pre-clinical programs) and may also impede any future efforts to raise additional capital.
We intend to seek additional financing for our research and development, commercialization and distribution efforts and our working capital needs primarily through:
proceeds from public and private financings and, potentially, from other strategic transactions (including most recently,potential royalty-related financing from our majority shareholder, Mayne Pharma)transactions);
royalty revenue from Mayne Pharma from sales in the U.S. of SUBA-Itraconazole BCCNS upon approval by FDA (after earned royalties have been applied to any royalties advanced under the Supply and License Agreement)Agreement, although it is uncertain if and when such FDA approval will be obtained);
proceeds from the exercise of outstanding warrants previously issued in private financings to investors (including, potentially, warrants held by our majority shareholder, Mayne Pharma);investors;
potential partnerships with other pharmaceutical companies to assist in the supply, manufacturing and distribution of our products for which we would expect to receive upfront milestone and royalty payments;
potential licensing and joint venture arrangements with third parties, including other pharmaceutical companies where we would receive funding based onout-licensing our product; and
government or private foundation grants or loans which would be awarded to us to further develop our current and future anti-cancer therapies.therapies, or government payroll protection or similar programs available as a result of the coronavirus outbreak.
However, there is a risk that none of these plans will be implemented in a manner necessary to sustain our operations for an extended period of time and that we will be unable to obtain additional financing when needed on commercially reasonable terms, if at all. In particular, we are presently subject to shareholder litigations (see Note 5 – Legal Proceedings in the accompanying unaudited financial statements). The existence of the Action and the Class Action (as defined in such note) and the uncertainty surrounding their outcome has impeded our ability to secure additional funding and may continue to do so for so long as the outcome of the Action and the Class Action is uncertain. While we believe we may have further clarity on the Action during the third quarter of 2020, when the court in which the Action is pending is anticipated to rule on the defendants’ motion to dismiss, such ruling may be adverse to the defendants or create additional uncertainties or may be further delayed due to the novel coronavirus outbreak, which could continue to hamper the our ability to raise capital. If adequate funds are not available when needed, we may be required to significantly reduce or refocus operations or to obtain funds through arrangements that may require us to relinquish rights to technologies or potential markets, any of which could have a material adverse effect on our company, our viability, our financial condition and our results of operations beyond the third quarter of 2020. us.
In addition, on January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization (WHO) declared the novel coronavirus outbreak a lackpublic health emergency of adequate funds may force usinternational concern and on March 12, 2020 the WHO announced the outbreak was a pandemic. On January 31, 2020 the U.S. Health and Human Services Secretary declared a public health emergency, and subsequently state and local governments have imposed various restrictions on public activity. The Company has maintained operations virtually during the outbreak, but the impact of the outbreak currently is unknown and rapidly evolving. The related health crisis has adversely affect the U.S. and global economy, resulting in an economic downturn that has impacted the financial markets and the Company’s ability to cease operations.raise capital.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not required for smaller reporting companies.None.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our secondfirst fiscal quarter of 20192020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (and the “Liquidity and Capital Resources” section thereof) and elsewhere may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to our plans, objectives, projections, expectations and intentions and other statements identified by words such as “projects”, “may”, “could”, “would”, “should”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans” or similar expressions. These statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties, including those detailed in our filings with the SEC. Actual results, including, without limitation: (i) our ability to develop and ultimately commercialize therapeutics, (ii) the application and availability of corporate funds and our need for future funds, or (iii) the timing for beginning, completion, and results of, clinical trials and the FDA’s review and/or approval and potential commercial launch of our products and product candidates and regulatory filings related to the same, or (iv) the results of pending litigation involving our company, may differ significantly from those set forth in the forward-looking statements. Such forward-looking statements also involve other factors which may cause our actual results, performance or achievements to materially differ from any future results, performance, or achievements expressed or implied by such forward-looking statements and to vary significantly from reporting period to reporting period. Such factors include, among others,
acceptance of our business model (namely the repurposing of a specialty formulation of the drug itraconazole for the treatment of cancer or other diseases, and the potential acquisition or license of other pharmaceutical technologies) by investors and potential commercial collaborators;
the uncertainties regarding the impact of the 2020 novel coronavirus outbreak and related governmental actions on our business model and our ability to implement our business;
our future capital requirements and our ability to satisfy our capital needs;
our ability to commence and complete required clinical trials of our product candidate and obtain approval from the FDA or other regulatory agencies in different jurisdictions;
the timing for resolution of any pending litigation involving our company, and the nature of any such resolution, if achieved;
matters associated with the fact that Mayne Pharma is our majority stockholder and key licensor and commercial partner;licensor;
our ability to secure and maintain key development and commercialization partners for our product candidate;
our ability to obtain, maintain or protect the validity of our owned or licensed patents and other intellectual property;
our ability to internally develop, acquire or license new inventions and intellectual property;
our ability to retain key executive members;
interpretations of current laws and the passages of future laws, rules and regulations applicable to our business; and
those risk factors listed under Item 1A of our 20182019 Annual Report and other factors detailed from time to time in our other filings with the SEC.
Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual future results will not be different from the expectations expressed in this Report. We undertake no obligation to publically update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
| Item 1. | Legal Proceedings |
On July 9, 2019, Hedgepath, LLC (“HPPLC”HPLLC”), a significant minority stockholder of ours and an investment vehicle associated with our former Executive Chairman, filed a civil action captionedHedgepath, LLC v. Magrab, et al., Civil ActionNumber2019-0529-JTL, in the Delaware Court of Chancery (the “Action”) against our directors and President and Chief Executive Officer, and a former director (collectively the “Individual Defendants”). On September 27, 2019, the Individual Defendants and Mayne Pharma each filed a motion to dismiss the Action.
On December 3, 2019, HPLLC filed the Verified Amended and Supplemental Complaint. In the complaintComplaint in the Action, purportedly brought directly and derivatively on behalf of us, HPLLC alleges claims for breach of fiduciary duty, declaratory judgement, and dilution of stockholder equity, against our directors and President and Chief Executive Officer, a former director of ours,the Individual Defendants and Mayne Pharma Ventures Pty Ltd., our majority stockholder (“Mayne Pharma”), in connection with (i) the previously announced issuance of certain of our equity securities to Mayne Pharma on or about January 8, 2018, (ii) Mayne Pharma’s alleged influence over the timing and conduct of ourthe previous clinical trials
trial of SUBA-Itraconazole for the treatment of Basal Cell Carcinoma Nevus Syndrome,BCCNS, and (iii) previously announced amendments to the Supply and License Agreement, as amended (presently memorialized at the Third Amended SLA), between us and Mayne Pharma and certain transactions contemplated thereby. The complaintComplaint also alleges claims for breach of fiduciary duty and fraudulent misrepresentation in connection with allegedly false and misleading statements included in our press releases and filings with the Securities and Exchange Commission.SEC. The complaintComplaint seeks unspecified damages, equitable and other relief from the defendants. Our director and officer insurance has reimbursed all of ourthe Company’s legal costs to date from HPLLC’s initial inquiry related to this matter. We believeLegal costs associated directly with the Company as a nominal defendant will be payable by us until certain retention amounts are reached. Such costs have been nominal through March 31, 2020 and are included in general and administrative expenses for the current period.
On January 10, 2020, the Individual Defendants and Mayne Pharma each filed a motion to dismiss the Complaint. Those motions are pending as of the date of this Report, and a hearing on those motions was scheduled on March 26, 2020, but was postponed due to the novel coronavirus outbreak to June 2020. The Company believes it may have further clarity on this matter during the third quarter of 2020 when the court in which the Action is legallypending is anticipated to rule on the defendants’ motion to dismiss. However, due to the coronavirus outbreak, there can be no certainty that the court in which the Action is pending will rule on the defendants’ motion to dismiss during the third quarter of 2020.
Additionally, on March 23, 2020, a Stockholder Class Action Complaint was filed in the Delaware Court of Chancery by a stockholder and factually baseless,purported class representative Samuel P. Sears, commencing litigation captionedSears v. Magrab et al., C.A. No.2020-0215-JTL (the “Class Action”). The Class Action followed a request for, and subsequent provision of, certain books and records of ours pursuant to 8 Del. C. § 220. The defendants named in the Class Action are identical to those named director and officer defendants intendin the Action, with the exception that Inhibitor Therapeutics, Inc. is not a party to defend themselves vigorously.the litigation. The Class Action asserts two direct breach of fiduciary dutyclaims-one against Mayne, the other against the IndividualDefendants-and the facts underlying those claims almost entirely mirror those alleged in the Action.
| Item 1A. | Risk Factors. |
Not required for smaller reporting companies.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| Item 3. | Defaults upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
| Item 5. | Other Information. |
Not applicable.
| Item 6. | Exhibits. |
Number | Description | |
| 31.1 | Certification of Chief Executive Officer Pursuant To Sarbanes-Oxley Section 302 | |
| 31.2 | Certification of Chief Financial Officer Pursuant To Sarbanes-Oxley Section 302 | |
| 32.1 | Certification Pursuant To 18 U.S.C. Section 1350 (*) | |
| 32.2 | Certification Pursuant To 18 U.S.C. Section 1350 (*) | |
| 101.ins | XBRL Instance Document | |
| 101.sch | XBRL Taxonomy Extension Schema Document | |
| 101.cal | XBRL Taxonomy Calculation Linkbase Document | |
| 101.def | XBRL Taxonomy Definition Linkbase Document | |
| 101.lab | XBRL Taxonomy Label Linkbase Document | |
| 101.pre | XBRL Taxonomy Presentation Linkbase Document | |
| * | A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. |
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ||||||
| Date: | By: | /s/ Nicholas J. Virca | ||||
| Nicholas J. Virca | ||||||
President and Chief Executive Officer (Principal Executive Officer) | ||||||
| Date: | By: | /s/ Garrison J. Hasara | ||||
Garrison J. Hasara, CPA | ||||||
Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||||
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